Prepared By,Sagar Gadekar

MARKERTING CHANNELS

Definitions of Marketing Channels

According to American Marketing Association,

“A channel of distribution, or marketing channel, is the structure of intra-company organization units and extra company agents and dealers, wholesale and retail through which a commodity, product or service is marketed.”

According to Philip kotler, “Every producer seeks to links together the set of

Marketing intermediaries that best fulfill the firm’s objectives. This set of marketing intermediaries is called the Marketing Channels. (Also called Trades channel or Channel of Distribution.)”

Definitions of Marketing Channels

According To William J Stanton, “ A Channel of distribution for product is the

rout taken by the title to the goods as they move from the producer to the ultimate consumer or industrial user.”

According to Cundiff, Still and Govani,

“Marketing channel are the distribution network through which producers produce flow to the market.”

The major focus of channel of distribution is delivery. It is only through distribution that public and private goods and services can be made available for the use of consumptions.

The emergence and arrangement of wide variety of distribution oriented institution and agencies, typically called Intermediaries because they stand between production on other hand and consumption on other, can be explained in following terms;

i. Intermediaries can improve the efficiency of the process.

ii.They help in the proper arrangement of the rout of transactions.

iii.They help in the searching process.iv.They help in sorting process.

Objectives of the Marketing ChannelsTo ensure the availability of products at the

point of sale.To build the channel members loyalty.To stimulate channel members to put greater

selling efforts.To develop managerial efficiency in the

channel organization.To identify your organization at buyer level.To have an effective and efficient distribution

system, to make your product and services available.

Consumer and Business Channels

Channels of ServicesMost services are produced and consumed at

the same time. Services are distributed through short channels. So to buy financial advice you go to the people providing these services so the most common channel is A (Direct one).

When services use intermediaries they are usually agents or brokers e.g. Insurance and Airline services.

Service Provider – Service userService Provider – Agent – Service UserProducer – Agents – Organization buyersProducer – Agents – Distributors – Organization

Buyers

Five Marketing Flows in the Marketing Channel for Forklift Trucks

Importance of Marketing ChannelsTime and Place utility.Convenience to Consumers.Relive from Marketing Problems.Information to the producer.Stability in Prices.Promotional Activities.Storage of finished goods.Finance the producer.

Importance of Marketing ChannelsTime and Place utility.-

Channel of distribution helps the consumers to buy goods at the time and place they need them. They create time and place utilities to the buyer.

Convenience to Consumers.Channel of distribution helps the consumer to buy in convenient units, lots, packs and assorted varieties of the product.

Relive from Marketing Problems.They help the producer in his production function by relieving him by marketing problem. Thus, the producer can pay is full attention towards organization production function only smoothly to earn high rate of return.

Importance of Marketing ChannelsInformation to the producer.

The channel of distribution provide information to the producer regarding the taste and needs of consumers, competition in the market, current market trends and the product condition increased volume of sales because they have complete knowledge of the market.

Stability in Prices.The channel of distribution helps in stabilizing prices of the product by stocking goods balancing demand and supply.

Promotional Activities.They perform promotional activities like advertising personnel selling and sales promotion etc. so as to assist the producer in achieving greater market share in sales and market coverage of product.

Importance of Marketing Channels

Storage of finished goods.The channel of distribution keep the producer free from the problems of the storage of finished good.

Finance the producer.Channel of distribution finance the producer as well as the consumer.

Functions of Marketing ChannelsInformation Provider.Price Stability.Promotion.Financing. Title.Help in Production Function. Matching Demand and Supply.Matching Buyer And Seller.

Channels Strategies/ Policies.

Intensive Distribution.

Selective Distribution.

Exclusive Distribution.

Intensive DistributionThe intensive is a form of distribution in which the

manufacturer distributes his products through as many outlets as possible. This type of is used for those products that are characterized by low involvement of the customer and where customers look for location convenience.

Products like chocolate, biscuits, shaving blades, soaps and detergents are distributed in this manner, so they are easily available to the customer at their nearest location.

Manufacturer are constantly tempted to move from exclusive or selective distribution to more intensive distribution to increase the coverage and the sales.

This strategy help long term but hurt long term performance.

Intensive DistributionExampleTitan watches - Titan sells its through seven

different channels; world of titan, Time zone, ValueMart, Sonata stores, Titan Signet Club, Tanishq boutiques, and private multi brand outlets. These channels – some of which are only present in selected cities – provide Titan with wide range coverage, cover different price points, and target different segments of customers. It helps Titan generate sales volume while protecting its brand image at the same time.

Selective Distribution.Here, the firm selects some outlets to distribute its

products. This alternative help to focus the selling efforts of the manufacturing firm on the few outlets rather than disappointing it over countless marginal ones.

It also enables the firm to establish a good working relationship with channel members. Selective distribution can help the manufacturer gain optimum market coverage and more control but at lesser cost than intensive distribution.

