Channels of marketing(chap 15)

Channels of MarketingChannels of MarketingChannels of MarketingChannels of Marketing

The Value of Channels in Marketing

“We eliminate the middleman!”

- may not be such a good idea

Importance of Channels of Marketing

Producers

Consumers

Without intermediaries16 transactions

Importance of Channels of Marketing

Producers

Consumers

With intermediaries8 transactions

IntermediariesSupermarket

Channels reduce number of transactions

Marketing or Distribution Channel

Set of interdependent organizations involved in the process of making a product or

service available for use or consumption by the consumer or business user.

Role of Marketing Channels

Fill the gaps between production and consumption process

Time Gap Space Gap Quantity Gap Variety Gap

Possession Ownership Financial flow Information flow Risk Flow Negotiation

Channel Flow

RetailerChannel

WholesalerChannel

Agent/BrokerChannel

Direct Channel Indirect Channels

Producer Producer Producer Producer

Consumers or User

Retailers orDistributor

Retailers or

Distributor

Retailers orDistributor

Wholesalers Wholesalers

Agents orBrokers

Alternative Channels

of Distribution

Consumers or UserConsumers

or UserConsumers

or User

• Intensive Distribution

• Exclusive Distribution

• Selective Distribution

Service Sector Channels

Channel Levels

Functions of Marketing Channels

Selling & PromotingSelling & Promoting

Matching Buyersand Sellers

Matching Buyersand Sellers

Bulk-BreakingBulk-Breaking

WarehousingWarehousing

TransportationTransportation

FinancingFinancing

Risk BearingRisk Bearing

MarketInformation

MarketInformation

ManagementServices & Advice

ManagementServices & Advice

Facilitating the Exchange Process

Alleviating DiscrepanciesSortingAccumulatingAllocatingAssorting

Standardizing the transactionsMatching Buyers and SellersProviding customer service

Designing Marketing Channels

Analysing Customer ‘s desired service output levels:

Lot Size Waiting and delivery time Spatial convenience Product variety Service backup

•Economic Criteria

•Control Criteria

•Adaptive Criteria

•Establishing objectives and constraints

•Identifying major channel alternatives:

Types of Intermediaries

Number of Intermediaries

•Evaluating the major alternatives

Dell created a new channel option by bringing new technology to traditional roles played by the distribution channel. Dell takes orders over the telephone, it allows purchasers to customize products to their own needs, it assembles products largely to order, and it achieves rapid delivery.

Compaq Computer has launched a unique distribution strategy to compete with Dell Computer Corp and other computer makers engaged in direct marketing. The initiative, consisting of both direct and indirect distribution.

Exclusive distribution is offering a product for sale only in one outlet or the outlets of a single company. 

Kodak announced that their new line of EasyShare printers would be available only in Best Buy stores for the first three months following the product launch.

Selective distribution involves the use of more than a few intermediaries who are willing to carry a particular product.

Intensive distribution consists of the manufacturer placing the goods or services in as many as outlets as possible.

This strategy is used for general items like FMCG products etc…

• Selection of channel members

• Training of Channel Members• Motivation & Evaluation• Modifying Channel Arrangement• Legal and Ethical issues

Dual Distribution

Exclusive dealing agreement

Tying agreements

Restricted Sales territories

Dealer’s rights

Channel Management

Channel Integration and systems

A vertical marketing system comprises of the producer, wholesaler, and retailer acting as a unified system.

Corporate VMS: A corporate VMS combines successive stages of production and distribution under single ownership.

Administered VMS: An administrated VMS coordinates successive stages of production and distribution through the size and power of one of the members.

Contractual VMS consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies of scales impact than they could achieve alone.

Contractual VMS……

Wholesaler-sponsored voluntary chains are those where wholesalers organize voluntary chains of independent retailers to help them compete with large chain organizations.

Ex: All India Garments Manufacturers' & Wholesalers' Association (R)

Retail cooperatives

Bhartiya Udyog Vyapar Mandal (BUVM), the biggest national-level association of mom and pop kirana stores.

The Handloom Societies in Andhra Pradesh are organized as a two tier structural societies in the village called Primary Handloom weaver's co-operative society.

Franchise organizations

A channel member called a franchisor might link several successive stages in the production-distribution process.

--manufacturer-sponsored retailer

--manufacturer-sponsored wholesaler

--service firm-sponsored retailer franchise.

Horizontal Marketing System

Apple and Starbucks announced music partnership in 2007. The purpose of this partnership was to allow Starbucks customers to wirelessly browse, search for, preview, buy, and download music from iTunes Music Store onto their iPod touch, iPhone, or PC or Mac running iTunes. Apple’s leadership in digital music together with the unique Starbucks experience synergized a partnership to offer customers a world class digital music experience.

Multichannel marketing system

Multichannel occurs when a single firm uses two or more marketing channels to reach one or more customer segments.

Mattel, the toy manufacturer, sells its Fisher-Price toys at Mattel’s Fisher-Price online web site (www.fisher- pricestore.com), print catalogue, at www.buy.com, a pure Internet retailer and also at Wal-Mart store.

Nike company sells its products to retail accounts, through its owned retail stores, and through a mix of independent distributors and licensees, as well as through Internet Web site, nikestore.com.

Management of Conflicts in Channels

Types of Conflicts VerticalHorizontal MultiChannel

Vertical channel conflict

Vertical channel conflict means conflict between different levels within the same channel.

Horizontal channel conflict involves between members at the same level within the channel.

Multichannel conflict exists when the manufacturer has established two or more channels to sell the market.

Causes of conflict

Goal incompatibility Unclear roles and rights Differences in perception Dependence

Managing Channel Conflicts

•Co-optation•Diplomacy •Mediation •Arbitration