The channel members augment the distribution function in indirect marketing. They are involved in various kinds of flows. Some of these flows are forward flows (from producer to consumer) whereas some flows are backward (from consumer to producer) flows, facilitating the smoother distribution of products and services.
These flows are based on various functions undertaken by distribution channel members. There are few flows, which are two-way in nature. The physical flow is a forward flow in which the goods physically flow from the producer to consumer.
Similarly, there is a title flow in which the ownership of the product moves from producer to consumer. The payment flow is a backward flow in which the cash moves from consumer to producer. Product promotion flow is a forward flow whereas information flow is two-way in nature as it flows from and to producers and consumers as illustrated in Figure.
So flows like physical, title, and promotion are forward flows; flows like ordering and payment are backward flows, and flows like information, negotiation, finance, and risk-taking occur in both directions.
A manufacturer needs three kinds of channels, namely a sales channel through which a sale is closed; a delivery channel through which the product is delivered, and a service channel through which the product at the customer point is serviced.
Channel management is a complex process as it not only needs integration of all three channels but also there is a high level of interdependence among the channels. A failure or poor performance in one channel may affect the other channels and also the overall channel effectiveness.
The issue here is assigning the responsibility of performing various channel functions for the smooth flow of these responsibilities by channel members. In many instances, it is not very clear who is doing what function. There should be clarity in role responsibility so that it does not lead to channel role conflict and bottlenecks in the distribution pipeline.
All the channel members use scarce organizational resources and their own resources and hence, there is a need for specialization for the smooth and effective functioning of the channel members. All channel members should function in such a way that the overall cost of serving the customer is minimized.
Role of Intermediaries in the Value Network
Intermediaries play a great role in distributing and creating value for consumers. The generic value network as proposed by Michael Porter describes the activities involved in the manufacture, marketing, and delivery of products and services by the firm.
A value network consists of two sets of components, namely primary activities and secondary activities. The primary activities include inbound logistics, operations, outbound logistics, marketing, and sales and services.
The secondary activities include procurement, technology development, human resource management, and the development of organizational infrastructure. The primary activities are value-adding activities whereas the secondary activities are value-creating activities.
A typical value network is shown in the Figure.
Value can be added during the movement of goods from the supplier’s point to the end customer through the manufacturing process at any of the identified five primary activities. Marketing channels perform an important role in the three of the latter stages, namely outbound logistics covering order processing, storage, and transportation.
Marketing and sales covering marketing research, sales presentation and demonstration, and sales promotions; and services covering repair, after-sales service and maintenance, training, and supply of spare parts In a few of rare instances, the marketing manager controls the entire value network.
So, it is important to manage the distribution channel intermediaries to minimize the cost of serving customers and optimize the competitive advantage for the firm. One should understand and analyze the role of intermediaries before making a final decision in designing the distribution channel for the benefit of the organization.