Selective distribution is appropriate for consumers shopping goods, such as various types of clothing and appliances and business accessory equipments, such as office equipments and Hand held tools.

Selective Distribution.In contrast, company may choose to be a

more selective after some experience with intensive distribution. The decision to change usually hinges on the high cost of intensive distribution or the unsatisfactory performance of middlemen.

A firm may move towards more selective distribution to enhance the image of its products, strengthen customer services, improve quality control, and or maintain some influence over its prices.

Exclusive DistributionWhen the firm distributes its brand through just one or

two major outlets in the market, who exclusively deal in it and not all competing brands, we say that the firm is using an exclusive distribution strategy. This is a common from products and brands that seeks high prestigious image.

Typical example are designer ware, major domestic appliances and even automobiles.

By granting exclusive distribution rights , the manufacturer hopes to have control over the intermediaries price, promotion, credit inventory and service policies.

As the manufacturer uses a relative fewer number of distribution channel , he can maintain good relation with the channel members and as a result, expect an increased marketing effort from them.

Exclusive DistributionBranded menswear like color plus, Arrow,

Zodiac, Lee and so on are available at exclusive showroom as well as other distribution channel.

Attributes

Intensive Distribution

Selective Distribution

Exclusive Distribution

Objectives

Wide spread market coverage, channel acceptance, high volume sales and high profits.

Moderate Market coverage, solid image, some channel control and loyalty, good sales and profits

Prestige image, channel control loyalty, prices stability and high margins.

Resellers

Many in number, all type of firms (outlets)

Moderate in number, well established better firms (outlets)

Few in number, well established, reputable fir outlets (Outlets)

Customers(Final consumers)

Many in number, convenience oriented.

Moderate in number, brand conscious, somewhat willing to travel to store.

Fewer in no., trends setters, willing to travel to store, brand loyal.

Major Weakness

Limited channel control.

May be difficult to crave out niche

Limited sales potential.

Marketing Emphasis

Mass advertising, nearby location, items in stock.

Promotional mix, pleasant shopping condition, good services

Personal selling, pleasant shopping conditions, good services.

Channel DesignSteps involved in Designing a Channel

System.1.Formulating Channel Objectives.2.Identifying Channel functions.3.Linking design to Product

Characteristics.4.Evaluation of the distribution

Environment.5.Evaluation of competitors Channels

Design.6.Matching Channel Design to Company

Resources.7.Evaluating the Alternatives and

Selecting the Best.

Step I - Formulating Channel Objectives.Formulation of channel objective is the first step in

designing a channel systems. The objective clarify what is to be achieved by having the channels. All firm seeks to realize certain common objectives by having the channel. In addition, they may also have some specific objectives depending on unique circumstances.

The common objectives are a)The effective coverage of target market.

b)Efficient and cost effective distribution.

c) Ensuring that consumer incur minimum effort in procuring product.

d)Helping the firm to carry on manufacturing uninterrupted, confidence that the channels will take care of sales.

e)Partnering the firm in financing and sub distribution.Step II – Identifying channel functions.There are various functions of channel like, Information

Provider, Price Stability, Promotion, Financing, Title, Help in Production Function, Matching Demand and Supply, Matching Buyer And Seller.

Step III – Linking Channel Design to Product Characteristics.Different product requires different channel systems. The

firm should analyze the characteristics of product and choose the channel system that matches the product best. Consumer goods and the and industrial goods, for example, need different channels. And within the category consumer goods, different sub-category such as convenience goods, shopping goods, and specialty goods may need different channels.

Step IV – Evaluation of the Distribution Environment.While selecting the channel design, the firm should also

take account the distribution environment pertaining in the country/territory. It should evaluate the vital features of the distribution environment and ensure that the proposed channel design is compatible with them. Distribution environment in the broader sense includes the trade related legal environment as well. The legal implication of channel design must be carefully examined before taking a final decision.

Step V – Evaluation of Competitors Channel Design.The firm should also study the competitors channel

patterns before deciding its channel design. While the firm may not necessarily follow the competitors in channel design, it should analyze the plus and minus of channel pattern adopted by each of its competitors.

Step VI – Matching the Channel Design to Company Resources.

I. Firm with the Limited Resource Settle for conventional channels – firm with limited resources and small volume of business will normally find it difficult and uneconomical to opt for own channels. For such firms, establishing branch showrooms/depots/retail outlets of their own will result in high distribution cost , which they can not afford. They are better of by depending on unconventional channels.

Firms with larger resources have more options – Firms with larger resources and larger marketing operation can go in for varied distribution channels. In fact, in India firms which may are strong resources usually operates two parallel channels one reaching out to the customers through company depots and showrooms and other through conventional intermediaries.

Step VII - Evaluating the alternative and selecting the best.

Economic evaluation; Balancing cost; Efficiency and Risk.

