Designing And Integrated

Marketing Channels
 Distribution channels
• Distribution channels are intermediaries
used by the producers to bring their
products to the market.

• For example :- sells its car to

customer through dealer .

• So , Here dealer act as intermediate

between producer and customer .
 WHY ??
• Intermediaries bring greater efficiency in making
goods available to target markets.

• In other words, they matches the supply with the

demand.

• Most important benefit of using intermediaries is

that they provide economies. They reduce the
amount of work that must be done by both
producers and consumers.
 Marketing channels
• Marketing channels are the set of
interdependent organizations participating
in the process of making a product or
service available for use or consumption.
• Merchants
• Agents
• Facilitators
Importance of channels
 Push Strategy

• Producers induce intermediaries to carry,

promote and sell products and services to
end users through its sales force, trade
promotions and other means.
• Appropriate when:-
• 1. Brand loyalty is low
• 2. Brand choice made at stores
• 3. Product is an impulse item.
• 4. Product benefits are well understood.
 Pull strategy:-

Customers are persuaded through

promotional and advertising campaigns to
demand the product, which induces
intermediaries to order it from producer.
Appropriate when:-
• Brand loyalty is high.
• 2. High involvement product.
• 3. Brand distinction is possible.
• 4. Brand selection prior to purchase.
 Hybrid Channels / “Go-to
Markets”
• It occurs when a single firm uses two or
more marketing channels to reach
customer segments.
• • Example to understand:-
• HP uses:-
• 1. Sales force – large accounts.
• 2. Outbound telemarketing – medium size
• accounts.
• 3. Direct mail – small accounts.
• 4. Retailers – still smaller accounts.
• 5. Internet – specialty item orders
 Value network
• Demand-chain planning:- when a firm first
thinks of market and then design supply
chain backwards from market to firm.
• Value networks is a system of partnerships
and alliances that a firm creates to source,
augment and deliver its offerings to the
end user.
• A value network includes:-
1. Firm’s suppliers.
2. Its supplier’s supplier.
3. Its intermediate customers.
4. End customers.
 Role of channel members
• Forward flow of activity from company to
customer
• Backward flow of activity from customer to
company
• Both
 Number of Channel Levels :
a direct marketing channel ;
Zero level
 Has no intermediary levels.

 Here, the producer sells directly to consumers

 For e.g. sells its products door to

door or through home parties.

 An indirect marketing channel ;

 level-1 (retailer)
 Level-2 (wholesaler + retailer)

 Level-3 (wholesaler + jobber + retailer)

 Channel Behavior

• All channel firms should work together to be

successful.

• Each channel member is dependent on others.

• a Ford dealer (retailer) depends on the Ford

Motor Company to design cars that meet
consumer needs.
cont.....
• In turn, Ford depends on the dealer to
attract consumers, persuade them to buy
Ford cars, and service cars after the sale.

• The Ford dealer also depends on the other

dealers to create a good overall reputation
for the entire distribution channel.
 Conflicts …
• Although channel members are dependent
on one another, they often concentrate on
their short-term benefits.

• Channel conflict occurs when disagreement

among channel members on goals and
roles .
– Horizontal conflict; occurs among firms at the
same level of the channel. In other words, one
dealer may complain about the other.

– Vertical conflict; occurs among different levels of

the same channel. In other words, the producer
may complain about its dealers or vise versa.

– Eg : Between wholesaler and Retailer .

 So there are conflicts at all levels ……

To eradicate conflicts , Modern channel

management has evolved to develop

vertical marketing systems (VMS)

 Vertical Marketing Systems

• Vertical Marketing Systems (VMS) consists of

producers, wholesalers, and retailers acting as a
unified system - that seek to maximize profits for
whole channel.

• Here, one channel members-

⮚ owns the others,
⮚ has contracts with them or
⮚ use so much power that they all cooperate.

•
A conventional marketing channel versus a vertical marketing system
Types of Vertical Marketing Systems

V e r t ic a l
m a r k e t in g
s y s te m s (V M S )

C o rp o ra te C o n tra c tu a l A d m in is t e r e d
VM S VM S VM S

W h o le s a le r - R e t a ile r F r a n c h is e
s p o n s o re d c o o p e r a t iv e s o r g a n iz a t io n s
v o lu n t a r y
c h a in s
 Corporate VMS

 Combines successive stages of production and

distribution under single ownership.

 Breweries and petrol stations are examples.

 Contractual VMS
• Independent firms join contractually at different
levels to create efficiencies and economies .
• 3 types :
• Wholesaler-sponsored voluntary chains of
independent retailers organised to compete against
large organisations.
Eg: Coca-Cola bottler is a manufacturer-sponsored
wholesaler.

• Retailer co-operatives

• Franchisee
– retailer cooperatives; are contractual marketing
systems in which ;

– retailers organize a new or

– jointly owned business to carry on wholesaling and

possibly production.

– Eg ; Indian Coffee House , Mother Dairy , Karnataka

Milk Federation (KMF).
– franchise organizations; are contractual marketing
systems in which a channel member, called a franchiser,
links several stages in the production-distribution
process. There are three forms of franchisees;

• manufacturer-sponsored retailer franchisee system e.g.

Ford licenses dealers to sell its cars. The dealers are
independent business people who got sponsered by
manufacturer.

• manufacturer-sponsored wholesaler franchisee system e.g.

Coca-Cola licenses bottlers (wholesalers) in various markets
who buy Coca-Cola syrup concentrate and then carbonate,
bottle and sell the finished product to retailers in local markets.
• service-firm-sponsored retailer franchisee
system in which a service firm licenses the
retailers to bring its service to consumers.
• Example;
 Administered VMS
• One member of the channel is large and
powerful enough to coordinate the
activities of the other members without an
ownership stake.
• Examples ;
 Vertical Advantages…
• High operating Efficiency .

• Each layers has clearly defined functions

and responsibilities.

• Closely monitor and control .

 Horizontal Marketing Systems
• Horizontal marketing systems is a channel
arrangement in which two or more
companies at one level join together to
follow a new marketing opportunity.

• The major benefit is that companies

combine their capital, production
capabilities, marketing resources and
therefore accomplish more.
 Horizontal Advantages
• Greater satisfaction due to greater
freedom and autonomy .

• Provides streamline due to absence of

multiple structured layers .
THANK YOU