CHAPTER EIGHT
MARKETING CHANNELS
[Link] Goals
Up on the completion of this unit a student will
able to
Define marketing channels
Describe major marketing channel function
Discuss types of channels
Discuss channel structure
Discuss channel design & conflict
[Link]
Marketing channels can be viewed as sets of
inter dependent organizations involved in the
process of making a product or service
available for use or consumption.
Channel of distribution can, therefore, be
defined as a path traced in the direct or indirect
transfer of the title of a product as it moves
from a producer to ultimate consumers or
industrial users.
[Link] of Intermediaries
1. Many producers lack the financial resources
to carry out direct marketing.
2. Direct marketing simply is not feasible for
some products.
3. Producers who do establish their own
channels can often earn a greater return by
increasing their investment in their main
business.
[Link] of Intermediaries
1. Transactional: Buying, Selling and Risk taking (obsolete or
deteriorate inventories)
2. Logistical function
Assorting: have various products
Storing
Transporting
Sorting: purchase in large quantity and breaking in to smaller
amount
3. Facilitating: financing, grading (inspecting, testing, judging
products) and market information and research
[Link] Levels
Producer Consumer
Producer Retailer Consumer
Producer _ Wholesaler Retailer___ Consumer
Producer __ Agent _ Wholesaler Retailer Consumer
Channel Levels
[Link] marketing
A zero-level channel (also called a direct-
marketing channel) consists of a manufacturer
selling directly to the final customer through
Internet selling,
door-to-door sales,
mail order,
telemarketing or
manufacturer-owned stores.
[Link] marketing
a)Wholesalers: buy products in large quantities
and sell to retailers, industrial consumers and
other wholesaler.
Functions:
– Selling and promoting:
– Buying and assortment building:
– Bulk-breaking: (breaking large lots into small
quantities).
Cont’d…
Warehousing: Wholesalers hold inventories
Transportation
Financing
Risk taking
Market information
Management service and advise
Types of wholesalers
Merchant wholesalers: Independently owned
businesses that take title to the merchandise
they handle.
Full-service wholesalers: Provide a full line of
services.
Limited-service wholesalers: Offer fewer
services than full-service wholesalers.
b)Brokers and agents
Brokers: Chief function is bringing buyers and
sellers together and assisting in negotiation.
They are paid by the party who hired them, and do
not carry inventory, get involved in financing, or
assume risk.
Agents: Represent either buyers or sellers on a
more permanent basis than brokers do.
Brokers and agents do not take title to goods. Main
function is to facilitate buying and selling, for which
they earn a commission on the selling price.
c) Manufacturers' and retailers'
branches and offices
Wholesaling operations conducted by sellers or
buyers themselves rather than through
independent wholesalers.
d)Retailers
Retailing includes all the activities involved in
selling goods or services directly to final
consumers for their personal, non business
use.
Types of Retailers:
1. Amount of Service
Self-service retailers serve customers who are willing
to perform their own "locate-compare-select“ process
to save money.
Limited-service retailers provide more sales assistance
because they carry more shopping goods about which
customers need information.
Full service retailers, such as specialty stores and first-
class department stores, salespeople assist customers
in every phase of the shopping process.
Types of Retailers:
2. Product Line
Based on the length and breadth of their product line
I. specialty stores, carry narrow product lines with deep assortments
within those lines.
II. department stores carry a wide variety of product lines such as
home furniture.
III. Supermarkets are the most frequently shopped type of retail store.
IV. Convenience stores are small stores that carry a limited line of
high-turnover convenience goods.
V. Superstores are much larger than regular supermarkets
[Link] in marketing channels
Some functions (physical, title, promotion)
constitute a forward flow of activity from the
company to the customer;
other functions (ordering and payment)
constitute a backward flow from customers to
the company.
Still others (information, negotiation, finance,
and risk taking) occur in both directions.
