MARKETING

CHANNELS

MARKETINGMANAGEMENT- II
LECTURE-1
 Learning objectives

 The nature and importance of Marketing

Channels
 Major channel alternatives
 How companies select, motivate, and
evaluate channel members.
Marketing Channels

Marketing channel is a set of

interdependent organizations that eases
the transfer of ownership as products
move from producer to business user or
consumer.
A marketing channel system is the
particular set of interdependent
organizations involved in the process of
making a product or service available for
use or consumption
 Channels and
Marketing Decisions
 A push strategy uses the manufacturer’s
sales force, trade promotion money, and
other means to induce intermediaries to
carry, promote, and sell the product to end
users.
 A pull strategy uses advertising, promotion,
and other forms of communication to
persuade consumers to demand the
product from intermediaries.
 Designing a
Marketing Channel System

Analyze customer needs

Establish channel objectives

Identify major channel alternatives

Evaluate major channel alternatives

 The Nature and Importance of
Marketing Channels
Producers try to forge a marketing channel (or
distribution channel) ─ a set of interdependent
organizations that help make a product or service
available for use or consumption by the consumer or
business user.
• Distribution channel decisions often involve long-term
commitments to other firms.
• They can scrap old products and introduce new ones as
market tastes demand.
• But when they set up distribution channels through
contracts with franchisees, independent dealers, or large
retailers, they cannot readily replace these channels with
company-owned stores or Internet sites if the conditions
change.
 Channel Member Functions

 Gather information
 Develop and disseminate persuasive
communications
 Reach agreements on price and terms
 Acquire funds to finance inventories
 Assume risks
 Provide for storage
 Provide for buyers’ payment of their bills
 Oversee actual transfer of ownership
 Vertical Marketing Systems

Corporate VMS
• A conventional distribution channel
consists of one or more independent Administered
The franchise organization
VMS is a
producers, wholesalers, and retailers.
It integrates successivecontractual
stages of vertical marketing
• Each is a separate business seeking
production and its
to maximize distribution
ownsystem under
profits, single
in which
perhaps a channel
• Leadership is assumed not
owner ship.
even at the expensemember, called
of the system as acommon
franchisor, links
through ownership or
a whole. several stages
• A vertical in the ties
marketing
contractual production-
system
but through the
Contractual VMS •
distribution There are
process. three types of franchises.
(VMS)• consists
size and of producers,
power of one
Manufacturer-sponsored
or a few
dominant
wholesalers, andchannel
retailersmembers.
acting
retailer franchise system
It consists of independent firmsasata Manufacturers
• unified system. of a top brand can
• Manufacturer-sponsored
different levels of production and
• One channelobtain strong tradeowns
member cooperation
the
wholesaler franchise
distribution who join together throughand support from resellers.
system
others,
contracts to obtain more economies •orhas contracts with them,
Service-firm-sponsored retailer
sales impact than each couldor wieldsfranchise
achieve so muchsystem
power that
alone. they must all cooperate.
Horizontal Marketing Systems

 Another channel development is the

horizontal marketing system, in which
two or more companies at one level
join together to follow a new marketing
opportunity.
 By working together, companies can
combine their financial, production, or
marketing resources to accomplish
more than any one company could
alone.
 Multichannel Distribution
Systems

 Multichannel distribution system is a distribution

system in which a single firm sets up two or more
marketing channels to reach one or more customer
segments.
 Multichannel distribution systems offer many
advantages to companies facing large and
complex markets.
 Setting Channel Objectives
• In some cases, a company
may want to compete in or
near the same outlets that
carry competitors’
The company’s channel objectives are also
influenced by the following things:
products.
• In other cases, companies
Themay
natureavoid the channels
of the Products
Marketing
used
companyby competitors. intermediaries

• Finally, environmental
factors such as economic
Competitors conditions and legal
Environment
constraints may affect
channel objectives and
design.
 Channel Intermediaries

A channel intermediary that

Retailer
sells mainly to customers.

An institution that buys goods

Merchant from manufacturers, takes title
Wholesaler to goods, stores them,
and resells and ships them.

Wholesaling intermediaries who

Agents and
facilitate the sale of a product by
Brokers representing channel members.
 Channel Intermediaries

Retailers Take Title to Goods

Merchant
Wholesalers Take Title to Goods

Agents
and Do NOT Take Title to Goods
Brokers
 Factors Suggesting Type of
Wholesaling Intermediary to Use
Factor Merchant Agents/
Wholesalers Brokers
Nature of product Standard Nonstandard,
custom
Complexity of product Simple Complex
Product’s gross margin High Low
Frequency of ordering Frequent Infrequent
Time between order and Shorter lead Longer lead
receipt of shipment time time
Number of buyers Many Few
Concentration of buyers Dispersed Concentrated
Channel Functions
Performed by Intermediaries
Contacting/Promotion
Transactional
Negotiating
Functions
Risk Taking

Physically distributing
Logistical Storing
Functions
Sorting

Facilitating Researching
Functions Financing
Marketing Channels for
Consumer Products
Channels for Business and
Industrial Products
Business-to-Business
Exchanges on the Internet

The Internet has forced traditional

distributors to expand their model.

Companies drop the intermediary

from the supply chain

“Private exchanges” with select

suppliers automate the supply chain
Levels of Distribution Intensity

A form of distribution aimed at

Intensive having a product available in
every outlet

A form of distribution achieved

Selective by screening dealers to eliminate
all but a few in any single area

A form of distribution that

Exclusive established one or a few
dealers within a given area
 Types of Channel
Relationships
Benefits Hazards

Arm’s Length Fulfills a one time or Parties unable to develop

Relationship unique need; low relationship; low trust level
involvement/risk

Cooperative Formal contract Some parties may need more

Relationship without capital relationship definition
investment/long-term
commitment; “happy
medium”
Integrated Closely bonded High capital investment; any
Relationship relationship; explicitly failure could affect every
defined relationships channel member
 Selecting Channel Members

• Producers vary in their ability to attract qualified

marketing intermediaries.
• Some producers have no trouble signing up channel
members.

• At the other extreme are producers who have to work

hard to line up enough qualified intermediaries.
• When selecting intermediaries, the company should
determine what characteristics distinguish the better ones.
• It will want to evaluate each channel member’s years in
business, other lines carried, location, growth and profit
record, cooperativeness, and reputation.
 Public Policy and Distribution
Exclusive
Decisions
distribution • Both parties can
benefit from exclusive
The seller allows only arrangements.
certain outlets to carry • Exclusive dealing
• its products.of a strong brand sometimes
Producers oftensellincludes
it to dealers
only if the dealers will take some or all exclusive
of the rest territorial
of its line.
ItExclusive
is called full-line forcing. agreements.
• Finally, producers are free to select The producer
• their dealers, may
but their
dealing agree not to sell to
right to terminate dealers is somewhat restricted.
The seller requires that other dealers in a
these dealers not given area, or the
handle competitors’ buyer may agree to
products. sell only in its own
territory.
 Evaluating Channel Members
• The company must regularly check channel member
performance against standards such as sales quotas,
average inventory levels, customer delivery time,
treatment of damaged and lost goods, cooperation
in company promotion and training programs, and
services to the customer.

• The company should recognize and reward

intermediaries who are performing well and adding
good value for consumers.
• Those who are performing poorly should be assisted or,
as a last resort, replaced.
Channel Conflict

 Have conflicting goals

 Fail to fulfill expectations of other
channel members
 Have ideological differences
 Have different perceptions of reality