Distribution Marketing Channels

Marketing Channels

A marketing channel is a system of relationships existing among businesses that participate in the process of buying and selling products and services. Channel intermediaries are those organizations, which connect the manufacturer with the customers and help in the distribution of the product.

The intermediaries are involved in taking physical ownership of the product, collecting payments, and offering after-sales service. All these activities involve a large amount of risk and producers should suitably compensate the channel members for these activities.

Marketing channel management refers to the choice and control of these intermediaries. As more and more responsibility is passed onto the intermediaries, the marketing organization loses control over the channel and moves away from the customers.

One of the key issues is the increasing influence of a network of intermediaries and management of the power and conflict arising out of the role and responsibility between the producer and the channel members and also among the channel members.

Retailers have come to stay as one of the dynamic players in the distribution management function and in the current Indian scenario, it is one of the more challenging tasks for business managers to handle the direction and magnitude of growth in the Indian retailing industry.

So every producer wants to link his business operations with customers through a network of channel members to fulfill the overall objective of the firm. These sets of marketing intermediaries are called channel members or channel participants.

The distribution channel is the route taken by the title of the goods as they move from the manufacturer to the end user. These are envisaged as systems of economic distribution through which a producer of goods delivers them to the hands of end users.

These intermediaries act as middlemen between the producer and the customer in the distribution system. They help in the transfer of title of goods from the producer to the customer. Though the transfer of title is also possible through direct marketing, like the case of Eureka Forbes, which does not use intermediaries, for many companies, it will be an expensive affair.

The company sells its products directly to the customer and does not entertain any intermediaries. We can say that whosoever is engaged between the producer and the consumer is a member of the distribution channel.

Because of the wide variety of channel arrangements that exist, it is difficult to generalize the structure of channels across all industries. Different kinds of products demand different kinds of distribution channels.

By channel level, we mean how many intermediaries are there between the producer and consumer. Distribution channels are usually of two types, namely zero level channel or direct marketing channel and indirect marketing channel.

Direct Marketing Channel or Zero Level Channel

This type of channel has no intermediaries. In this distribution system, the goods go from the producer direct to the consumer. Companies use their own sales force to reach consumers. They do all the channel functions. A successful direct marketing company is Eureka Forbes, which markets vacuum cleaners in the Indian market.

Indirect Marketing Channel

These are typical channels in which a third party is involved in the distribution of products and services of a firm. Depending on the distribution intensity, the indirect marketing channels can be classified into the following categories:

Zero Level Channel / Direct Marketing Channel

This type of channel consists of a manufacturer directly selling to the end consumer. This might mean door-to-door sales, direct mail or telemarketing.

Example: Eureka Forbes online door-to-door sale of the water purifier. Another example could be the firms that sell through the medium of telemarketing.

One-level Channel

In this type of channel, there is only one intermediary between the producer and the consumer. This intermediary may be a retailer or a distributor. If the intermediary is a distributor, this type of channel is used for specialty products like washing machines, refrigerators, or industrial products.

Example: Sony, Panasonic, Canon, etc. sell their goods directly to large retailers and e-tailers such as Comet, Tesco, and Amazon which then sell to the final consumers.

Another example could be an Insurance company that appoints agents to reach the final customer and address their queries about selling policies

Two-level Channel

This type of channel has two intermediaries, namely, wholesaler/distributor and retailer between producer and consumer.

Example: Mobile brands such as Samsung, Nokia, etc. sell their products through this channel medium.

Three-level Channel

This type of channel has three intermediaries namely the distributor, wholesaler, and retailer. This pattern is used for convenience products.

Example: Companies such as HUL and Procter & Gamble have spread their distribution network using a three-level channel mode to reach every nook and corner of the country and increase its presence.

Four-level Channel

This type of channel has four intermediaries, namely agent, distributor, wholesaler, and retailer. This channel is somehow similar to the previous two. This type of channel is used for consumer durable products.

Example: A food manufacturer who sells to a restaurant supplier, who sells to individual restaurants, who then serve the customer, is in a four-level channel

In addition to the above-mentioned channels, different types of combinations of channels are also possible. There is no watertight classification of channels. The use or selection of a channel also depends upon the type of product under consideration.

For a consumer’s non-durable and perishable product, the channel should be short and for consumer durables, it can be longer. Industrial products are marketed through zero-level or direct marketing models. Agricultural products have longer channels due to the distant and distributed location of consumers.

Companies can also select manufacturer representatives and sales branch offices for marketing industrial products and services. So for different products, there can be different kinds of channels.

A traditional channel symbolizes forward movement whereas a backward channel covers centers like redemption centers, community groups, trash collection specialists, recycling centers, and central processing warehouses.

Role of Distribution Channels

distribution channel moves goods from producers to consumers. It overcomes the major time, place, and possession gaps that separate goods and services from those who would use them from those who make them. Marketing channel members perform many functions: buying, carrying inventory, selling,

transporting, financing, promoting, negotiating, conducting marketing research, and servicing. These functions are summarised in the following table and the smooth conduct of these functions will enable products to flow from producers to consumers in a timely and efficient manner.

BuyingPurchasing a broad assortment of goods from the producer or other channel members. Intermediaries can sometimes collect small orders from consumers and on that basis place large orders with manufacturers.
Carrying InventoryAssuming the risks associated with purchasing
and holding an inventory.
SellingPerforming activities required for selling goods to consumers or other channel members.
TransportingArranging for the shipment of goods to the desired destination. If you are planning to export products, focus on established distributors with detailed local market knowledge. Consider marketing your products on the Internet so that you can extend coverage to customers where there is no suitable physical distribution network
PromotingContributing to national and local advertising and engaging in personal selling efforts. It also includes developing and spreading communications about offers to various channel members. If channel sales represent a significant proportion of your business, develop advertising and marketing campaigns to drive business to your channel partners. Operating a training program will improve distributors’ product and marketing knowledge and enable them to deliver a higher standard of service to customers.
NegotiatingAttempting to determine the final price of goods and the terms of payment and delivery and also includes reaching an agreement on price and other terms of the offer.
Marketing Research(Information)Providing information regarding the needs of customers. Concentrate on working with distributors that give you access to an additional customer base, with no additional direct sales and marketing costs. Distributors also provide you with local market knowledge, enabling you to establish your business in new markets without incurring heavy market entry costs.
ServicingProviding a variety of services, such as credit, delivery, and returns. Appointing a manager to work with distributors enables you to monitor their performance and identify their support needs. Options include funds for advertising or direct marketing campaigns or templates that enable partners to develop their own campaigns.
  • D. J. Bowersox and M.B. Cooper, Strategic Marketing Channel Management, McGraw-Hill, 1992.

  • E. Raymond Corey, Industrial Marketing: Cases and Concepts, Prentice-Hall, 4th ed., 1991.

  • Sumit K. Majumdar and Venkatram Ramaswamy, “Going Direct to Market: The Influence of Exchange Conditions”, Strategic Management Journal, June 1995.

  • Tapan K Panda, Marketing Management, Excel Books.

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