marketing channels an introduction. distribution products must be available to consumers who want...

MARKETING MARKETING CHANNELSCHANNELS

An IntroductionAn Introduction

DistributionDistribution

Products must be available to consumers Products must be available to consumers who want to purchase them conveniently, who want to purchase them conveniently, quickly, and with a minimum of effort. quickly, and with a minimum of effort.

The distribution system determines a The distribution system determines a product's marketing presence and the product's marketing presence and the buyers' accessibility to the product. buyers' accessibility to the product.

Utilities offered by DistributionUtilities offered by Distribution

Distribution (also known as Distribution (also known as placeplace) provides utility. ) provides utility. Time utility Time utility is offering the product when the is offering the product when the

customers want to purchase it. customers want to purchase it. Place utilityPlace utility is offering the product where the is offering the product where the

customers want to purchase it. customers want to purchase it. Possession utilityPossession utility facilitates customer ownership of facilitates customer ownership of

the product. the product. Form utilityForm utility might be needed if changes have been might be needed if changes have been

made to the product in the distribution channel made to the product in the distribution channel (Coca-Cola concentrate sold to bottlers). (Coca-Cola concentrate sold to bottlers).

Definition of a Marketing Definition of a Marketing ChannelChannel

A A distribution channel distribution channel (also known as a (also known as a marketing channelmarketing channel) is a set of ) is a set of interdependent organizations or interdependent organizations or intermediaries involved in the process of intermediaries involved in the process of making a product available for making a product available for consumption. consumption.

A channel directs the flow of products from A channel directs the flow of products from producers to customers. producers to customers. IntermediariesIntermediaries are organizations operating in the middle are organizations operating in the middle or between the producer and the final or between the producer and the final buyer. They link producers to other buyer. They link producers to other intermediaries or to the ultimate users of intermediaries or to the ultimate users of the product. Traditionally, intermediaries the product. Traditionally, intermediaries have been referred to ashave been referred to as middlemen middlemen. .

How a marketing intermediary reduces the number of channel transactions and raises economy of effort

Channel interactionsChannel interactions

Functions of IntermediariesFunctions of Intermediaries

Costs are associated with an exchange Costs are associated with an exchange and can be reduced by reducing the and can be reduced by reducing the number of transactions (exchanges). number of transactions (exchanges). Marketing intermediaries increase Marketing intermediaries increase efficiency in making products available to efficiency in making products available to target markets. Through contacts, target markets. Through contacts, experience, specialization, and scale of experience, specialization, and scale of operation, intermediaries usually offer the operation, intermediaries usually offer the organization more than it can achieve on organization more than it can achieve on its own. its own.


Intermediaries smoothen the flows of Intermediaries smoothen the flows of products to buyers by performing the key products to buyers by performing the key functions of informing, promoting, and functions of informing, promoting, and physical possession (including negotiation, physical possession (including negotiation, title, payment, risk taking and financing). A title, payment, risk taking and financing). A producer will use an intermediary when it producer will use an intermediary when it believes that the intermediary can perform believes that the intermediary can perform the function(s) more economically and the function(s) more economically and efficiently than it can. efficiently than it can.


The The information functioninformation function involves gathering and involves gathering and distributing marketing research and intelligence distributing marketing research and intelligence about the environment for planning purposes. about the environment for planning purposes.

The The promotion function promotion function involves developing and involves developing and spreading persuasive communications about an spreading persuasive communications about an offer. offer.

The The physical possession functionphysical possession function consists of the consists of the transporting and storing of products. transporting and storing of products.


This activity involves theThis activity involves the negotiations negotiations for for reaching an agreement on price and other reaching an agreement on price and other terms. terms.

The The titletitle is the actual transfer of ownership from is the actual transfer of ownership from one organization or person to another. The one organization or person to another. The paymentpayment involves buyers paying their bills. involves buyers paying their bills.

The risk taking function assumes the risk of The risk taking function assumes the risk of carrying the product and receiving payment. carrying the product and receiving payment.

The The financing functionfinancing function involves acquiring and involves acquiring and using funds to cover costs using funds to cover costs

Manufactures typically produce a large quantity Manufactures typically produce a large quantity of a limited variety of goods.of a limited variety of goods.

Consumers usually desire a small quantity of a Consumers usually desire a small quantity of a wide variety of goods.wide variety of goods.

Intermediaries reduce this quantity discrepancy Intermediaries reduce this quantity discrepancy by matching supply and demand. They buy in by matching supply and demand. They buy in large quantities and sell in smaller quantities. large quantities and sell in smaller quantities.

They help to smooth the distribution path for They help to smooth the distribution path for goods by creating utility, performing marketing goods by creating utility, performing marketing functions, and cutting costs. functions, and cutting costs.

Channel MembersChannel Members

Channels of distribution include consumer Channels of distribution include consumer channels and business to business channels. channels and business to business channels. Marketers can choose either a Marketers can choose either a direct direct distribution channeldistribution channel, which moves goods , which moves goods directly from the producer to the consumer, or an directly from the producer to the consumer, or an indirect distributionindirect distribution channel, which involves channel, which involves using one, two, three or more intermediary using one, two, three or more intermediary channel levels. The number of levels in a channel levels. The number of levels in a channel defines the channel defines the length length of a channel. of a channel.

