UNIT:1

Introduction marketing channels

-Defining a marketing channel,-Functions & flows in:

a) Consumer product channel

b) Industrial product channel, -Bucklin’s theory of
service outputs .
 WHAT ARE MARKETING CHANNELS
 TYPES OF INTERMEDIARIES
 WHY ARE INTERMEDIARIES NEEDED
 VARIOUS LEVELS OF CHANNELS
 FUNCTIONS AND FLOWS IN:
 CONSUMER PRODUCT CHANNEL
 INDUSTRIAL PRODUCT CHANNEL
 BUCKLIN’S THEORY OF SERVICE
OUTPUTS.
 Definitions

Marketing channels can be viewed as sets of interdependent

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

These organizations are also called channel intermediaries.

Example : Distribution Channel for HLL ( FMCG )

Company  C & FA  Distributor  Retailer  Customer

Co  CFA  Distb. Wholesaler Retailer  Customer

Wholesaler  Customer
Example : Distribution Channel for LG

Company  C & FA  Dealer  Customer

Co.  CFA  Distributor  Dealer  Customer

Example : Distribution Channel for MRF Tires

Company  C & FA  Dealer  Customer

Co.  CFA  Distributor  Dealer (sub-dealer ) Customer

Company  Car Manufacturers ( as O.E.M. supply )

 Basic
Understanding common usage of channel terminologies: terms

Who is a distributor?

Any organization predominantly selling to other channel

Intermediaries ( like wholesaler / retailer or sub dealer ) & a
very small component to end consumers (if at all ).

A distributor is also called stockist in the FMCG business.

Who is a retailer?

Any organization which sells predominantly to the end consumers.

Also called dealer / sub dealer in the CD business in case of

Direct supply by C&FA or Distributor.
 Basic
terms
Understanding common usage of channel
terminologies:
Who is a wholesaler?
Any organization selling to other channel intermediaries ( like
retailer or sub dealer ) along with the end consumers. Normally
are financially sound and able to give at a price less than
distributor ( bust does not provide service ).

The terms are used in trade specific manner and

depend on subjective interpretation & tradition.
They also vary from one organization to another. The
Bottlers act as the manufacturer cum C&FA for Coke
 Role of
Channe
Why channels are needed ?

Transactional efficiency:

P1 P2 P3 Total transactions

3 producers
5 customers

= 3 X 5 = 15 nos.

C1 C2 C3 C4 C5
 Role
Role of
of
Channe
Channe
Why channels are needed?

Transactional efficiency:

P1 P2 P3 Total transactions

3 producers
Intermediary 1 intermediary
5 customers

= 5 + 3 = 8 nos.
C1 C2 C3 C4 C5

Each transaction has cost associated, so reduction

In number of transaction leads to reduction in cost.
 Role of
Channe
Why channels are needed ?

Discrepancy of assortment of producer & buyers needs.

Companies manufacture one or a few products in large
quantities while customers buy large number of products in
small quantities.

Retailers add value to the consumers by selling different

products under one roof. Reduces search and procurement
effort for the consumers and increases brand choice.

The objective of the channel is to reduce the cost

& time of reaching the target customers.
 Role of
Channe
Why channels are needed?

Breaking the bulk

Companies can not sell in small lot sizes while customers need
Only small lots.

The channels breaks the bulk, reducing the investment cost of the
Consumers and reducing the overhead cost of companies.

Economic lot size for refrigerator delivery is 20-27 nos. For

cold drinks it is one crates etc.
 Role of
Channe
Why channels are needed?

Cost efficiency

The manpower cost of marketers is normally higher than the

intermediaries.

Wherever the skill level required for the job are low, it makes
commercial sense to use lower cost manpower.

Example : Order taking for cigarettes ( most products with good

Consumer pull ).
 Role of
Why channels are needed? Channe

Routinization

The ordering , delivery & payment processes are routinized this

reduces the negotiation and bargaining associated with each
transaction. This improves the efficiency of the transaction.

Normally terms of business are negotiated for a fixed period of time

No further discussion takes place during the time.

The objective of the channel is to reduce the cost

& time of reaching the target customers.
 Role of
Channel
Flow in marketing Channel ( summary )

1.Physical possession
2.Ownership
S 3.Promotion
E
B
L 1. Financing 2. Risking U
3. Negotiation Y
L
E
E R
1.Order 2. Payment
R
 Channe
Designin
Functions of a marketing channel

Obtaining demand Servicing demand Feedback

Prospecting Transport
Bulk
Breaking Service
Assortment Credit
Promoting

Storage
 Channel
Designing
Channel Levels

M A N U F A C T U R E R

0 1 2 LEVEL
L L
E E
V WHOLESALER
V
E E
L L
R E T A I L E R

C O N S U M E R
 Channel
Designing
Channel Designing Approach

1. Analyze your current channel.

- discussion with channel members.
- w.r.t. Competition.
- based on secondary / research data.

