Marketing Channels

7
Learning Objective

Understand the nature and importance of

marketing channels
11
Define marketing channel (distribution channel)

Discuss the functions of marketing channel

Identify the major alternatives

Direct marketing channel
Indirect marketing channel
Definition of marketing
channels
Marketing
channel: system
of marketing
institutions that
promotes the
physical flow of
goods and
services, along
with ownership
title, from
producers to
consumer or
business user;
Distribution Channel

What is a Distribution Channel?

A set of organizations (intermediaries) involved in the
process of making a product or service available for use
or consumption by the consumer or business user.
Used to move the customer towards the product
Selling through wholesalers and retailers usually is
much more efficient and cost effective than direct sales.
Channel Functions

Contacting/Promotion
Transactional
Transactional Negotiating
Functions
Functions
Risk Taking

Physically distributing
Logistical
Logistical Storing
Functions
Functions
Sorting

Facilitating Researching
Facilitating
Functions
Functions Financing
Distribution Channel Functions
Distribution Channel Key Functions
Information Gathering
Gatheringand
anddistributing
distributingmarketing
marketingresearch
research
Information
about the environment
about the environment
Promotion
Promotion Developing
Developingand
andspreading
spreadingpersuasive
persuasive
communications
communications about anoffer
about an offer
Contact
Contact Finding
Findingand
andcommunicating
communicatingwithwithprospective
prospective
buyers
buyers
Matching
Matching Shaping
Shapingand
andfitting
fittingthe
theoffer
offertotothe
thebuyers
buyersneed
need
Negotiation
Negotiation Agreeing
Agreeingon
onprice
priceand
andterms
termsofofthe
theoffer
offerso
so
ownership or possession can be transferred
ownership or possession can be transferred
Physical
Physical Distribution:
Distribution:transporting
transportingand
andstoring
storinggoods
goods
Financing
Financing Acquiring
Acquiringand
andusing
usingfunds
fundstotocover
coverthe
thecosts
costsofof
channel
channelwork
work
Risk
RiskTaking
Taking Assuming
Assumingfinancial
financialrisks
riskssuch
suchas asthe
theinability
inabilitytoto
sell
sellinventory
inventoryatatfull
fullmargin
margin
Channel Levels

Direct Channel
A marketing channel that has no
intermediary levels.

Indirect Channel
A marketing channel containing one
or more intermediary levels.
 TYPES
TYPES OF
OF MARKETING
MARKETING CHANNELS
CHANNELS

Alternative
Marketing
Channels
 Dell

Dell
Computer:
A Direct
Seller
of Computers
Dells success
is due to their
direct selling
model
L.L. Bean sells direct via the Internet,
telephone and mail catalogs
Channel Intermediaries

A
A channel
channel intermediary
intermediary that
that
Retailer
Retailer sells
sells mainly
mainly to
to customers.
customers.

An
An institution
institution that
that buys
buys goods
goods
Merchant
Merchant from
from manufacturers,
manufacturers, takes
takes title
title
Wholesaler
Wholesaler to
to goods,
goods, stores
stores them,
them,
and
and resells
resells and
and ships
ships them.
them.

Wholesaling
Wholesaling intermediaries
intermediaries who
who
Agents
Agents and
and facilitate
facilitate the
the sale
sale of
of aa product
product by
by
Brokers
Brokers representing
representing channel
channel member.
member.
Wholesalers/Retailers
Wholesalers.
Merchant wholesalers.
Agents and brokers.
Manufacturers sales
branches & offices.
Retailers.
Amount of service .
Product line.
Relative prices.
Retail organization.
Types of Wholesalers
Merchant wholesalers.
Largest group of
wholesalers.
Account for 50% of
wholesaling.
Two broad categories:
Full-service wholesalers.
Limited-service
wholesalers.
 Types of Wholesalers

Brokers and agents.

Do not take title to goods.
Perform fewer functions.
Brokers bring buyers and sellers together.
Agents represent buyers on more permanent basis.
Manufacturers agents are most common type of agent
wholesaler.
Types of Wholesalers
Manufacturers sales branches and
offices.
Wholesaling by sellers or buyers
themselves rather than through
independent wholesalers.
Wholesaler Marketing
Decisions
Wholesaler
strategy.
Target market.
Service
positioning.
Wholesaler
marketing mix.
Product and
service
assortment.
Prices.
Promotion.
 What is Retailing?

Retailing
includes all
the activities
involved in
selling
products or
services
directly to
final
consumers
 Retailing Functions

Information function to customers and

manufacturers.
Product function help define products.
Price function promotions, negotiation.
Place function convenience to consumers.
Promotion function run their own promos.
Ownership function take title and absorb the risk.
Classifying Retailers
Amount of service they
offer.
Breadth and depth of
product lines.
Relative prices
charged.
How they are
organized.
Amount of Service

Self-service Limited-service Full-service retailers:

retailers: retailers: Usually carry
Serve customers Provide more more specialty
who are willing to sales assistance goods for which
perform their own because they customers like to
locate-compare- carry more be waited on.
select process to shopping goods
save money. about which
customers need
information.
 Product Line Retailers

Specialty stores.
Narrow product line, deep assortment.
Department stores.
Wide variety of product lines.
Supermarkets.
Wide variety of food, laundry, household products.
Convenience stores.
Limited line of high-turnover goods.
Product Line Retailers (contd)

Superstores.
Large assortment of food and non-food items.
Category killer.
Big box specialty store.
Service retailers.
Provide services rather than tangible goods.
Relative Price Retailers

Discount stores.
Sells standard merchandise at lower prices by
accepting lower margins and selling at higher volume.
Off-price retailers.
Buys at below wholesale sells at less than retail.
Independents.
Factory outlets.
Warehouse clubs.
Retail Organizations

Corporate chains.
Two or more outlets that owned and controlled in common.

