Marketi̇ng Channels

MARKETİNG MARKETİNG CHANNELSCHANNELS

Marketing ChannelsMarketing Channels

Manufacturers normally use for Manufacturers normally use for taking their products to the taking their products to the users. All such intermediaries users. All such intermediaries constitute the marketing constitute the marketing channel.channel.

Channels Perform Many Channels Perform Many Distribution FunctionsDistribution Functions

Provide Distribution EfficiencyProvide Distribution Efficiency

The channels bring together The channels bring together manufacturer and user in an manufacturer and user in an economic manner and thereby economic manner and thereby distribution efficiency to the distribution efficiency to the manufacturer.manufacturer.

Minimise number of contacts Minimise number of contacts needed for reaching consumersneeded for reaching consumers

When the channels are When the channels are dispensed with, the number of dispensed with, the number of contacts a manufacturer will contacts a manufacturer will have to establish for reaching have to establish for reaching out the consumers are far too out the consumers are far too many. many.

Break the bulk and cater to Break the bulk and cater to tiny requirementstiny requirements

Channels break the bulk and Channels break the bulk and meet small size needs of meet small size needs of individual consumers. individual consumers.

Supply products in suitable Supply products in suitable assortments assortments

The consumers normally need The consumers normally need an assortment of products. But an assortment of products. But manufacturer can not provide manufacturer can not provide because it’s not feasible for him. because it’s not feasible for him. Thereby marketing channels are Thereby marketing channels are needed.needed.

Provide salesmanshipProvide salesmanship

Buyers go by the Buyers go by the recommendation of the dealers. recommendation of the dealers. The dealers establish the The dealers establish the products in the market through products in the market through their persuasive selling. their persuasive selling.

Help in Price MechanismHelp in Price Mechanism

Channels conduct price Channels conduct price negotiations with buyers and negotiations with buyers and assist in arriving at the right assist in arriving at the right price - the price that is price - the price that is acceptable to the maker as well acceptable to the maker as well as user. as user.

Look After a Part of Look After a Part of Distribution and FinancingDistribution and Financing

Channels also look after a part Channels also look after a part of the phsycal distribution, order of the phsycal distribution, order processing and inventory processing and inventory management and also share management and also share financial burden. financial burden.

Assist in merchandisingAssist in merchandising

Merchandising; product Merchandising; product connected with a popular film, connected with a popular film, singer, event, etc., or the selling singer, event, etc., or the selling of these products. of these products.

Provide Market IntelligenceProvide Market Intelligence

İn order to they are in constant İn order to they are in constant and direct contact with and direct contact with customers, they can get customers, they can get feedbacks of the customers. feedbacks of the customers.

Act as Change Agents and Act as Change Agents and Generate DemandGenerate Demand

In some cases the marketing In some cases the marketing task including diffusion of some task including diffusion of some innovation among customers for innovation among customers for this reason channels go much this reason channels go much beyond of distribution.beyond of distribution.

Take Care of Flows Involved Take Care of Flows Involved in Distributionin Distribution

The distribution process include The distribution process include as a series of flows: physical as a series of flows: physical flow, the risk flow, the financing flow, the risk flow, the financing payment flow… Marketing payment flow… Marketing channels handle of all these channels handle of all these flows.flows.

Channel Functions Can not be Channel Functions Can not be EliminatedEliminated

Firms assume that by Firms assume that by eliminating channels, they can eliminating channels, they can eliminate the channel costs. eliminate the channel costs. When they do this, heavy When they do this, heavy channel costs fall on company’s channel costs fall on company’s shoulders.shoulders.

Channel decisions have a bearing Channel decisions have a bearing other marketing decisionsother marketing decisions

The decisions on channel have The decisions on channel have a vital bearing on other a vital bearing on other decisions relating to marketingdecisions relating to marketing

For example pricing decisions For example pricing decisions related to the channel pattern related to the channel pattern adopted by the firm. adopted by the firm.

PATTERNS OF PATTERNS OF CHANNELS AND TYPES CHANNELS AND TYPES

OF INTERMEDIARIESOF INTERMEDIARIES

Sole-Selling Agent/MarketerSole-Selling Agent/Marketer

They are usually a large They are usually a large marketing intermediary with marketing intermediary with large resources and extensive large resources and extensive territory operation. territory operation.

He takes care of most of the He takes care of most of the marketing and distribution behalf marketing and distribution behalf of the manufacturer.of the manufacturer.

