Unit3 Marketing Channels

8/2/2019 Unit3 Marketing Channels

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Marketing Channel Management


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Marketing channels

A set of interdependent organizations (intermediaries) involved in theprocess of making a product or service available for use or

consumption by the consumer or business user.

In other words, it is a system of marketing institutions that

promotes the physical flow of goods and services, along with

ownership title, from producers to consumer or business user;

also called a distribution channel.

Few producers sell goods directly to consumers. Instead most use

intermediaries

A company can have one or more marketing channels.


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Intermediaries

Most producers dont sell their goods directly to final users, between

them stands a set of intermediaries performing a variety of functions. A set of intermediaries constitute a marketing channel.

We can classify intermediaries/specialist organizations into two broad

categories: resellers and specialty service firms.

Resellers/Merchants: generally purchase or take ownership ofproducts from the mktg. co. with the intention of selling to others.

These can be classified into several sub-categories such as:

Retailers :Orgns. that sell products directly to end consumers

WholesalersOrgn. that purchase products from suppliers, such asmanufacturers or other wholesalers, and in turn sell these to other

resellers, such as retailers or other wholesalers.

Industrial DistributorsFirms that work mainly in the business-to-

business market selling products obtained from industrial suppliers.


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Specialty Service Firms

organizations that provide additional services to help in the

exchange of products but generally do not purchase the product (i.e.,do not take ownership of the product):

Agents and Brokers Organizations that mainly work to bring

suppliers and buyers together in exchange for a fee.

Distribution Service Firms also called facilitators Offer servicesaiding in the movement of products such as assistance with

transportation, storage, and order processing.

Others This category includes firms that provide additional

services to aid in the distribution process such as insurancecompanies and firms offering transportation routing assistance.


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Copyright 2009 PearsonEducation, Inc. Publishing as

Prentice Hall15-5

Figure 15.2 Marketing Channel Flows


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Channel Levels A layer of intermediaries that performs some work in bringing the

product and its ownership closer to the final buyer.

Number of intermediary levels indicate the length of a channel.

A channel having no intermediary levels is called as directmarketing channel.

The channels having one or more intermediaries are called

indirect marketing channels.

Cos. Can design their own marketing channel to make productavailable to customers in different ways.

From producers point of view if number of intermediaries

incs. The complexity incs andproducers control reduces.


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Prentice Hall15-7

Figure 15.3

Consumer Marketing Channels


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Prentice Hall15-8

Figure 15.3

Industrial Marketing Channels


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SUPPLIERS SUPPLIERS SUPPLIERS

FACTORY (OEM) FACTORY (OEM)

WAREHOUSE WAREHOUSE WAREHOUSE

CFA CFA CFA

DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR

CFA CFA

LG SHOPPE DEALER DEALER

CONSUMERSINSTITUTIONS CONSUMERS CONSUMERS CONSUMERS

www.lgezbuy.com

CFA

DEALER


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Importance of Marketing channels Cost Savings in Specialization

Channel members are specialists and perform tasks better and

at lower cost than companies who do not have distribution

experience.

Have greater efficiency in making goods available to target markets.

Through their contacts, experience, specialization and scale of

operation.

Marketers attempting to handle too many aspects of distribution

may end up exhausting company resources as they learn how to

distribute.


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Reduces the amount ofwork & Exchange Time

Customers Want to Conveniently Shop for Variety:

Intermediaries transform assortments of products made by producers

into assortments wanted by consumers.

Intermediaries buy large quantities from producers and break them

into smaller quantities wanted by customers.

Provide value by bridging the major time , place & possession gaps

Provides information.


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Offer Financial Support to customers:Resellers often provide

programs that enable customers to more easily purchase products by

offering financial programs that ease payment requirements. These

programs include allowing customers to: purchase on credit;

purchase using a payment plans.


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Distribution Channel Functions

Contact

Financing

InformationRisk Taking

Promotion

MatchingNegotiation

PhysicalDistribution


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Functions that help to complete transaction

Information: gathering & distributing mktg. research and intelligence

information about market and various forces in mktg. environment.

Promotion: Developing & spreading persuasive comm. About an

offer.

Contact: finding & communicating with prospective buyers.

Matching:shaping and fitting the offer to buyers needs.

Negotiation: reaching an agreement on price and other terms of offer

so that ownership and possession can be transferred.


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Channel Behavior

A marketing channel consists of firms that have partnered for theircommon good. Each channel members success depends on others.

Ex- Maruti dealers depend on maruti to design product according to

consumer needs. And Maruti depends on Dealers to attract and

persuade customers to buy their products.

Ideally, the channel member should work together smoothly.

They should understand & accept their roles, coordinate their

activities and cooperate attain overall channel goals.


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However, individual channel members rarely take such broad

view.

Cooperating to achieve overall channel goals sometimes mean

giving up individual co. goals. Although channel members

depends on each other they often act in their own short term

interests.

They often disagree on who should do what & for what

rewards. Such disagreements over goals, roles, rewards

generate channel conflict .


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Channel conflicts

Horizontal conflicts: conflicts Occurring among firms at the same

level of channel.

Ex- conflicts Between retailers selling same products but at different

prices or offers.

Ex- conflicts between hotels of same hotel chain with few providing

service as per quality policy while others providing a distorted service

that is harming the overall image of the Brand.


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Vertical conflicts: Conflicts occurring among different levels of the

same channel.

Ex- conflicts between wholesaler and retailer for untimely delivery

of products. Conflict between wholesaler and manufacturer when

manufacturer supplied directly to retailer (because of large order).

Cos. Should try their best to prevent and solve channel conflicts.

Multilevel Channel conflicts: conflicts occurring between

different channel members.

For the channel to perform well, conflict must be managed.


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Vertical Marketing systems

A distribution channel structure in which producers, wholesalers

and retailers act as a unified system. One channel member owns

the others, has contracts with them, or has so much power that

they all cooperate.

There are three types of VMS:

Corporate VMS

Contractual VMS

Administered VMS


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Types of Vertical Marketing Systems

CorporateCommon Ownership at Different

Levels of the Channel

ContractualContractual Agreement Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

Greater

Lesser

Degreeof

Direct

Control

Unit3 Marketing Channels

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