Unit 5

Marketing Channel Systems

Prof.Aniket S. Pardeshi
Starting Class with Case Study - 5
ways in which HUL wins in the
Marketplace.

https://www.youtube.com/watch?
v=fq6rVhyIyRA
Marketing channel refers to a way of making a product
available to distribute to the end consumers.

A marketing channel helps by getting the right products to

the right consumer in time for purchase.

This channel terminology falls under the P of physical

distribution in the four P's of the marketing mix.
Growing Importance of Marketing Channels

1.Explosion of information technology and E-commerce

2.Greater difficulty of gaining a sustainable competitive
advantage
3.Growing power of distributors, especially retailers in
marketing channels
4.The need to reduce distribution costs
1.Explosion of information technology and E-commerce

The introduction of E-commerce leads to a new types of

middlemen called ‘infomediaries’ along with cyber retailer
to connect buyers and sellers via the Internet.

E-commerce didn’t change everything, however it is now

merging with conventional channels in all business around
the world.
2.Greater difficulty of gaining a sustainable
competitive advantage

“Sustainable competitive advantage” is a competitive edge

that cannot be quickly/easily copied by competitors.

•The large number of offices makes it easy for clients in

thousands of communities in the U.S. as well as Canada and
England to visit an offices and get in-person advice and
assistance from professional brokers.
3.Growing power of distributors, especially retailers in
marketing channels

The economic power has shifted from the producers of

goods to the Distributors of goods especially the power
retailers. They play the role of ‘gatekeepers’ act as buying
agents for their customers rather than as selling agents for
manufacturers.
4.The need to reduce distribution costs

Sometimes distribution costs are higher than the

manufacturing cost or the cost of raw materials and
component parts. Therefore, the cost control in the
21stcentury will be marketing channels
Flows in Marketing Channels
Product flow:

Product flow is the actual physical movement of the

product from the manufacturer through all of the parties to
the consumer.

Negotiation flow:

Negotiation flow represents the interplay of the buying and

selling functions associated with the transfer of title or
rights of ownership. Negotiation is a two-way process
involving mutual exchange between buyer and seller.
Ownership flow

Ownership flow is the movement of the title of the product

from one stage in the process to another.

Information flow

Information flow involves two directions –from the

manufacturer to the consumer and from the consumer to
the manufacturer. This flow includes transportation as
information deemed necessary for the actual delivery of the
product is communicated to the transportation agents.
Promotion flow

Promotion flow refers to the flow of persuasive

communication in the form of advertising, personal selling,
sales promotion and publicity. This flow adds the advertising
agency as an element of promotion.
Channel Participants

The network includes manufacturers, retailers, wholesalers,

agents and brokers commonly known as channel
participants. These participants play a vital role in success
and failure of any business.
 The Environment of Marketing Channels

Marketing channels develop and operate in a complex

environment that is continually changing.

Channel managers must therefore have an understanding of

the environment and how it can influence channel
management in order to plan effective marketing channel
strategies for meeting these changes successfully.
 Major Environment
 Economic environment
 Competitive environment
 Sociocultural environment
 Technological environment
 Legal environment
Conflict in the Marketing Channel

Conflict exists when a member of the marketing channel

perceives that another member’s actions impeded the
attainment of his or her goals
A) Conflict versus Competition
Conflict in the marketing channel should not be confused
with competition.

Competition is behaviour that is object-centered, indirect,

and impersonal.

Conflict, on the other-hand, is direct, personal, and

opponent-centered behaviour.
B) Causes of Channel Conflict

a. Misunderstood communications
b. Divergent functional specializations and goals of channel
members
c. Failings in joint decision-making
d. Differing economic objectives
e. Ideological differences of channel members
f. Inappropriate channel structure
B) Causes of Channel Conflict
1. Role incongruities: Members of the marketing channel
have a series of roles they are expected to fulfill. If a
member deviates from the given role, a conflict situation
may result.

2. Resource scarcities: Sometimes conflict stems from a

disagreement between channel members over the
allocation of some valuable resources needed to achieve
their respective goals. A common example is between
manufacturers and retailers over “house accounts”.
Another example involves site selection in franchised
channels.

3. Perceptual differences: Perception refers to the way

an individual selects and interprets environmental stimuli.
The way such stimuli are perceived are often quite
different from objective reality.
4. Expectation differences: Various channel members
have expectations about the behavior of other channel
members. These expectations are predictions or forecasts
concerning the future behavior of other channel members.
Sometimes these forecasts turn out inaccurate, but the
channel member who makes the forecast will take action
based upon the predicted outcomes – thus channel conflict.

5. Decision domain disagreements: Channel members

explicitly or implicitly carve out for themselves an area of
decision-making that they feel is exclusively theirs. Hence,
conflicts arise over which member has the right to make
what decisions.

The area of pricing decision has traditionally been a

pervasive example of such conflict.
6. Goal incompatibilities: Each member of the marketing
channel has his or her own goals. The opening vignette of
the chapter concerning Amazon.com is an example of such
incompatible goals.

Amazon is trying to sell as much merchandise as possible

from whatever sources provide the most revenue and
profits to them. The CD, book or electronics firm who
advertises through Amazon.com wants Amazon.com to sell
their new products.