C&F Agents (CFAs)C&F Agents (CFAs)

The CFAs can be described as The CFAs can be described as special category wholesalers. special category wholesalers. Their function is distribution. Their function is distribution. Their distinguishing Their distinguishing characteristic is they do not characteristic is they do not resell products but act as the resell products but act as the agent of the manufacturer.agent of the manufacturer.

Semi-WholesalersSemi-Wholesalers

Semi-wholesalers are Semi-wholesalers are intermediaries who buy products intermediaries who buy products either from producers or either from producers or wholesalers.wholesalers.

They assist producer in reaching They assist producer in reaching a large number of retailers a large number of retailers efficientlyefficiently

Retailer/DalerRetailer/Daler

Retailers sell to household Retailers sell to household ultimate customers. ultimate customers.

They are at the bottom of the They are at the bottom of the distribution. If the company distribution. If the company wants to use single tier, they wants to use single tier, they directly operate Retailer/Dealer. directly operate Retailer/Dealer.

DESİGNİNG A CHANNEL DESİGNİNG A CHANNEL SYSTEMSYSTEM

Every firms can use Every firms can use different type of itermediaries. different type of itermediaries. For example, it can have a For example, it can have a single-tier or a two tier or a three single-tier or a two tier or a three tier structure…tier structure…

Steps: Steps:

1. Formulating the Channel 1. Formulating the Channel ObjectivesObjectives

First step in desinging a channel First step in desinging a channel system. system.

The objectives clarify what is The objectives clarify what is sought to be achieved by having sought to be achieved by having the channels.the channels.

Channel objectives will decide Channel objectives will decide channel designchannel design

When Hindustan Lever lays When Hindustan Lever lays down the objective that Lifebuoy down the objective that Lifebuoy should be available in more than should be available in more than 80 percent of the villages of 80 percent of the villages of India, its channel design takes India, its channel design takes shape in line with this objective. shape in line with this objective.

Channel objectives will decide Channel objectives will decide channel designchannel design

Similar is the case, when FACT, Similar is the case, when FACT, the fertiliser firm, lays down the the fertiliser firm, lays down the objective that in the home objective that in the home market of company, no farmer market of company, no farmer should have to travel more than should have to travel more than 3 km to buy its product.3 km to buy its product.

Channel objectives differ from firm Channel objectives differ from firm to firm; consequently their channel to firm; consequently their channel designs differdesigns differ For example, intensity of For example, intensity of

marketing coverage sought from marketing coverage sought from the channels and extent of the channels and extent of convenience to be provided to convenience to be provided to the customer will vary from firm the customer will vary from firm to firm.to firm.

2. Identifying Channel 2. Identifying Channel FunctionsFunctions

Next step in designing a channel Next step in designing a channel systemsystem

Channel design depends on the Channel design depends on the functions expected of the functions expected of the channel and that functions must channel and that functions must be identified in specific context be identified in specific context in order to get practical in order to get practical direction. direction.

Linking Channel Design to Linking Channel Design to Product Characteristics Product Characteristics

Different products require Different products require different channel systems. The different channel systems. The firm should analyse the firm should analyse the characteristic of products and characteristic of products and choose the suit channel.choose the suit channel.

This factor in some detail: This factor in some detail:

Industrial products need Industrial products need different channelsdifferent channels

Channels for industrial Channels for industrial productsproducts

Industrial products need Industrial products need extensive pre-sale service.extensive pre-sale service.

Only some industrial products are Only some industrial products are amenable for selling through amenable for selling through channelschannels The firm should check whether The firm should check whether

its items are appropriate for its items are appropriate for selling through channels. İf selling through channels. İf “yes”, it must find out which type “yes”, it must find out which type of distributors will be of distributors will be appropriate. appropriate.

Even within consumer products, Even within consumer products, channel requirements of different channel requirements of different products may vary products may vary

For example convenience For example convenience goods, shopping goods, and goods, shopping goods, and speciality goods may need vary speciality goods may need vary of channel requirements.of channel requirements.

The product’s PLC stage too The product’s PLC stage too influence channel choiceinfluence channel choice

PLC also helps channel PLC also helps channel management. Different channels management. Different channels fit different stages of PLC.fit different stages of PLC.

The product’s PLC stage too The product’s PLC stage too influence channel choiceinfluence channel choice

A production in the introduction A production in the introduction stage will be relatively unknown stage will be relatively unknown market. At this stage it market. At this stage it advantageous to sell product advantageous to sell product directly to the customer, directly to the customer, dispensing with the channels.dispensing with the channels.

Product influences type and Product influences type and number of channel members as number of channel members as wellwell For example for textiles or For example for textiles or

shoes, franchises, who can run shoes, franchises, who can run showrooms, may be an effective showrooms, may be an effective type of intermediary. type of intermediary.