Voluntary chain.
Wholesale-sponsored group of independent retailers that engages in group
buying.

Retailer cooperative.
Independent retailers set up a jointly owned central warehouse operation.
 Retail Organizations (contd)

Merchandising conglomerates.
A free-form corporation that combines several diversified
retailers under central ownership.
Franchise organizations.
Contractual association between a manufacturer, wholesaler
and independent business people.
Retailer Marketing Decisions

Retailer strategy.
Target market.
Retail store positioning.
Retailer marketing mix.
Product assortment.
Prices.
Promotion.
Place (location).
Channel Intermediaries

Retailers
Retailers
Take
TakeTitle
Titleto
toGoods
Goods

Wholesalers
Wholesalers
Merchant
Merchant Take
TakeTitle
Titleto
toGoods
Goods

Brokers
Brokers
and
and
Agents
Agents Do
DoNOT
NOTTake
TakeTitle
Titleto
toGoods
Goods
Factors Suggesting Type of
Wholesaling Intermediary to Use

Product characteristics
Buyer considerations
Market characteristics
Factors Suggesting Type of
Wholesaling Intermediary to Use

Factor Merchant Agents/Brokers

Wholesalers
Nature of product Standard Nonstandard,
custom
Technicality of product Complex Simple

Products gross margin High Low

Frequency of ordering Frequent Infrequent

Time between order and receipt Shorter lead time Longer lead time
of shipment
Number of customers Many Few

Concentration of customers Dispersed Concentrated

 Table 13.1: Factors Influencing Marketing
Channel Strategies

Characteristics of Short Characteristics of Long

Channels Channels

Market factors Business users Consumers

Geographically concentrated Geographically diverse

Extensive technical knowledge Little technical knowledge and

and regular servicing required regular servicing not required

Large orders Small orders

Product factors Perishable Durable

Complex Standardized

Expensive Inexpensive

Continued on next slide . . .

Table 13.1: Factors Influencing Marketing
Channel
Strategies (Continued)
Characteristics of Short Characteristics of Long
Channels Channels
Producer Manufacturer has adequate Manufacturer lacks adequate
factors resources to perform channel resources to perform channel
functions functions

Broad product line Limited product line

Channel control important Channel control not important

Competitive factors Manufacturing feels satisfied Manufacturer feels dissatisfied

with marketing intermediaries with marketing intermediaries
performance in promoting performance in promoting
products products
Channel Strategy Decisions
Click

Factors
Factors Level
Level of
of
Affecting
Affecting Distribution
Distribution
Channel
Channel Intensity
Intensity
Choice
Choice

Market
Market Factors
Factors Intensive
Intensive Distribution
Distribution
Product
Product Factors
Factors Selective
Selective Distribution
Distribution
Producer
Producer Factors
Factors Exclusive
Exclusive Distribution
Distribution
Market Factors

Customer
Customer profiles
profiles

Consumer
Consumer or
or Industrial
Industrial
customer
customer

Market Size
Size of
of market
market
Market Factors
Factors
That
That Affect
Affect
Channel
Channel
Choices Geographic location
Choices
Product Factors

Product
Product Complexity
Complexity

Product
Product Price
Price

Product
Product Standardization
Standardization

Product
Product Product
Product Life
Life Cycle
Cycle
Factors
Factors
That
That Affect
Affect Product
Product Delicacy
Delicacy
Channel
Channel
Choices
Choices
Producer Factors

Producer
Producer Resources
Resources

Number
Number of
of Product
Product Lines
Lines
Producer
Producer
Factors
Factors
That
That Affect
Affect Desire
Desire for
for Channel
Channel Control
Control
Channel
Channel
Choices
Choices
 Levels of Distribution
Intensity
Click

AAform
form of
of distribution
distribution aimed
aimed at
at
Intensive
Intensive having
having aa product
product available
available
in
in every
every outlet
outlet
A
Aform
form of
of distribution
distribution achieved
achieved
Selective by
Selective by screening
screening dealers
dealers to
to eliminate
eliminate
all
all but
but aa few
few in
in any
any single
single area
area

A
Aform
form of
of distribution
distribution that
that
Exclusive
Exclusive established
established one
one or
or aa few
few
dealers
dealers within
within aa given
given area.
area.
On Line
www.futureshop.ca
 Levels of Distribution
Intensity

Intensive
What Market
Exposure
Fits the Selective
Marketing
Objectives

Exclusive
= number of
outlets

11-8
Levels of Distribution Intensity
Looking Back

Understand the nature and importance of

marketing channels
22
Define marketing channel (distribution channel)

Discuss the functions of marketing channel

Identify the major alternatives

Direct marketing channel
Indirect marketing channel