7. Communication difficulties: Communication is the

vehicle for all interactions among channel members,
whether such interactions are cooperative or conflicting.
Any foulup or breakdown in communications can quickly
turn cooperation into conflict.
 Simulation Method: Case Discussion

Considering yourself as a Sales Manager of New Holland

Tractors. Suggest a Distribution Channel Structure
considering the environmental condition and the flow of
Distribution should be at the way where conflict will not
take place.
C. Channel efficiency:

The degree to which the total investment in the various

inputs necessary to achieve a given distribution objective
can be optimized in terms of outputs.

The greater the degree of optimization of inputs in

carrying out a distribution objective, the higher the
efficiency and vice versa.
Channel Conflict and Channel Efficiency
Managing Channel Conflict

There are four generalizations regarding channel conflict:

1. Conflict is an inherent behavioral dimension in the

marketing channel.
2. Given the numerous causes from which conflict may stem, it
is a pervasive phenomenon in marketing channels.
3. Conflict can affect channel efficiency.
4. Various levels of conflict may have both negative and
positive effects on channel efficiency, or possibly no effect.
Channel managers must:

1. Detect conflicts or potential conflicts

2. Appraise the possible effects of conflicts
3. Resolve channel conflict
Three techniques are suggested:

 A channel wide committee, a sort of “crisis

management team”
 Joint goal setting by committee
 A distribution executive position created for each
major firm in the channel. The individual(s) filling this
position would be responsible for exploring the firm’s
distribution-related problems.
 Walk Through Pepsico

https://www.youtube.com/watch?v=CXDMIvOH2wU

https://www.youtube.com/watch?v=7Y2mZOS8wc4
Power in the Marketing Channel
Power: When we use this term in a marketing channel
context, we are referring to “the capacity of a particular
channel member to control or influence the behavior of
another channel member(s)”.
Bases of Power for Channel Control

A) Reward
B) Coercive
C) Legitimate
D) Referent
E) Expert
A) Reward Power This source of power refers to the
capacity of one channel member to reward another if
the latter conforms to the influence of the former.
This power base is present in virtually all channel
systems.

B) Coercive power is essentially the opposite of reward

power. In this case, a channel member’s power over
another is based on the expectation that the former
will be able to punish the latter upon failure to
conform to the former’s influence attempts.
C) Legitimate Power This power base stems from
internalized norms in one channel member which dictate
that another channel member has a legitimate right to
influence the first, and that an obligation exists to accept
that influence.

D) Referent Power: When one channel member perceives

his or her goals to be closely allied to, or congruent with,
those of another member, a referent power base is likely
to exist.
Hence, when this situation prevails, an attempt by one of
the channel members to influence the behavior of the
other is more likely to be seen by the latter as beneficial
to the achievement of his or her own goals.
E) Expert Power This base of power is derived from the
knowledge (or perception) that one channel member
attributes to another in some given area. In other words,
one channel member’s attempt to influence the other’s
behavior is based upon superior expertise.

Expert power is quite common in the marketing channel.

In franchised channels, expertise is a crucial power base
for the franchisor to influence franchisees.
 Using Power in the Marketing Channel

From the standpoint of the channel manager in

the producing or manufacturing firm, power must
be used to influence the behavior of channel
members toward helping the firm to achieve its
distribution objectives.

Identifying the Available Power Bases

Selecting and Using Appropriate Power Bases

 Communication Processes in the Marketing Channel

Communication has been described as “the glue that

holds together a channel of distribution”.

Communication activities undertaken by channel

members create a flow of information within the channel,
which is necessary for an efficient flow of products or
services throughout the channel.

Consequently, the channel manager must work to create

and foster an effective flow of information within the
channel.
 Behavioural Problems in Channel
Communications

A) Differences in goals between channel members

B) Differences in the kinds of language used to convey
information
 Other Behavioral Problems in Channel
Communications

A) Perceptual differences among channel members

B) Secretive behavior
C) Inadequate frequency of communication
BullWhip Effect
The bullwhip effect is a common problem that occurs in
retail supply chain management. It is the tendency of retail
buyers to overcompensate for situations in which the
company fails to meet or overestimates customer demand.
This effect goes against a common objective of supply
chain management, which is to create just-in-time product
availability without waste.

Through the numerous stages of a supply chain; key

factors such as time and supply of order decisions,
demand for the supply, lack of communication and
disorganization can result in one of the most common
problems in supply chain management. This common
problem is known as the bullwhip effect
Negative Consequences

 Stockouts
 Waste
 Changes in Buying Patterns
 Tense Supplier Relationships
What contributes to the bullwhip effect?

Disorganization between each supply chain link; with ordering larger or

smaller amounts of a product than is needed due to an over or under
reaction to the supply chain beforehand.

Lack of communication between each link in the supply chain makes it

difficult for processes to run smoothly. Managers can perceive a product
demand quite differently within different links of the supply chain and
therefore order different quantities.

Free return policies; customers may intentionally overstate demands due to

shortages and then cancel when the supply becomes adequate again,
without return forfeit retailers will continue to exaggerate their needs and
cancel orders; resulting in excess material.
Order batching; companies may not immediately place an order with their supplier;
often accumulating the demand first. Companies may order weekly or even monthly.
This creates variability in the demand as there may for instance be a surge in demand
at some stage followed by no demand after.

Price variations – special discounts and other cost changes can upset regular
buying patterns; buyers want to take advantage on discounts offered during
a short time period, this can cause uneven production and distorted demand
information.

Demand information – relying on past demand information to estimate

current demand information of a product does not take into account any
fluctuations that may occur in demand over a period of time.
Thank you…!!!