4. Evaluation of the 4. Evaluation of the Distribution EnvironmentDistribution Environment

Firm should evaluate the vital Firm should evaluate the vital features of the distribution features of the distribution environment and ensure that the environment and ensure that the proposed channel design is proposed channel design is compatible with them.compatible with them.

5. Evaluation of Competitor’s 5. Evaluation of Competitor’s Channel DesignChannel Design

While the firm not necessarily While the firm not necessarily follow the competitors in follow the competitors in channel design is compatible channel design is compatible with them. with them.

6. Matching Channel Design 6. Matching Channel Design to Company Resourcesto Company Resources

Choice of channel is also Choice of channel is also governed by the resources:governed by the resources:

Firms with limited resources are Firms with limited resources are better off by depending on better off by depending on conventional channels…conventional channels…

6. Matching Channel Design 6. Matching Channel Design to Company Resourcesto Company Resources

Choice of channel is also Choice of channel is also governed by the resources:governed by the resources:

Firms with larger resources can Firms with larger resources can go in for varied distribution go in for varied distribution channels channels

Evaluating the Alternatives Evaluating the Alternatives and Selecting Bestand Selecting Best

Two distinct evalutaions – an Two distinct evalutaions – an economic evaluation and economic evaluation and conceptional evaluation – may conceptional evaluation – may be necessary:be necessary:

Economic evaluation; balancing Economic evaluation; balancing cost, efficiency and riskcost, efficiency and risk

Firm determines the unit cost of Firm determines the unit cost of selling in each of the selling in each of the alternatives. The firm chooses alternatives. The firm chooses the one which is attractive from the one which is attractive from the cost and lest risky. the cost and lest risky.

Conceptual evaluation; Conceptual evaluation; flexibility and controllabilityflexibility and controllability

It has to be used for assessing It has to be used for assessing the flexibility and controllability the flexibility and controllability of the alternative.of the alternative.

Some Vital Aspects in Some Vital Aspects in Finalising the Channel Finalising the Channel

The important aspects to The important aspects to be decided are: be decided are:

Channel intensity,Channel intensity, Number of tiersNumber of tiers The appropriate variant within The appropriate variant within

design.design.

Choosing the Channel Choosing the Channel IntensityIntensity

For example, Maruti and For example, Maruti and Mitsubishi India, being Mitsubishi India, being passenger car firms operating passenger car firms operating same market, may opt similar same market, may opt similar channel design. But they may channel design. But they may settle for different channel settle for different channel intensity.intensity.

Choosing the Number of Tiers Choosing the Number of Tiers CorrectlyCorrectly

Product type perhaps the most Product type perhaps the most important consideration. important consideration.

For example for selling For example for selling passenger car fir need have passenger car fir need have only one tier. Tootpastes or only one tier. Tootpastes or cosmetics may need two or cosmetics may need two or three tiers. three tiers.

Comparative merits of single-Comparative merits of single-tier and two-tier chaneltier and two-tier chanel

Single-tierSingle-tier Better motivation Better motivation

to each member to each member in the channelin the channel

Firm can service Firm can service all the outlets all the outlets directlydirectly

The pattern The pattern involves greater involves greater administrative administrative burden burden

Two-tierTwo-tier It helps quicker It helps quicker

outflow of stocks outflow of stocks and more intensive and more intensive coverage of the coverage of the market.market.

But it results lower But it results lower profit to retailersprofit to retailers

It also weakens It also weakens the principal’s the principal’s control over outfit. control over outfit.

Selecting Appropriate Variant Selecting Appropriate Variant within a Given Designwithin a Given Design

For example Nirma Chemicals For example Nirma Chemicals distributes Nirma soap with a distributes Nirma soap with a wholesalers-weighted system. In wholesalers-weighted system. In contrast, HLL distributies its contrast, HLL distributies its Lifebuoy in the same market Lifebuoy in the same market through a retailer-weighted through a retailer-weighted system. system.

One Unified SystemOne Unified System

The firm has to handle The firm has to handle wholesaling, retailing and other wholesaling, retailing and other forms of selling as one unified forms of selling as one unified system and not seperate system and not seperate entities. entities.

Building channel system by Building channel system by bottom-up methodbottom-up method

Once the type of retailers suited Once the type of retailers suited for context is determined, the for context is determined, the whole-saling arrangement that whole-saling arrangement that would best suit the chosen retail would best suit the chosen retail arrangement can be choosen arrangement can be choosen and put in place. and put in place.