Marketing channel

DefinitionA marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption and as such which consists of all the institutions and all the marketing activities in the marketing process. A marketing channel is a useful tool for management.

Roles of marketing channel in marketing strategies:

Links producers to buyers.

Performs sales, advertising and promotion.

Influences the firm's pricing strategy.

Affecting product strategy through branding, policies, willingness to stock.

Customizes profits, install, maintain, offer credit, etc.

An example of this is an apple orchard: Apple orchard > Transport > Processing factory > Packaging > Final product to be sold > Apple pie eaten

An alternative term is distribution channel or 'route-to-market'. It is a 'path' or 'pipeline' through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor).

A marketing channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer.

The Examples of Trade Channel

1(a) If the product is directly sold to the consumer-

1(b) If the producer sells his product through a single middleman-

Producer

Consumer

Producer

Middleman

Consumer

1(c) If the producer sells his product through more than one middleman- 2(a) Industrially User

Producer

Whole seller

Retailer

Producer

Producer

Sells Representative, Production Cell

Whole Seller

Industrial User

2(b) If the product is handled over more than four times, i. ii.

Whole seller

Or

Contactors

Retailer

Broker

Sells Representative

Purchase Representative

Local Purchaser

Consumer

Producer

Local Purchaser

Broker

Commission

Merchant

Whole seller

Contactors

Retailer

Consumer

iii.

Producer

Sells Representative importer

Broker

Whole seller

Producer

Retailer

Factors to be consider in selecting middleman

Producer should consider these points in selecting middleman in order to sell his goods.

i. Number of Consumer If the number of consumer is big, then direct sell is possible. But if the

numbers of consumers are scatteredly available then direct sell is not possible.

ii. Area of Market If the area of a product is smaller and the sell is little, then direct sell will

not be is possible, because overhead cost will be higher without extending the area of market.

iii. Regularness of Market The number of purchase should be reasonable, and then the producer can

sell his product by his own shop. Even if the amount of product is lower.

vii. Sequences of Purchaser If the Purchasers are clustered in a

particular point, then own sales man is enough, otherwise middleman is necessary.

viii. Consumer Purchasing Habit It should be consider that, purchasing

habit of consumer is highly preferable, if the consumers are habituated to purchase from middlemen, then middleman is to be appointed. Otherwise middleman is not necessary.

iv. Amount of purchase The amount of purchase and choice of consumer

influence the middleman performance. If the amount is lower the producer can appoint commission merchant.

v. Nature of Market If the product can be sold in consumer goods market

then direct sell can be possible. If the product is suitable for industrial product market, then agent should be appointed.

vi. Unit Price If the unit price is higher, but number of producer is

small, then the product can be sold by the own sales man.

4 Types of Marketing Intermediaries

Marketing intermediaries, also known as middlemen or distribution intermediaries are an important part of the product distribution channel.

Intermediaries are individuals or businesses that make it possible for the product to make it from the manufacturer to the end user, essentially facilitating the sales process. According to Business Dictionary, the four basic types of marketing intermediaries are agents, wholesalers, distributors and retailers.

AgentsThe agent as a marketing intermediary is an independent individual or company whose main function is to act as the primary selling arm of the producer and represent the producer to users. Agents take possession of products but do not actually own them. Agents usually make profits from commissions or fees paid for the services they provide to the producer and users.

WholesalersWholesalers are independently owned firms that take title to the merchandise they handle. In other words, the wholesalers own the products they sell. Wholesalers purchase product in bulk and store it until they can resell it. Wholesalers generally sell the products they have purchased to other intermediaries, usually retailers, for a profit.

DistributorsDistributors are similar to wholesalers, but with one key difference. Wholesalers will carry a variety of competing products, for instance Pepsi and Coke products, whereas distributors only carry complementary product lines, either Pepsi or Coke products. Distributors usually maintain close relationships with their suppliers and customers. Distributors will take title to products and store them until they are sold.

RetailersA retailer takes title to, or purchases, products from other market intermediaries. Retailers can be independently owned and operated, like small “mom and pop” stores, or they can be part of a large chain, like Walmart. The retailer will sell the products it has purchased directly to the end user for a profit.

Why Use Intermediaries in Marketing?

Whether offline or online, if the consumer cannot find a place where he or she can complete the transaction, then regardless of the quality of the rest of the marketing mix, the marketing will be a disaster and sales will plummet. This is why channel management, especially the management of distribution channels, is crucial to those in marketing.

Unlike decisions regarding products, pricing, or promotion, distribution decisions require both intra-organizational as well as inter-organizational skills.

The product's path to the market frequently involves interaction with external agencies or intermediaries that bridge the gap between the point of production and the point of sale.

Functions of an Intermediary

Deciding whether to use an intermediary in the distribution channel depends on many factors, but essentially it involves determining whether the needs of the consumer can successfully be met by the available resources and skills of the producer. The three basic functions performed by an intermediary in the distribution channel are:

1. Transactional: This function involves adding value to the distribution channel by bringing in the intermediary's resources to establish market linkages and customer contacts. The intermediary either directly undertakes the marketing and sales function or helps to establish buyer-seller relationships by serving as a link between the manufacturer and the retailer.

2. Logistical: This function involves the physical distribution of goods. It involves sorting and storing supplies at locations within the reach of the end customer. It also breaks up the bulk production of the manufacturer into smaller portions and may include the transportation of smaller shipments to intermediaries or retailers further down the channel of distribution.