Channel Members Channel Channel Members Channel MembersMembers

The choice of a distribution channel should The choice of a distribution channel should support the organization’s marketing support the organization’s marketing strategy. Organizations must consider strategy. Organizations must consider their target market, the type of product their target market, the type of product being distributed, their own internal being distributed, their own internal systems and concerns, and competitive systems and concerns, and competitive factors. A competitive advantage can be factors. A competitive advantage can be gained by strategically managing channels gained by strategically managing channels of distribution. of distribution.


Once the decision is made, the company Once the decision is made, the company needs to identify the types of marketing needs to identify the types of marketing intermediaries, if any, that it will use to intermediaries, if any, that it will use to distribute its goods and services. A distribute its goods and services. A channel may include manufacturer, channel may include manufacturer, wholesaler, retailer, and consumer. The wholesaler, retailer, and consumer. The functions of the manufacturer are to functions of the manufacturer are to design, produce, brand, price, promote, design, produce, brand, price, promote, and sell the product. and sell the product.


Marketing intermediaries include Marketing intermediaries include wholesalers and retailers. Wholesale wholesalers and retailers. Wholesale transactions are all transactions except the transactions are all transactions except the transaction with the ultimate consumer. transaction with the ultimate consumer. The functions of the wholesaler are to buy, The functions of the wholesaler are to buy, stock, promote, display, sell, deliver, and stock, promote, display, sell, deliver, and finance. The functions of the retailer are to finance. The functions of the retailer are to buy, stock, promote, display, sell, deliver, buy, stock, promote, display, sell, deliver, and finance. and finance.


The purchaser, not the price, determines The purchaser, not the price, determines the classification of the intermediary as a the classification of the intermediary as a wholesaler or retailer. If over 50% of sales wholesaler or retailer. If over 50% of sales are with other intermediaries, then the are with other intermediaries, then the intermediary is a wholesaler. If over 50% intermediary is a wholesaler. If over 50% of sales are with the consumer, then the of sales are with the consumer, then the intermediary is a retailer. intermediary is a retailer.


Channels are depicted as Channels are depicted as chainschains with with vertical vertical dimensions (number of channel dimensions (number of channel members at different levels). members at different levels). Horizontal Horizontal dimensions are the numbers of channel dimensions are the numbers of channel members at the same level. members at the same level.

Market IntensityMarket Intensity

The organization must decide on the The organization must decide on the amount of market coverage--intensive, amount of market coverage--intensive, selective, or exclusive--needed to achieve selective, or exclusive--needed to achieve its marketing strategies. In terms of its marketing strategies. In terms of number of intermediaries to use, an number of intermediaries to use, an organization has three basic strategies it organization has three basic strategies it can follow. can follow.


For convenience products, where widespread For convenience products, where widespread availability is key, the company may opt for availability is key, the company may opt for intensive distributionintensive distribution. This is stocking the . This is stocking the product in as many outlets as possible. An product in as many outlets as possible. An example would be soft drinks, gum, candy, and example would be soft drinks, gum, candy, and potato chips. They are sold at grocery stores, potato chips. They are sold at grocery stores, gas stations, and neighborhood stores. gas stations, and neighborhood stores. Companies that frequently use this method are Companies that frequently use this method are Proctor & Gamble, Coca-Cola, and Campbell Proctor & Gamble, Coca-Cola, and Campbell Soup. Soup.


For shopping products, where consumers spend For shopping products, where consumers spend some time in the decision process and have some time in the decision process and have some brand preferences, some brand preferences, selective distributionselective distribution may be the best option. Under selective may be the best option. Under selective distribution, the organization tries to use more distribution, the organization tries to use more than one, but fewer than all the intermediaries than one, but fewer than all the intermediaries who are willing to carry the product. Most who are willing to carry the product. Most television, furniture, and small appliance brands television, furniture, and small appliance brands are distributed in this manner. Maytag, are distributed in this manner. Maytag, Whirlpool, and General Electric use this method Whirlpool, and General Electric use this method to distribute their products. to distribute their products.

Market IntensityMarket Intensity For specialty products where consumers have For specialty products where consumers have

strong brand preferences and are willing to go strong brand preferences and are willing to go out of their way to obtain the product, an out of their way to obtain the product, an organization may opt to use organization may opt to use exclusive exclusive distributiondistribution, where a limited number of dealers , where a limited number of dealers have the exclusive right to distribute an have the exclusive right to distribute an organization’s products in their territories. This organization’s products in their territories. This form is often used in the distribution of new form is often used in the distribution of new automobiles and prestige women’s clothing. automobiles and prestige women’s clothing. Rolls Royce dealerships, for example, are Rolls Royce dealerships, for example, are limited to only large metropolitan areas where limited to only large metropolitan areas where significant portions of their customers reside. significant portions of their customers reside.

marketing channels an introduction. distribution products must be available to consumers who want...

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