2. What is a Marketing
Channel?
A marketing channel system is the
particular set of interdependent
organizations involved in the process of
making a product or service available for
use or consumption.
3. The Importance of Channels
• Decisions about the marketing channel system
are among the most critical facing management.
• In the United States, channel members
collectively earn margins that account for 30 to 50
percent of the ultimate selling price.
• Marketing channels also represent a substantial
opportunity cost-
– Converting potential buyers into profitable orders is
one of the chief roles of marketing channels.
– Marketing channels must not just serve markets, they
must also make markets
4. • In managing its intermediaries, the firm must
decide how much effort to devote to push versus
pull marketing.
1) A push strategy involves the manufacturer using
its sales force and trade promotion money to
induce intermediaries to carry, promote, and sell
the product to end user.
2) A pull strategy involves the manufacturer using
advertising and promotion to induce consumers
to ask intermediaries for the product, thus
inducing the intermediaries to order it.
5. The role of marketing channels
Channel Functions and Flows
A marketing channel performs the work of moving goods from producers to
consumers.
Some functions constitute a forward flow of activity from the company to the
customer; other functions constitute a backward flow from customer to the company.
A manufacturer selling a physical product and services might require three channels: a
sales channel, and a service channel.
Channel levels
A zero level channel consist of a manufacturer selling directly to the final customer.
Major examples are door to door sale, mail order.
A one-level channel contains one selling intermediary, a two-level channel contains
two selling intermediaries. These intermediates could be retailers, distributors.
As the no. of levels increase the level of difficulty of information sharing and
coordination also increase. Channels normally describe a forward movement of
products from source to user.
Service Sector Channels
Marketing channels are not limited to the distribution of physical goods. Producer of
service and ideas also face problem of making their output available and accessible to
target population.
6. Channel Development
• A new firm typically starts as a local operation
selling in a limited market, using existing
intermediaries. If the firm is successful, it might
branch into new markets and use different channels
in different markets.
• International markets pose distinct challenges.
Customers’ shopping habits can vary by countries.
• The channel system evolves as a function of local
opportunities and conditions.
7. Hybrid Channels
• Companies that manage hybrid channels must
make sure these channels work well together and
match each target customer’s preferred ways of
doing business.
• Customers expect channel integration,
characterized by the following features:
– The ability to order a product online and pick it up at a
convenient retail location
– The ability to return an online ordered product to a
nearby store of the retailer.
– The right to receive discounts based on total online
and off-line purchases.
8. Rural Distribution
Traditional Channels
for Reaching Out to
Rural Customers
• Haats
• Mandis
• Melas
Innovative Distribution
Channels for Rural
Markets
• Hub and Spoke
• Model
• Mobile shops and offices
• Linkage with community
based organizations
(SHGs, NGOs, and
cooperatives
10. 1. Habitual shoppers- purchase from same place in
the same manner over time.
2. High value deal seekers-know their needs and
channel surf a great deal before buying at lowest
possible price.
3. Variety-loving shoppers- gather information in
many channels take advantage of high touch services
and then buy in their favourite channel, regardless of
price
4. High-involvement shoppers-gather information
in all channels, make their purchase in a low-cost
channel, but take advantage of costumer support
from high touch channel
11. Channel Levels
• The producer and the final consumer are part of
every channel.
• A zero-level channel (also called a direct-
marketing channel) consists of—a manufacturer
selling directly to the final consumer.
• A one-level channel contains one selling
intermediary—such as a retailer.
• A two-level channel contains two
intermediaries—wholesaler and a retailer.
• A three-level channel contains—wholesalers,
jobbers, and retailers.
12. CHANNEL-DESIGN DECISIONS
Designing a marketing channel system involves
• analyzing customer needs: Lot size, Waiting and
delivery time, Product variety, Service backup
• establishing channel objectives: to minimize total
channel costs, Legal regulations and restrictions etc.