2. Understand the target customer requirement ( Vs willingness to pay )

- qualitative analysis.
- quantitative analysis.
- Segment the customer requirements if possible.

3. Decide on what management considers feasible / willing to address

- cost – benefit analysis of customer & company requirements.
- consider the option of direct / outsourced services.
 Channel
Channel Designing Approach Designing

4. Map the situation

- existing situation ( as analyzed )
- ideal situation ( as required by customers )
- to what extent the management is ready to meet customer
needs.

5. Decide new channel based on cost - benefit of the change

In most cases the implementation of the design is

the issue. However design efficiency
is important.
 Managing
Channel
Aim of channel management

Satisfying the needs of

Consumers Channel
Company
Members

Business Social self

(commercial) (relationship)
 Managing
Channel
Managing marketing channels
Need for channel management / Job of channel manager

1. Maximize Sales Revenue w.r.t Sales Cost ( Channel

Productivity )
and meet revenue & cost budgets.
2. Prevent & Resolve intra & inter channel conflict.
3. Manage non ideal situation w.r.t. manpower / supplies / quality.
4. Manage competitors onslaught at overall & case to case
situations.
5. Monitor effective communication flow.
6. Provide
Likeleadership formarketing
any system, effective channel
channelsmanagement.
also require
Proper servicing to give optimum output and
Have the potential to break down.
 Channels for Consumer Products 3
Direct Retailer Wholesaler Agent/Broker
Channel Channel Channel Channel
Producer Producer Producer Producer

Agents or
Brokers

Wholesalers Wholesalers

Retailers Retailers Retailers

Consumers Consumers Consumers Consumers

Chapter 12 Version 6e 20
 Channels for Business-to-Business 3
Products
Direct Industrial Agent/Broker Direct
Channel Distributor Channel Agent/Broker Channel
Industrial
Producer Producer Producer Producer
Channel Producer

Agents or Agents or
Brokers Brokers
Industrial Industrial
Distributor Distributor
Industrial Industrial Industrial Industrial Government
User User User User Buyer
Chapter 12 Version 6e 21
 KINDS OF MARKETING SYSTEMS

 VERTICAL MKTING. SYSTEMS

 HORIZONTAL MKTING. SYSTEMS
 MULTICHANNEL MKTING. SYSTEMS
 VERTICAL MKTING. SYSTEMS

• A vertical marketing system (VMS) is one in

which the main members of a distribution
channel--producer, wholesaler, and retailer--
work together as a unified group in order to
meet consumer needs.
• An example of forward integration might be
ITC buying wheat from farmers to produce
Aashirwad atta and Sunfeast biscuits recently.
 HORIZONTAL MKTING. SYSTEMS
TWO OR MORE UNRELATED COMPANIES PUT
TOGETHER RESOURCES TO EXPLOIT AN
EXPLORING MKTING. OPPURTUNITY.
Horizontal Mktng systems are : those in which
members at the same level in a channel of
distribution band together in strategic alliances
or joint ventures to exploit a new marketing
opportunity.
 HORIZONTAL MKTNG SYSTEMS:
• Joining of two or more corporations on the
same level for the purposes of pursuing a new
marketing opportunity. Usually a horizontal
marketing system is established so that the
individual members can combine resources to
make the most out of the marketing situation.
• Products from each member can be marketed
and/or distributed together, such as a bottle
manufacturer combining with a producer of
dehydrated salad dressing preparations.
 MULTI CHANNEL MKTING. SYSTEMS

IT OCCURS WHEN A SINGLE FIRM USES TWO OR

MORE MKTING. CHANNELS TO REACH ONE OR
MORE CUSTOMER SEGEMENTS.
• The term has become popular since the advent of
the Web, because it adds a prominent new channel
to storefronts and catalog sales.
• One consideration of multichannel marketing is that
each channel reinforce the other.
• For example, information taken from sales on one
channel be used to help the customer when making
a purchase on another channel of the same vendor.
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• Push strategy
– Low brand loyalty
– Product benefits to be made aware of
– Brand choice made in store

Marketing
Activities
Deman
d

Demand
30
• Pull strategy
– High brand loyalty
– High involvement product
– Consumers able to perceive differences between
brands
– Brand chosen before store
Deman Deman
d d

Marketing Activities 31
 Bucklin’s Theory
• Bucklin’s Theory: determining channel
structure
• TRENDS
– B2B
– B2C
• Meeting Service Output Demands

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Bucklin’s Theory: determining channel structure

• channel systems remain viable by performing

duties that reduce end-users’ search, waiting
time, storage and other costs…the service
outputs”
– Bulk–breaking
– Spatial convenience
– Wait time
– Product Variety

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 TRENDS - B2B
• Outsourcing
• Downsizing

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 TRENDS - B2C
• Poverty of Time
• Increased Product Knowledge
• Increased Income Polarity
• Increased Self-Employed #s

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 Meeting Service Output
Demands
• Cost
• Competitiveness
• Ease of Entry
• Elements of Marketing Excellence

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