MARKETING CHANNEL CHAPTER 1:

CONCEPT OF MARKETING CHANNEL

CLO 1

• Distinguish the types, sources and resolution strategies of channel conflict and be able to relate in the current marketing situation.

LEARNING OUTCOMES

• Define marketing channel• Describe the roles of marketing channel• Describe the elements of successful marketing

channels• State the functions and flows of marketing channel• Identify the channel levels

DEFINITION

• as exchange relationships that create customer value in the acquisition, consumption, and disposition of products and services ;

OR• a set of practices or activities necessary to transfer

the ownership of goods, and to move goods, from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process. A marketing channel is a useful tool for management.

ROLES OF MARKETING CHANNEL

• An important function performed by intermediaries is their role in optimizing the number of exchange relationships needed to complete transactions.

• Channel intermediaries are individuals or organizations who mediate exchange utility in relationships involving two or more partners.

• Intermediaries generate form, place, time and/or ownership values by bringing together buyers and sellers. Intermediaries have always helped channels CRAM it: create utility by contributing to:

CRAM

Contactual Efficie

ncy

• Contactual efficiency describes this movement toward a point of equilibrium between the quantity and quality of exchange relationships between channel members.

• Without channel intermediaries, each buyer would have to interact directly with each seller.

Facilitating

Routinizatio

n

• Transaction processes are standardized to improve the flow of goods and services through marketing channels

• Routinization itself delivers several advantages to all channel participants.

CRAM Simplifying

Assortment

• Organizations strive to ensure that all market offerings they produce are eventually converted into goods and services consumed by those in their target market

• smoothing function• This function entails the conversion of raw materials to

increasingly more refined forms until the goods are acceptable for use by the final consumerM

inimizing

Uncertainty

• The role that intermediaries play in reducing uncertainty is perhaps their most overlooked function.

• Several types of uncertainty develop naturally in all market settings; Need uncertainty, Market uncertainty, Transaction Uncertainty

THE ELEMENTS OF SUCCESSFUL MARKETING CHANNELS

Pooled Resources

Collective Goals

Connected System

Flexibility

1) Pooled Resources

• A marketing channel operates a team, sharing resources and risks to move products and resources from their point of origin to their point of final consumption

• Ex: manufacturer may distribute their product through distributors/wholesalers who then distribute to retailers.

• Manufacturer retail outlet (convenience store, departmental store, supermarket and etc)

2) Collective Goals

• To success in marketing channel need team effort, pooling the resources together and willing to work together.

• A sense of shared purpose helps unite organizations within market channels.

• The purpose shared by members of an organization is reflected in the organisation’s mission statements.

3) Connected System

• Channel members facilitate the movement of products from production point to consumption point.

• If intermediaries do not exist or fail to perform their functions, this will effect the whole distribution system of moving product from production to the final consumers. In this case intermediaries connect the producers to the final consumers.

4) Flexibility

• In order to be successful, marketing channels must be flexible systems.

• The organizations and persons involved in channel flows must be sufficiently connected to permit the system to operate as a whole, but the bond they share must be loose enough to allow for components to be replaced or added.

FUNCTIONS AND FLOWS OF MARKETING CHANNEL

Functions &

Flows

Information

Promotion

Negotiation

Ordering

Financing

Risk taking

Physical distribution

Title

FUNCTIONS AND FLOWS OF MARKETING CHANNEL

• Marketing channels perform the task of moving goods from producers to consumers. In doing so, the channels close time, place and possession gaps that separate goods and services from consumers.

• To achieve these outcomes, channels members must perform several marketing functions. These marketing functions are listed below in the order in which they would normally arise in an automotive distribution channel

a) Information

• The accumulation and distribution of information about current and potential customers, competitors and others in the marketing environment.

• The information flow from the manufacturer to consumers are two-directional. All parties participate in the exchange of information and the flow can be either forward or backward.

b) Promotion

• The construction and distribution of persuasive and/or informative communications designed to attract buyers.

• The promotion flow refers to the flow of persuasive communication in the form of advertising, personal selling, sales promotion and publicity.

c) Negotiation

• The means by which final agreement on price and other terms (financing, features, etc.) is reached so that transfer of ownership and possession can be completed.

• The negotiation flow represents the interplay of the buying and selling function associated with the transfer of title to the products. It involved the flow in both directions and at all levels of the channel.

d) Ordering

• The communication of an end-user’s intention to purchase through the channel members to producers.

e) Financing

• The procurement and allocation of funds required to finance automotive inventories at the channel’s differing levels

f) Risk Taking

• The bearing of the risks associated with carrying out the channel-related work

g) Physical Possession

• The successive stages by which the storage and movement of physical products from the raw materials to final customers occurs.

h) Title

• The actual transfer of automobile ownership form one organization to another, or to the final consumer

Flows in The Marketing Channel

Producers Wholesalers Retailer Consumer Physical Possession

Title Promotion Information Negotiation Risk Taking Ordering Financing

THE CHANNEL LEVELS

• In making channel design decisions, a number of conventional channel systems are available. These designs vary along three dimensions:

• Number of levels present in the channel, • Number of intermediaries operating at each level, and• Types of intermediaries used at each level.

The Number Of Levels In The Channel

a) Zero- level channel Zero – level channel or direct marketing channel exists when a producer sells directly to the final user. In consumer channels, door-to-door selling, mail-order catalogues, telemarketing, or manufacturer-owned retail outlets each illustrate zero-levels channels.

b) One-level channel One-level channel designs feature one selling intermediary, such as a retailer who buys directly from the producer.

The Number Of Levels In The Channel

c) Two-level channels Two-level channels feature two selling intermediaries, such as a wholesaler and retailer.

d) Three-level channelsThree-level channels feature some combination of three intermediaries, such as a wholesaler, agent and retailer. Consumer channels rarely extend beyond four levels.

The Number Of Levels In The Channel

PRODUCER CONSUMER

Retailer

Wholesaler

Retailer

Retailer

Wholesaler Agent

Two level

Three level

One level

Zero level

CONSUMER CHANNEL DESIGN

MANUFACTURER INDUSTRIAL USER

Manufacturer’s representative

Manufacturer’s sales force

The Number Of Levels In The Channel

Industrial distributors

INDUSTRIAL CHANNEL DESIGN

THE NUMBER OF INTERMEDIARIES AT EACH LEVEL

Intensive distribution

• Intensive distribution refers to the aims to provide full coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes,soft drinks).

• Intensive distribution is usually required where customers have a range of acceptable brands to choose from. In other words, if one brand is not available, a customer will simply choose another.

THE NUMBER OF INTERMEDIARIES AT EACH LEVEL

Exclusive Distribution• Exclusive distribution is an extreme form of

selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.

• Exclusive distribution places limits on the number of intermediaries operating at any given channel level.

• is used when producers want to retain control over the quality of service levels provided and involves dealers agreeing to not carry competing brands.

• Most new automobiles, certain major appliances and few clothing lines like Tefal, Gucci, Prada, Coach, Louis Vuitton, mercedez benz, BMW.

THE NUMBER OF INTERMEDIARIES AT EACH LEVEL

Selective Distribution

• Involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. training) on them.

• Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply. Example: products Maybelline, Loreal, Christian Dior, SKII or others.

THE END

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