Marketing channels

Marketing Channel
A Set of interdependent organizations that helps to
make a product or service available for use or
consumption by the consumer or business user

Value delivery network

The network made up of company, suppliers,
distributors and ultimately customers who partner
with each other to improve the performance of the
entire system
Marketing Channel
Producing a product and making it available to buyers
requires building a relationship with not only
customers but also with the key suppliers and resellers
in the company supply chain
Supply chain consist of upstream and downstream.
Types of intermediaries
Merchants :
Agents:
Facilitators:
Channel functions and flow
Marketing channels perform the work of moving
goods from producers to consumers.
It overcomes the time , place , possession utility gaps
which separates goods/services from those who need
or want them.
Forward flow(storage, movement, title &
communication)
Backward flow(ordering & payments)
Channel functions and flow
In certain cases there are reverse flow channel wherein
the product moves back to company.
Besides products services also needs to be distributed.
Now service delivery has become easier due to
technology.
What work is performed by channel
members???????
Information
Negotiation
Financing
Risk taking
Marketing channels
Producer Producer Producer Producer

Consumer Retailer Wholesaler Agent

(Zero level)
Consumer Retailer Wholesaler
(One Level)
Consumer Retailer
(Two Level)
Consumer
(Three Level)
Zero level:
This is shortest channel of distribution as there is no
middlemen.
Direct distribution is normal practice in case of services.
One level:
Goods move directly from manufacturer to retailer and
finally to consumers.
Two level:
This is also known as traditional channel.
This is one popular and extensively used marketing
channel.
Three level:
In this level agent is appointed to distribute goods to
wholesaler.
Channel Integration & System
With the passage of time and changes in business
environment and strategies marketing channel
systems evolve and new wholesaling and retailing
emerged.
For the channel as a whole to perform well each
channel members role must be specified and channel
conflicts must be managed.
Failure of conventional distribution led to the
emergence of vertical, horizontal and multilevel
channel
Conventional Distribution channel
Vertical Marketing System
Vertical Marketing Systems (VMS) consists of
producers, wholesalers, and retailers acting as a unified
system - that seek to maximize profits for the whole
channel.
Here, one channel members owns the others, has

contracts with them or use so much power that they all

cooperate
Types of Vertical Marketing Systems
V ertic al
m ark etin g
s ys tem s (V M S )

C orp orate C on trac tu al A d m in is tered

VMS VMS VMS

W h oles aler- R etailer F ran c h is e

s p on s ored c oop eratives org an iz ation s
volu n tary
c h ain s
Vertical Marketing System
There are three major types of VMSs which has
different means for setting up leadership and
power in the channel;
Corporate VMS
Contractual VMS
 Franchise organizations
 Retailer cooperatives

 Wholesaler-sponsored voluntary chains

Administered VMS
Vertical Marketing System
1. Corporate VMS:
In a corporate VMS, production and distribution
stages are combined under single ownership, in order
to manage cooperation and conflict management
2. Administered VMS:
A vertical marketing system that coordinates production
and distribution stages, not through common ownership or
contractual ties, but through the size and power of one of
the parties.
Vertical Marketing System
Manufactures of top brand can obtain strong co
operation and support from retailers.
3. Contractual VMS:
A contractual VMS consists of independent firms at
different levels of production and distribution who join
together through contracts to obtain more economies or
sales impact than each could achieve alone.
There are three types of contractual VMS:
Vertical Marketing System
franchise organizations; are contractual marketing
systems in which a channel member, called a franchiser,
links several stages in the production-distribution
process. The following are the forms of franchisees;
 manufacturer-sponsored retailer franchise system
 service-firm-sponsored retailer franchise system
Vertical Marketing System
retailer cooperatives; are contractual marketing systems
in which retailers organize a new, jointly owned business
to carry on wholesaling and possibly production.
Retailers get rebate towards the end of the year.
wholesaler-sponsored voluntary chains; are contractual
marketing systems in which wholesalers organize
voluntary chains of independent retailers to help them
compete with large corporate chain organizations.
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.
They might work with each other on a temporary or

permanent basis or they may create a separate company.

Multichannel Marketing System
Hybrid marketing systems is also called multichannel

distribution systems where the company uses several

marketing channels (e.g. direct mail - telemarketing,
retailers, distributors, dealers, own sales force) to sell its
products to different customer segments.
In Past many companies used a single channel to sell its

product.
Multichannel Marketing System
Types of conflicts
Vertical level conflict:
Conflicts between different levels of the same channel

Horizontal conflict:
Conflict at same level between channel members

Multichannel level conflict:

Sometimes middlemen come in conflict with the

manufacturer, using both direct and indirect means of

distribution.
Causes of conflict
Goals incompatibility:
A major factor causing conflict between manufacturer and

other channel members is the perceived goal incompatibility

between them.
Role ambiguity:
Many a times conflicts occur because of role ambiguity.
Causes of conflict
Difference in perception of the market:
Difference in perception of the market may also create

conflict between manufacturer and channel members.