• identifying major channel alternatives: mix of
channels, the types of available business
intermediaries, the no. of intermediaries needed, the
terms and responsibilities of each channel member.
• and evaluating major channel alternatives: Each
channel alternative needs to be evaluated against
economic, control, and adaptive criteria.
13. CHANNEL-MANAGEMENT DECISIONS
• After a company has chosen a channel
alternative, individual intermediaries must be
selected, trained, motivated, and evaluated.
Channel arrangements must be modified over
time.
• Should evaluate: no. of years in business, Other
lines carried, Growth and profit records, Financial
strength, Cooperativeness, Service reputation,
locations, type of client, size and quality of sales
force.
14. • Selecting channel members
• Training channel members
• Motivating channel members
• Evaluating channel members
• Modifying channel arrangements
15. Channel Integration and Systems
Vertical marketing system
A VMS by contrast, comprises the producer, wholesaler and retailer. Acting
as a unified system.
• Corporate VMS
Administered VMS: It coordinates successive stages of production and
distribution through the size and power of one of the member.
• Contractual VMS:
1. Wholesaler-sponsored voluntary chains
2. Retailer cooperatives
3. Franchise organizations
Horizontal marketing systems:
In which two or more unrelated companies put together resources on
program to exploit an emerging marketing opportunity.
Multichannel marketing systems
It occurs when single firm uses two or more marketing channels to reach
one or more customer segments.
• Planning channel architecture
16. RETAILING
Retailing includes all the activities involved in
selling goods or services directly to final
consumers for personal, nonbusiness use.
• A retailer or retail store is any business
enterprise whose sales volume comes
primarily from retailing.
• Any organization selling to the final
consumer—no matter how or where they are
sold is doing retailing.
17. Types of Retailers
• Specialty store
• Department store
• Supermarket
• Convenience store
• Discount store
• Off-price retailer
• Superstore
• Catalog showroom
18. Levels of Retailers
• Self-service
• Self-selection:- Customers can ask for assistance.
Higher operating expenses than the previous one.
• Limited-service:- More sales assistance because
customers need more info.
• Full-service:- Provides salespeople who are ready
to assist in every phase of the locate-compare-
select process.
19. Non-store Retailing: 4 major
categories
• Direct Selling: Oldest one. 3 types:
– One-to-one selling: A salesperson visits & tries to sell products to a single
potential user. Ex: Avon, Electrolux.
– One-to-many: A salesperson goes to the house of a host who has some people
in the house. Ex: Tupperware.
– Multilevel: A variant of direct selling in which companies recruit independent
businesspeople who act as distributors for their products. These distributors in
turn recruit & sell to sub-distributors, who eventually recruit others to sell
their products, usually in customer homes. Ex: Amway,
• Direct Marketing: Includes telemarketing, TV direct response marketing &
electronic shopping. Ex: 1-800-FLOWERS, Home Shopping Network.
• Automatic Vending: Vending machines offer 24 hour selling, self-service &
unhandled merchandise. Ex: COKE, Pepsi.
• Buying Service: A store less retailer serving specific clienteles- usually the
employees of large organizations, such as schools, hospitals, unions, &
government agencies. Ex: United Buying Service
20. Major types of Corporate
Organizations• Corporate Chain Stores: Two or more outlets that are commonly owned &
controlled, employ central buying & merchandising, & sell similar lines of
merchandise. Their size allows them to buy in large quantities. Ex:
Bigbazaar, Central market
• Voluntary Chain: Wholesaler-sponsored group of independent retailers
engaged in bulk buying & common merchandising. Ex: Wal-Mart
• Retailer Cooperative: Independent retailers who set up a central buying
organization & conduct joint promotion efforts. hardware, food, agriculture
products, and even movie theatres.