Cont’d…
Product flow
Negotiation flow
Ownership/title flow
Information flow
Promotion flow
[Link] Design Decisions
Analyzing Setting
consumer channel
needs objectives
Identifying
major
Evaluation
channel
alternatives
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a)Analyzing Consumer Needs
Find out what target consumers want
from the channel
What segments to serve
Best channels to use
Minimize the cost of meeting customer
service requirements
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b)Identifying Major Alternatives
Types of intermediaries
Number of marketing
intermediaries
Responsibilities of channel
members
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c)Setting Channel Objectives
Determine targeted levels of
customer service
Balance consumer needs not
only against the feasibility and
costs of meeting these needs
but also against customer price
preferences
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d) Identifying Major Alternatives
Intensive distribution
• Candy and toothpaste
Exclusive distribution
• Luxury automobiles and prestige clothing
Selective distribution
• Television and home appliance
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Intensive Distribution
A strategy in which they stock their products in
as many outlets as possible.
These products must be available where and
when consumers want them.
For example, toothpaste, candy, and other
similar items are sold in millions of outlets to
provide maximum brand exposure and
consumer convenience.
Kraft, Coca-Cola, Kimberly-Clark, and other
consumer-goods companies distribute their
products in this way.
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Exclusive Distribution
producers purposely limit the number of
intermediaries handling their products.
The producer gives only a limited number of
dealers the exclusive right to distribute its
products in their territories.
Exclusive distribution is often found in the
distribution of luxury brands. For example,
exclusive Bentley automobiles are typically
sold by only a handful of authorized dealers in
any given market area.
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Selective Distribution
The use of more than one but fewer than all of the
intermediaries who are willing to carry a company’s
products.
Most television, furniture, and home appliance
brands are distributed in this manner.
By using selective distribution, they can develop
good working relationships with selected channel
members and expect a better-than-average selling
effort.
Selective distribution gives producers good market
coverage with more control and less cost than does
intensive distribution.
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e) Evaluating the Major Alternatives
Each alternative should be evaluated against:
Economic Criteria- comparing the sales, costs, and
profitability of different channel alternatives.
The control issues-Using intermediaries usually
means giving them some control over the marketing
of the product, and some intermediaries take more
control than others. Other things being equal, the
company prefers to keep as much control as possible.
Adaptability Criteria- Channels often involve long-
term commitments, yet the company wants to keep
the channel flexible so that it can adapt to
environmental changes.
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[Link] Design Decisions
Channel systems can vary from
country to country
Must be able to adapt channel
strategies to the existing
structures within each country
Channel Management Decisions
Selecting Managing Motivating Evaluating
channel channel channel channel
members members members members
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Selecting Channel Members
Producers vary in their ability to attract qualified marketing
intermediaries. Some producers have no trouble signing up channel
members. For example, when Toyota first introduced its Lexus line in
the United States, it had no trouble attracting new dealers. In fact, it had
to turn down many would-be resellers.
At the other extreme are producers who have to work hard to line up
enough qualified intermediaries. For example, when Timex first tried to
sell its inexpensive watches through regular jewelry stores, most
jewelry stores refused to carry them. The company then managed to get
its watches into mass-merchandise outlets. This turned out to be a wise
decision because of the rapid growth of mass merchandising.
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.
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Managing and Motivating Channel Members
Once selected, channel members must be continuously
managed and motivated to do their best.
The company must sell not only through the intermediaries
but also to and with them.
Most companies see their intermediaries as first-line
customers and partners.
They practice strong partner relationship management(PRM)
or Customer Relationship Management(CRM) to forge long-
term partnerships with channel members.
This creates a value delivery system that meets the needs of
both the company and its marketing partners.
In managing its channels, a company must convince
suppliers and distributors that they can succeed better by
working together as a part of a cohesive value delivery
system.
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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.
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Cont’d
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.
Finally, companies need to be sensitive to
the needs of their channel partners. Those
who treat their partners poorly risk not only
losing their support but also causing some
legal problems.
[Link] conflict
A distributer channel consists of dissimilar firms that
have banded together for their common good.
Each channels are dependent on each other.
Channel conflict is disagreement between channel
members on goals and roes; who should do what and
for what rewards.
1. Horizontal conflict
2. Vertical conflict
Cont’d
Horizontal conflict -occurs among firms at the same level of
the channel.
– For instance, some Ford dealers in Chicago might complain that
other dealers in the city steal sales from them by pricing too low or
advertising outside their assigned territories.
Vertical conflict- conflict between different levels of the same
channel, is even more common.
For example, KFC and its franchisees came into conflict over the
company’s decision to emphasize grilled chicken and sandwiches over
the brand’s traditional fried chicken
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