marketing channels

Marketing Channels

Marketing Channels Companies use intermediaries for taking

their products to users. All such intermediaries constitute Marketing Channels.

Each company picks specific combination of marketing channels.

Channels play a pivotal role in value delivery. They deliver value by actually delivering the product & the supporting services to the consumers.

Role & Functions of Channels

Breaks the bulk and caters to the small size needs of customers.

Takes care of the various flows involved in distribution.

The physical flow of the products.The title/ownership flowThe risk flowThe payment flowThe information flowThe promotion flow

Role & Functions of Channels

Connects the Consumers to the company

Provides the Distribution efficiency to the company.

Minimizes the number of contacts needed for reaching consumers.

Provides SalesmanshipHelps in price MechanismAssists in merchandisingA vital source of competitive advantage

Classification of Distribution Channels

Producer Consumer

Producer

Producer

Retailer

Wholesaler

Consumer

Retailer Consumer

Producer Distributor Wholesaler Retailer Consumer

Types & Characteristics of Channels


Sole Selling Agent- When the manufacturer prefers to keep itself out of marketing & distribution task, it appoints a suitable agency as his sole selling agent.

The agency has large resources & a large territory to operate. It takes care of most of the distribution & marketing functions on behalf of the producer.


C&F Agent- This is another form of marketing Channel who are also known as Clearing & Forwarding Agents. They supply stocks to the wholesalers & retailers on behalf of the manufacture.

They do not resell the products, but merely transfers them.


Wholesalers / Stockist- is also a large operator. They keep large quantities of products & normally resell to retailers.

Wholesalers generally specialize , some by product, some by industry & some by markets.

The rationale for their existence is their cost effective operation in buying goods in large quantities & reselling them to other channels in smaller yet sizeable lots.


India has a strong wholesale network. In FMCG products , it accounts for over 40% of the total turnover.

P&G delivers Vicks in over one million stores through its wholesale network.


Retailer- Retailer or dealers sell directly to the final customers. They are at the bottom of distribution hierarchy.

They operate relatively in smaller territory. The stocks they keep are operational stocks, necessary for immediate sale at the retail outlet.

They buy the assorted products in suitable lots & resell them to households.

Service Channels

Service Provider

Consumer

Service Provider Agent Consumer

Service Channels Service Provider to Agent to

Customer- Agents are used when the service provider is geographically away from the customers & when it is not economical for the provider to establish its own local sales team.

Many financial institutions use this kind of channels to distribute their services.

Designing distribution Channel System

If the company decides to go for intermediaries, it can consider different types of channels. The company can also structure its channels in different ways.

It can have a single tier or two tier or a three tier channel structure.

The company may decide to reach different market segments with different channel arrangements or with the same channel structure.

Steps involved in designing a Channel System

Formulating the Channel objectives- Channel objectives will determine the channel design.

If HUL decides that lifebuoy should be available in more than 80% of the villages in India, its channel design has to be very intensive in nature.

A multi tier channel system having C&F agents, distributors, retailers are what is required.


Some examples of how the Channel objectives decide the channel design.

Reliance Textiles- Objective was to project the exclusive image of Vimal fabrics, concentration on urban market to fall in line with segmentation strategy

The company decided to go for exclusive showrooms. They had jumbo showrooms in all major cities & concentrated on class one towns.


ITC Tobacco division- The objective was to ensure easy availability of ITC cigarettes, build brands through merchandising.

The company went for CFAs as well as wide network of retailers.

Archie’s Gifts & Greetings- Proximity to the customers. Make purchases of cards/gifts an enjoyable experience.

• The company established outlets close to target buyers. Went for trendy interior design & peppy ambience.

Channel Objectives differ from Company to Company

Chambour range of cosmetics is sold through just 35 outlets in the country, while Lakme range is sold through 125000 outlets.

The two channel system differ not merely in the intensity of the retail outlet but in other aspects f channel design as well.


Identifying the Channel Functions- Identification of the functions to be performed by the channels is the next step in designing the channel system.

Linking the Channel design to Customers characteristics- Another step in channel design. The company may decide to sell either through discount superstore or a classy boutique


Linking the channel design to product characteristics- Special products may need special channels.

For example Mont blanc suit case is only available at handful of outlets in the country.

Similarly convenience goods need different channel design as compared to shopping & specialty goods.


Industrial goods are different from consumer goods hence would require different channels.

The consumer goods are not complex in nature, consumed more frequently & require very little or nil after sales service hence need different channels for distribution.

Industrial goods need specialized distributors with special demonstration & storage facilities.


Even the product life cycle stages also influence the channel choice.

Evaluating the distribution environment- While selecting the channel design the company must evaluate the vital features of distribution environment.

The design must conform to norms regarding practices such as exclusive dealership, exclusive territorial rights, re-sale price maintenance.


Evaluating the Competitor’s Channel designs- The company must evaluate the pros & cons of the channels adopted by the competition & select the best.

Matching the Channel design to Company resources- The companies must ensure that their channel design must match their resources. The companies with limited resources must go for conventional designs.


Evaluating the alternatives & selecting the best-

The points here to be considered are

Cost

Efficiency

Risk


Choosing Channel intensity & number of tiers-

Channel Intensity-

Intensive Distribution

Selective Distribution

Exclusive distribution

Wrong Choice of Channel Intensity

P&G and Nestle- P&G had earlier gone in for 200 stockists & 4000 retailers but still the channel productivity remained low.

The company’s sales were primarily coming from urban areas. The company was incurring a large cost on channels.

The company had to derecognize more than 150 stockists & thousands of retailers.


The company had to follow the ECP approach which focuses on containing costs 7 improving bottom lines.

In this approach the stocks are replenished at more frequent intervals. This enables the retailers to operate with smaller inventories hence a cut in retailer’s margin would be in order.


The company drastically cut the trade margins. The stockist margin from 10 to 3% 7 the retailers margin from 12 to 8% which led to resentment among the channels.

Nestle also embraced the HUL like channel model & added 350000 retail points. As its sales were nowhere HUL’s, the company could not sustain the channel intensity. The company also weeded out the products that were low profits products.

Channel Management

Channel Management Every company has to manage the

channels that it selects to distribute its goods & services. The companies have to perform many functions to ensure the channel efficiency and motivation.

Channel Selection- The channel selection has be done with a lot of precision. The small producers face a lot of difficulty in convincing the dealers to carry stocks by offering them extra incentives.

marketing channels

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