To understand the concept of channel flows To understand the relationship of channel flows to service level To learn about costs

and margins in the distribution system To understand what channel systems are expected to deliver To understand the summary of channel functions To know about prominent marketing and channel systems

Getting details about prospective customers Once prospective customers are identified, company will plan to communicate with them effectively to persuade them to buy their products and services Channel partners facilitate change of title of products from manufacturer to the end users

Channel partners are responsible for the stock or inventory holdings in their possession until they move to the next stage

Channel partners help transfer ownership from one party to another and take care of all the documentations, insurance (for high valued items), statutory requirements (I.e. sales tax)

Forward Flow: company to consumers (goods and services) Backward Flow: consumers to company (i.e. payment, goods returned, soft drink bottles) Flows Both Ways: mostly on information

The manufacturer himself, though not a direct part of the channel of distribution is involved in the flows of physical possession, ownership, risk sharing, negotiations, information and arranging for suitable promotions for the product to reach its ultimate user.

The internal (own salesforce) or external (all kinds of channel partners) contractual organization that management operates to achieve its distribution objectives.

Producer
Manufacturer is the creator of the product or originator of service

End User
May behave like channel members when buying in bulk Almost acting like retailers

Marketing channels make exchanges possible between someone who has something to offer to someone who is in need of that something exchange of products, services or even information. These exchange relationships have evolved with the maturity of markets and the development of technology

Points of production close to points of consumption (agricultural products) Industrialization and urbanization required movement of raw materials and machinery creating assortment and transportation (traders are brought in the system) After WWII, the US had a lot of inventory that needed to be marketed to release working capital. Branding was born as economies of scale ensured high production levels and inventory.

Wholesalers and retailers emerged Automobile and highway systems development in the US impacted distribution networks Marketing concept was introduced each channel member had to work on meeting the needs of his customers Relationship Marketing mere transactions were not enough, relationships need to be built for long-lasting business results

Producer Driven
Manufacturer produces and tries to reach the consumers directly (company-owned retail outlets, licensed outlets, consignment selling agents, franchisees, brokers, vending machines)

Seller Driven
Manufacturer uses wholesalers and retailers in the final stage to reach their consumers (existing retailers, department stores, supermarkets, specialty stores, discount stores, wholesalers, door-todoor sales people)

Service Driven
People who facilitate the distribution Transporters, providers of warehouse space, C&FA, Logistics service providers who take care of distribution from the gate of the factory to the retailer, couriers

Channel design depends on the product, the customers and what competition has to offer The purpose of the channel is to maximize customer service

Each channel member performs only some of the channel flows.

The channel flows performed by all the channel members put together help deliver the customer service output.

The number of channel members decides the level of the channel in operation Zero-level Channel direct distribution setup One-level Channel consists of one intermediary Two-level Channel consists of two intermediaries

ZERO-LEVEL CHANNEL Manufacturer

ONE-LEVEL CHANNEL Manufacturer Retailer

TWO-LEVEL CHANNEL Manufacturer C&FA Distributor/W holesaler Retailer

End-User

End-User

End-User

Assortment - Variety of products to suit all needs in one place Place Utility - Must be located near the consumer

Minimum cycle/waiting time - Must provide speedy delivery

Bulk Breaking - Product must be available in a lot size to suit the consumer Provide more benefits to consumers like home delivery, etc.

Vertical Marketing Systems Horizontal Marketing Systems Multi-channel Marketing Systems

Each of the channel members including the company is acting independently and trying to run a profitable business. All these entities act together as one team to provide service to the end user. Three types:
Corporate Administered Contractual

Successive stages of production and distribution are handled by one entity. This gives a high degree of control over the channel for the company. Ex: SMs SM bonus brand, medical diagnostic equipment

The ownership of the different distribution channels is not with one entity but one entity is of a certain size and influence that it can control other channel partners. Ex. Manufacturers like Nestle or P&G who can dictate terms to the retailers (stock levels, shelf space allocation, prominence of displays) This power could be exercised in gaining shelf space, special displays, commanding price policies and promotional strategies)

Convenient arrangements between channel members when they get together to obtain economies of scale or use favorable opportunities to increase their sales. Value added partnerships Ex. Franchisees, retailer cooperatives or sponsored chains

Operates between two or more unrelated companies Benefits both parties

Highly opportunistic
Could be short or long term Ex. ATMs in supermarkets, coffee outlets in the airport, retail outlets in gas stations

Adopted by companies which use two or more marketing channels to reach different customer segments. Most FMCG companies have different sets of channels to service their retail and industrial customers.

Same product sold to different market segments Unrelated products are sold in the same market The size of buyers varies selling tea to retailers and big hotels Geographic concentration of potential customers varies (urban and rural markets) The reach is difficult for certain segments

C&FA

Storage/warehousing Handling of goods loading and unloading Warehouse operating costs utilities, communication Labor costs

Distributor

Interest cost of inventory Credit extended in the market Operating expenses for distribution units vans etc Manpower cost Cost of utilities communication etc.

C&FA 1-2% margin Distributor (FMCG) 5% margin Wholesalers 1% margin