Conceptual Evaluation; Flexibility and Capability.

Channel Management Decisions.

Selecting Channel Members.

Training and Motivating Channel Members.

Evaluating Channel Members.

Modifying Channel design and Arrangement.

Selecting Channel Members.Producer vary in their ability to attract qualified

intermediaries. Whether producer find it very easy or difficult to recruit intermediaries, they should at least determine what characteristics distinguish the better intermediaries. They will want to evaluate number of year in business, other lines carried, growth and profit record, solvency, cooperativeness and reputation.

If the intermediaries are sales agent, producer will want to evaluate number of character of other line carried and the size and quality of sales force. If the intermediaries are department store and want exclusive distribution, the producer will want to evaluate locations, future growth potential and type of clientele.

Selecting Channel Members.Market considerationa)Consumer or industrial Market.b)Number of potential customers.c)Size of order.d)Buying habits of customers.e)Geographical concentration of Market.Product Considerationsa)Unit value.b)Product Line.c)Standardized Product.d)Technical Nature.e)Bulk and weight.

Selecting Channel Members.Company Consideration1.Volume of Production.2.Financial Resources.3.Experienced and competent Management.4.Services provided by the channels.5.Desire for control of channels.Middleman Consideration1.Availability of desired middlemen.2.Financial ability.3.Attitude of middlemen4.Sales potential5.Cost6.Competition and legal constraints.

Training to Channel MembersCompanies need to plan and implement

careful training programs for their distributors and dealers, because the intermediaries will be viewed as the company by end users.

Field TrainingOrientation Programme.Training for Paper work.Training for Paper work.Training for Care of Company Products.Technical Training.Installation Training.Servicing Training

Motivating Channel MembersA company needs to view its intermediaries in

the same way that it views end users. The company needs to determine intermediaries need and construct a channel positioning such that its channel offering is tailored to provide superior value to these intermediaries.

The company provide training programme, market research programme and other capability building programme to improve intermediaries performance. The company must constantly communicate its view that the intermediaries are partner in joint effort to satisfy end using consumers.

Motivating Channel MembersCoercive Power: Coercive Power occurs when manufacturer

threatens to withdraw a resources or terminates a relationship if intermediaries fail to cooperate. This power can be quite effective if intermediaries are highly dependent upon the manufacturer. But the exercise of coercive power produces resentment and can lead the intermediaries to organize countervailing power.

Reward power:It occurs when the manufacturer offer

intermediaries an extra benefits for performing specific acts or functions. Reward power typically produces better results than coercive but it can be overrated.

Motivating Channel MembersExpert Power:Expert power can be applied when the manufacturer has

special knowledge that the intermediaries value. Once the intermediaries acquires this expertise, however the expert weakens. The manufacturer must continue to develop new expertise so that intermediaries will want to continue cooperating

Legitimate Power:Legitimate Power is wielded when the manufacturer requires

a behavior that is warranted under the contract. The manufacturer feels it has this right and the intermediaries have this obligation. As long as the intermediaries view the manufacturer as a legitimate leader, legitimate power works.

Referent Power:It occurs when the manufacturer is so highly respected that

intermediaries are proud to be associated. Companies such as IBM, caterpillar and Hewlett-Packerd have high referent power.

Evaluating Channel MembersEvaluation provides the information necessary to

decide which channel members to retain and which to drop. Shortfalls in distributor skills and competences may be identified through evaluation and appropriate training programmes organized by producer.

Evaluation criteria includes sales volume and value, profitability, level of stocks, quality and position of display, new account opened, selling and marketing capabilities, quality of services provided to customers, market information feedbacks, ability and willingness to keep commitment, attitudes and personal capabilities.

Dell

Dell revolutionized the personal computer category by selling product directly to customer via telephone and later the internet, rather than through retailers. Customer could custom design the exact pc they wanted, and rigorous cost cutting allowed for low everyday price. Sound like a winning formula? It was for almost two decades. But 2006 saw the company encounter a number of problems that led to step stock price decline. First, reinvigorated competitors such as HP narrowed the gap in productivity and price. Always focused more on the business market, dell struggled to sell effectively to the consumer market. A shift in consumer preferences to buy in retail stores as opposed to buying direct didn’t help, but self- inflicted damage from an ultra efficient supply chain model that squeezed cost- and quality- out of customer service was perhaps the most painful. Managers evaluate call center employees primarily on how long they stayed on each call- a recipe for disaster as scores of customer cell center employees

Primarily on how long they stay on each call- a recipe for disaster as scores of customer felt there problem where ignored or not properly handled . A lack of R&D spending that hindered new product development.

Design various marketing channels for Dell and give its various functions and importance.

Govt. of India recently announced introduction of 3g spectrum which will enable integrated mobile services in the hand sets. Design the distribution channel for a mobile company to distribute these 3g enable hand sets and services to the end users.

THANK YOU