Marketing Channels

What is a marketing channel?

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.
Channel Flows
A marketing channel can be compared to a
pipeline that guieds the movement of
entire marketing programs among channel
members.

Types of flows through the channel:

 Physical flow
 Ownership flow
 Information flow
 Payment flow
 Promotion flow
Nature of Distribution Channels:
Why Use Marketing
Intermediaries?
 Create greater
efficiencies
 Transform producers
product assortment into
assortment wanted by
consumers
 Match supply with
demand
 Services and ideas must
be available to target
market
Why Use Marketing
Intermediaries?
An intermediary reduces the number of channel transactions

Number of contacts without a distributor Number of contacts with a distributor

MxC=3x3=9 M x C = 3+ 3 =6
Role of the channel in
marketing strategy
 Links a producer to buyers
 Performs sales, advertising, and promotion
 Influences the firm’s pricing strategy
 Affects product strategy through branding policies,
willingness to stock and customize offerings, install,
maintain, offer credit, etc.
Function of Channel Members

Information refers to the gathering and distributing research

and intelligence information about actors and forces in
the marketing environment needed for planning and
aiding exchange

Promotion refers to the development and spreading

persuasive communications about an offer

Contacts refers to finding and communicating with

prospective buyers
Matching refers to shaping and fitting the offer to the
buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging

Negotiation refers to reaching an agreement on price and

other terms of the offer so that ownership or possession
can be transferred
Traditional Marketing Channel
Designs
Producer

Brokers or Agents

Distributors or Wholesalers

Retailers or Dealers

Ultimate Buyers
Examples of Channels of Distribution for
the Food Products Manufacturing Industry
 The Design of Marketing Channels

INDIRECT DIST. vs. DIRECT DIST.

Use intermediaries to Contact ultimate
reach target market buyers directly
type using its own
location sales force or
density distribution outlets
number of using the Internet
channel levels through a
marketing Web
site or electronic
storefront
The Design of Marketing Channels
Direct distribution is typically
used when:
Buyers are easily identifiable
Personal selling is a major component of the
communication mix
Organization has a wide variety of offerings for
the target market
Sufficient resources are available
Intermediaries are not available for reaching
target markets
Intermediaries do not possess the capacity to
service the requirements of target markets
The Design of Marketing Channels

Indirect distribution must be considered

when:

Intermediaries can perform distribution

functions more efficiently and less
expensively
Customers are hard to reach directly
Organization does not have resources to
perform distribution function
Conventional Distribution
Systems
Conventional distribution systems consist of one or more
independent producers, wholesalers, and retailers.
Each seeks to maximize its own profits and there is
little control over the other members and no formal
means for assigning roles and resolving conflict.

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Conventional vs. Vertical
Marketing Systems
Conventional marketing Vertical marketing
channel system

Manufacturer Manufacturer

Wholesaler
Wholesaler

Retailer Retailer

Consumer Consumer
Vertical Marketing Systems
(VMS)
 The manufacturer, wholesaler, and
retailer act as a unified system.
 One channel member either owns the
other channel members, franchises
them, or has so much power that all
channel members cooperate.
 Arose in an effort to control channel
conflict.
Horizontal Marketing Systems

 Two or more unrelated companies put

together resources or programs to
exploit an emerging marketing
opportunity.
 Temporary or permanent basis.
 May form a joint venture company.
Channel Behavior:
Channel conflict
Channel Conflict arises when one channel
member believes another channel
member is engaged in behavior that is
preventing it from achieving its goals.

Horizontal conflict is conflict among

members at the same channel level

Vertical conflict is conflict between

different levels of the same channel

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Sources of Channel Conflict

Channel member bypasses another

member and sells or buys direct (Wal-
Mart)
Uneven distribution of profit margins
among channel members (Michelin)
Manufacturer believes channel member is
not giving its products adequate attention
(Peter England)
Manufacturer engages in dual distribution
(Amway)
Channel Design Decisions

Designing a channel system requires:

• Analyzing consumer needs
• Setting channel objectives
• Identifying major channel
alternatives
• Evaluation

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Channel Design Decisions:
Analyzing Consumer Needs
Designing a marketing channel starts with finding out what
target customers want from the channel
Channel objectives in terms of:
• Targeted levels of customer service
• What segments to serve
• Best channels to sue
• Minimizing the cost of meeting customer service
requirements

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Channel Design Decisions: Setting Channel
Objectives

Objectives are influenced by:

• Nature of the company
• Marketing intermediaries
• Competitors
• Environment

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Channel Design Decisions:
Identifying Major Alternatives

In terms of:
• Types of intermediaries
• Number of intermediaries
• Responsibilities of each channel
member

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 Channel Design Decisions:
Identifying Major Alternatives
 Merchants
Channel Factors  Buy, take title, and resell
merchandise
 Intermediary type  Agents
 Number of intermediaries  Find customers, negotiate,
do not take title to
 Terms and responsibilities merchandise
of intermediaries  Facilitators
 Aid in distribution, do not
negotiate or take title to
merchandise
 Channel Design Decisions:
Identifying Major Alternatives
 Exclusive distribution
Channel Factors  Severely limited distribution
 Selective distribution
 Intermediary type  Some intermediaries willing
 Number of intermediaries to carry good are selected

 Terms and responsibilities  Intensive distribution

of intermediaries  Offering is placed in as many
outlets as possible.
 Channel Design Decisions:
Identifying Major Alternatives
 Price policies
Channel Factors  Price list and schedule of
discounts
 Intermediary type  Conditions of sale
 Number of intermediaries  Payment terms and
guarantees
 Terms and responsibilities
 Territorial rights
of intermediaries
 Define territory / terms
 Services to be performed by
party
Channel Design Decisions:
Evaluating the Major Alternatives

Economic criteria compares the likely sales

costs and profitability of different channel
members

Control refers to channel members’ control

over the marketing of the product

Adaptive criteria refers to the ability to

remain flexible to adapt to environmental
changes

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Channel Design Decisions:
Evaluating the Major Alternatives

 Measure Performance Against Standards

 Sales quotas
 Average inventory levels
 Customer delivery time
 Treatment of damaged or lost goods
 Cooperation on promotion and training
 Customer service levels
 Recognize and reward performers
 Be sensitive to dealers