3. Facilitating: Although often confused with logistics, the facilitating functions of intermediaries supplement the entire marketing flow of the product and are separate from logistics. The facilitating functions include financially supporting the marketing chain by investing in storage capabilities. They may include facilitating sales by helping the consumer buy even when he or she does not have cash (through financing plans, purchase agreements, etc.).

Together, these functions performed by the intermediary ensure market coverage, reduce the cost of market coverage, increase the availability of cash flow in the distribution channel, and increase end-user convenience. A producer can bypass an intermediary by elimination or substitution, but the tasks performed by the intermediary cannot be eliminated.

Advantages of using an intermediary

The advantages of using intermediaries stem from the core economics of supply-chain management: market coverage, customer contacts, lower costs, systematic cash flow, etc. The intermediary adds value to the marketing of the product by bringing in specialization, marketing knowledge, capacity to segment the market, and selling skills that allow the marketer to implement marketing strategies effectively.

Intermediaries providing logistic support increase convenience to both the producer and the consumer by offering effective delivery and pre- and post-purchase customer service as well as facilitating manufacturer services, making them indispensable to most mid- and small-scale producers.

Disadvantages of using an intermediary

Manufacturers quite often see intermediaries as parasites rather than assets. The disadvantages of using an intermediary stem from psychological apprehensions, market antecedents which have created such apprehensions, and lack of managerial skills or resources that are sufficient to balance and manage the intermediary. Fears, which may come true if the producer fails to manage the intermediary, might include:

fear of losing control

fear of losing customer contact

fear of losing customer ownership

fear of opportunistic behavior

fear of inadequate communication

fear that the objectives of the intermediary will conflict with those of the producer

fear that the intermediary will extract rather than add to value

fear of poor market management

Furthermore, an intermediary may have many of the same fears (except for the last two on the list). These fears often undermine the working relationship between a producer and an intermediary and keep them from effectively utilizing each other's resources and maximizing the potential of the marketing mix.

Marketing Channel of RiceIn general the marketing channel of rice can be introduced as bigger. The marketing channel of rice is as follows-

Fig: Marketing channel of Rice.

Producer

Government sales Center

Rice Mill

Faria, Bepari, Village Merchant

Retailer

Rice Mill

Consumer

Aratdar / Store house owner

Broker of sales zone

Retailer

Ration Consumer

Ration Shop

Faria, Bepari, and Village Merchant: These middlemen are termed on different ways in different places. They assemble rice from door to door of rice producer farmers or from local markets. They fix up prices of rice by negotiations. Now-a-days the beparies of deficit rice area come to surplus areas and thus make a relationship between the two areas. Aratdar / Store house owner: They are the second middlemen of rice marketing channel. The business area of Aratdar or Store house owner is comparatively widened than that of Faria and Bepari. The Aratdar has to take risk bearing program. They act as broken and have commission from both buyer and seller.

The Retailer: In rice business the retailer is the last step of middleman. They buy rice from Bepari and Aratdar as sell it to the consumer. They also buy rice from general producer. In rice marketing channel retailer has the most important role. For rationing program government has selected buying center of rice in surplus areas of the country. These buying centers are involved in buying rice in selling price. It is not a wide program. Only ration cardholders can buy rice from rationing rice.At present no association of Beparies and Retailers but in some other places there is association of Aratdar.

Marketing channel of juteMarketing channel of jute

Fig: Marketing channel of Jute

Producer

Bangladesh Jute Corporation

Bapari/Faria

Aratdar/Broker

Kacha Baler

Pacca baler

Exporting agent

Jute Mill

Bangladesh Jute Mill Corporation

Foreign Purchaser

Bangladesh Jute Export

Corporation

Bapari/Faria: These types of middleman are biggest in number. They move from door to door for collecting jute from producer. They also collect jute from village market. In jut marketing those middleman are the first linkage. They busy loose jute and sell these to Kacha baler or Aratdar or directly to jute mills.Aratdar amd Dalal: This type of middlemen helps to find out purchaser of jute on behalf of producer, Faria or Bapari. Before selling the jute it is to be kept under the custody of Aratdar. Aratdar’s function is flexible. He acts on commission. Some times he himself sells jute. His principal function is to make contact between seller & purchaser. The Dalal is engaged in the transaction of loose jutes. He receives commission from both seller and purchaser. The rate of commission depends on the situation of market.

Kacha baler: This type of middlemen purchase loose jute, make bales of it. These bales can not export before turning it to pakka bale. So domestic seller and purchases are occured in Kacha bale, pakka bale condition. The kacha balers sells these to shipper , Pakka balers and local mills.Bale brokers: They are quite different type of brokers. They deal with baled jutes. They are found in only some selected place like Narayngang & Khulna .They make linkage between Kacha balers, pakka baler shipper, and some time inland mill. They make assessment of saleable amount and their expected price & tentative purchasers are also selected by them.

Pakka baler/shipper: In most cases of shipper & pakka baler is the same person or institution. Their important sales centers are situated in near assembling center. They turn kacha bales into pakka bales in Narayngang, khulna & Chittagong.Broker in baled jutes: This type of middlemen are engaged in making (written) contact of selling baled jutes both as business performances in Narayngang, khulna & Chittagong terminals.