• Consumer Cooperative: A retail firm owned by its customers. Started by
community residents. Ex. service co-ops such as child care, health care
clinics, and funeral services
• Franchise Organization: Contractual association between a franchiser &
franchisees. Normally based on some unique product, service or method of
doing business. Prominent in fast foods, video stores, health/fitness
centres, auto rentals. Ex: McDonald's, Pizza Hut, Taco Bell, Burger King.
• Merchandising Conglomerate: A free-form corporation that combines
several diversified retailing lines & forms under central ownership , along
with some integration of their distribution-&-management function Ex: F.W.
Woolworth, Kids Mart.
21. Changes in the
Retail Environment
• New retail forms and combinations
• Growth of intertype competition
• Competition between store-based and non-
store-based retailing
• Growth of giant retailers
• Decline of middle market retailers
• Growing investment in technology
• Global profile of major retailers
22. Kind of retailing or decisions of
retailing
• target market,
• product assortment & procurement,
• services and store atmosphere,
• price,
• communication,
• and location.
24. Location Decisions
• Central business districts
• Regional shopping centers
• Community shopping centers
• Shopping strips
• Location within a larger store
25. Indicators of Sales Effectiveness
Number of people passing by
% who enter store
% of those who buy
Average amount
spent per sale
26. Wholesaling Functions
• Selling and promoting
• Buying and
assortment building
• Bulk breaking
• Warehousing
• Transportation
• Financing
• Risk bearing
• Market information
• Management services
and counseling
28. • Merchant Wholesalers – These wholesale suppliers own and produce a
product or service and resell their products to
resellers, retailers, distributors and other wholesalers. If you can buy the
products you require direct from the supplier you will usually be able to
obtain the best prices and profit margins.
• General Wholesalers - Wholesalers that fall into this category will usually
buy large quantities of products from one or more suppliers and will be
intending to add value to them by reselling in smaller quantities to
distributors, retailers and resellers. This type of wholesale supplier will
often have multiple suppliers adding diversity to their product range and
choice for their customers. This type of wholesaler may resell products from
a number of different industries and in several different categories.
• Speciality Wholesalers - This type of wholesaler will resell products in a
specific industry or product category, but may have products from multiple
suppliers. Because specialty wholesalers specialize in a specific industry or
product type they tend to have good product knowledge and good pricing.
29. • Specific Product Wholesalers - These are wholesalers who only supply 1
type of product for example footwear or computers. They may supply
several brands but only within one product category. Manufacturers often
use this type of wholesaler to distribute one or more of their products.
• Discount Wholesalers – This type of wholesaler will supply significantly
discounted stock. Generally the stock is discounted because the products
are discontinued lines, returned goods or refurbished goods.
• Drop Ship Wholesalers - This type of wholesaler will complete the sale of a
product but will have it dispatched from their supplier directly to their
customer without actually handling the goods.
• On-line Wholesaler - Wholesalers who sell their products on-line offer
discounted prices as they can reduce their overheads such as rent and rates
of physical premises. This type of wholesaler is therefore able to add a
lower percentage to their purchase price and still make margin.
30. What are
Integrated Logistics Systems?
Physical distribution has now been expanded
into the broader concept of supply chain
management
An integrated logistics system (ILS) includes
materials management, material flow systems,
and physical distribution, aided by information
technology.
31. Market logistic 4 steps:
Ist
• Deciding on the company’s value proposition to its
customers
IInd
• Deciding on the best channel design and network
strategy for reaching the customers
IIIrd
• Developing operational excellence in sales forecasting,
warehouse management, transportation management,
and materials management
IVth
• Implementing the solution with the best information
systems, equipment, policies, and procedures
32. Market Logistics
• Sales forecasting
• Distribution scheduling
• Production plans
• Finished-goods
inventory decisions
• Packaging
• In-plant warehousing
• Shipping-room
processing
• Outbound
transportation
• Field warehousing
• Customer delivery and
servicing
33. Four major decisions must be made
with regard to market logistics:
Order
Processing
Warehousing
Inventory Transportation