Magnitude of conflicts: seriousness of conflicts
Channel Design Decision
In designing marketing channels manufacturers struggle

a lot.
A new firm with limited capital starts by selling in a

limited market area.

Deciding on the best channels is not a problem.

In case of smaller markets firm may sell directly whereas

in case of larger markets it may sell through distributors.

Channel Design Decision
A company needs to understand as to what kind of

marketing strategy it wants to implement whether push

strategy or pull strategy .
Push strategy works best in case of low cost, low

involvement and impulse products.

Pull strategy works best in case of high cost and high

involvement products.
Channel Design Decision
In may also happen in case of similar kind of product two

different companies are following different strategies.

Designing a channel system include;
analysing consumer service needs

setting the channel objectives and constraints

identifying the major channel alternatives

evaluating the major alternatives

Channel Design Decision
I) .Analyzing consumer needs:
Designing marketing channel starts with finding what target

consumers want from channel member.

Channel produce 5 service output levels:

1. Lot size:
The number of units the channel permits to a customer to

purchase at one occasion.

The length of channel depends upon requirement of customers.
Channel Design Decision
2.Service back up:
Add on services provided by the channel.

3. Product variety:
Marketing channel should provide wide variety of products.

4.Waiting and delivery time:

Customers prefer faster delivery channels.

5. Spatial convenience:
The extent to which channel makes it easy for customers to
Channel Design Decision
II) Setting the Channel Objectives:
Companies should state marketing channel objectives in terms of

targeted level of customer service or service output level.

The company’s channel objectives is to 1st decide which

segments to serve and the best channel to use for

distributing goods.
FMCG products do not require any support that is why the

channel length can be longer

Channel Design Decision
III)Identifying Major Alternatives:
There are several channel options available in the hands of

company.
It depends upon company which channels it wants to sell its

product through.
After the channel objective have been determined, the

company should identify its major channel alternatives in terms

of
(1) types of intermediaries
Channel Design Decision
(2) number of intermediaries, and

(3) terms and responsibilities of each channel member.

Types of Intermediaries
A firm should identify the types of channel members that
are available to carry out its channel work.
Number of Marketing Intermediaries
Companies must also determine the number of channel
members to use. There are three strategies;
Distribution strategies
1. Intensive distribution:
when distribution of goods in undertaken by large
number of middlemen it is called Intensive distribution.
This distribution works well for low cost and low
involvement products.
2.Selective distribution:
when distribution of goods in undertaken through few
selected outlets it is called Selective distribution.
This distribution works well for high cost and high
involvement products.
Distribution strategies
3. Exclusive distribution:
when distribution of goods in undertaken through a
single dealer/distributor within a particular segment it
is called Exclusive distribution. For e.g. Fast food
companies.
Channel Design Decision
Terms and responsibilities of each channel member:
The policy made by manufacturer includes:

Price policy: The manufacturer should ensure that every channel

member gets fair and equal deal.

Payment terms: The manufacturing firm stipulates the mode and

terms of payment
Returns policy: This indicates the warranty that the manufacturer

extends to the intermediary

Channel Design Decision
 Policy should lay down the conditions related to returns and

refunds.
Territorial rights: The manufacturer should spell out the

territorial rights of each of the distributors to avoid any

territory jumping
Mutual services & responsibilities: these should be clearly

spelt out, particularly in the case of franchised and exclusive

agency channel.
Channel Design Decision
IV)Evaluating the Major Alternatives:
In order to select the channel that satisfy the company

objectives in the best way, each alternative should be evaluated

by using;
economic criteria; the 1st step in evaluating various channel

alternatives is to conduct detailed cost analysis.

Companies those who are successful in switching their

customers to lower cost channels will gain channel advantage.

Channel Design Decision
control issues; the company prefers to keep the channel

where it has the highest control.

adaptive criteria; the company prefers to keep the channel

which is the most flexible to the changing marketing

environment.
Channel management decisions
Marketing channel management calls for

1.Selecting channel members:

All companies requires good channel members to succeed

When selecting channel members the company should

take into consideration various parameters.

Channel management decisions
2.Training and motivating channel members:
Companies should conduct trainings for channel members.

Companies should tell channel members that they can

succeed if they work together as a part of value delivery

system.
On one hand the company provides training and on other

hand company provides incentives.

Channel management decisions
While managing channel a company can make use of
5 types of power
1. Co-ercieve power
2.Reward power
3.Legitimate power
4.Expert power
5.Referent power
Channel management decisions
3.Evaluating channel members:
The manufacturer must regularly check the performances

of the channel members against various standards.

4. Modifying channel arrangements:

With the changing times the company needs to modify its

channel arrangements.
Channel management decisions
With the growing usage of internet all retailers are

following brick and click model for distributing goods.

Companies should keep a track of changes taking place in

market accordingly modify the channels.

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