Marketing Channels

OBJECTIVES
Introduction Functions of Marketing Channels Channel Design Decisions Channel Management Decisions Managing Channel Conflict

1. What is a Marketing Channel?

This is a set of interdependent organizations involved in the process of making a product or service available for use or consumption.

Intermediaries involved
Agents acting on behalf of buyer or seller but do not take title of the goods Facilitators transporters, banks. Distributors- term more common in business markets. Sells goods, maintains inventory, extends credit etc. Wholesalers- term used in consumer markets Retailers- sells to consumers

Structure in Industrial Market

Structure in Consumer Market

Advantages
Key external resource Movement of goods is essential Production & company survival depends on goods reaching consumers.

Why would a manufacturer not like to do his own distribution?

Lacks the financial resources to do direct marketing Cannot have the infrastructure to make the product widely available and near the customer Trading profits could be less than manufacturing profits

Manufactures typically produce a large quantity of a limited variety of goods

Consumers usually desire a small quantity of a wide variety of goods

If all manufacturers tried to reach all consumers

M1 C1

M2

C2

M3

C3

If they tried to go through an intermediary

M1 C1

M2

D1

C2

M3

C3

2. Channel functions
Gathers information on customers, competitors and other external market data Develop and disseminate persuasive communication to stimulate purchases Agreement on price and other terms so that transfer of ownership can be effected Placing orders with manufacturers

Channel functions (contd)

Acquire funds to finance inventories and credit in the market Assume responsibility of all risks of the trade Successive storage and movement of products Helps buyers in getting their payments through with the banks Oversee actual transfer of ownership

Channel functions (contd)

Packing and unpacking Breaking Bulk Developing new customers

3. Channel Design Decisions

A. Analyze customers desired service output level B. Establish objectives C. Identify major channel alternatives D. Evaluate the major alternatives

3A. Analyze customers desired service output level

The company needs to identify the lot size, waiting time, spatial convenience, product variety and service back up requirement of consumers.

3B. Establish objectives

Channel objectives should be stated in terms of targeted service output levels. Channel institutions should also try to minimize total channel costs to desired service level output. Objectives vary with product characteristics example, perishables require more direct marketing

3C. Identify major channel alternatives

It includes decisions about types of intermediaries no. of intermediaries terms & responsibilities of channel members

Types of intermediaries
Agents Distributors Wholesalers Retailers

No. of Intermediaries
Exclusive Selective Intensive

Terms and Responsibilities

Rights and responsibilities are drawn up Territorial rights are fixed Pricing policies is fixed by producer by establishing a price list & schedule of discount Conditions of sales refer to payment terms & producer guarantees

3D. Evaluating major alternatives

Economic Criteria Control & Adaptive Criteria

4.Channel management Decisions

It includes decision on following: Selecting channel members Training channel members Motivating channel members Modifying channel arrangements

4A. Selecting Channel Members

For consumers, the channels are the company. They should be evaluated on the basis of no. of years in the business, products carried, growth & profit record, financial strength, reputation, cooperativeness, type of distribution experience (one step/ two step), expected rewards etc.

4B. Training Channel Members

Example Microsoft requires third party service engineers to complete a set of courses and take certification exams. Ford develops training programs that can be delivered over internet to its dealers.

4C. Motivating channel members

Coercive (threat to end relation) Reward (extra benefit for doing specific functions) Legitimate (as per contract) Expert (special knowledge of manufacturer that is valued by intermediaries) Referent (Reputed manufacturer so intermediaries like to be associated with it)

4D. Channel modification

With time channels need to change along with product as it get older in the PLC Introduction company showrooms Growth chain stores, departmental stores Maturity Mass merchandisers Decline sales stores, discount stores

Adding channels
Advantages Increased market coverage Lower channel costs More customised selling Disadvantages Increases selling costs Increases channel control Breeds channel conflict

5. Channel conflict
Interest of different business interests do not necessarily coincide Conflicts can occur at various levelsvertical, horizontal or multichannel

Conflict causes
Goal incompatibility Differences in perception Domain conflict

Conflict Resolution
Institutional Mechanism (joint membership in trade organizations, executive exchanges, co-optation, dealer councils) Third party mechanisms (mediation & arbitration) Negotiation (aggressive, accommodating, collaborative, avoidance)

 Aggressive Only self interest is considered without giving any attention to the other party Accommodating The other partys interests are given maximum importance Collaborative Interests of both the parties are given high levels of consideration

 Avoidance One party gives in to all the demands of the other party without putting up its own demands