Marketing Marketing ChannelsChannels

Lecture Series No. 8Lecture Series No. 8

Marketing ChannelsMarketing Channels

The firm’s products, even if their The firm’s products, even if their quality and price cater to the quality and price cater to the requirements of the target market, requirements of the target market, must be made available at the place must be made available at the place and time they are needed. Until this is and time they are needed. Until this is so, it will be very difficult for the so, it will be very difficult for the marketer to achieve his marketing marketer to achieve his marketing objectives. The place and time objectives. The place and time requirement, however, is possible if the requirement, however, is possible if the appropriate marketing channels are appropriate marketing channels are used.used.

This chapter presents the marketing This chapter presents the marketing channel as a means to help the channel as a means to help the marketer realize his marketing goals.marketer realize his marketing goals.

The Natures and The Natures and Functions of Marketing Functions of Marketing ChannelsChannels Products are really meant to be sold to Products are really meant to be sold to

buyers. This is possible if the products are buyers. This is possible if the products are able to reach the customers. The firm must able to reach the customers. The firm must devise some means to bring the products to devise some means to bring the products to the customers. The gap between the firm the customers. The gap between the firm and its customers must be closed by a and its customers must be closed by a facilitating tool called marketing channels. facilitating tool called marketing channels.

Marketing channels are human creations Marketing channels are human creations and they may be designed and structured to and they may be designed and structured to serve the needs of the users.serve the needs of the users.

A marketing channel may be defined as A marketing channel may be defined as a set of interdependent organizations and a set of interdependent organizations and individuals that facilitate the movement and individuals that facilitate the movement and transfer of ownership of commodities from transfer of ownership of commodities from the producers to the ultimate users.the producers to the ultimate users.

Functions of the Functions of the Marketing ChannelsMarketing ChannelsMarketing channels play an important role Marketing channels play an important role

in the marketing of goods and services. in the marketing of goods and services. Specifically, they perform the following Specifically, they perform the following functions: functions:

1. Financing. 1. Financing. 2. Pricing2. Pricing3. Channels of Communication. 3. Channels of Communication. 4. Assistance in Promotion Activities. 4. Assistance in Promotion Activities. 5. Minimization of Number of 5. Minimization of Number of

Transactions. Transactions. 6. Routinization of Decisions6. Routinization of Decisions

1.1. Routinization of Routinization of Decisions.Decisions. The marketing The marketing channel provides the channel provides the manufacturers with a much manufacturers with a much reduces number of people to reduces number of people to contact when transactions are contact when transactions are made.made.

2. Financing.2. Financing. When manufacturers sell When manufacturers sell directly to consumers, they may have directly to consumers, they may have to reckon with the financing of the to reckon with the financing of the following:following:

1.sales calls to prospective customers;1.sales calls to prospective customers;2.purchase of selling equipment; 2.purchase of selling equipment; 3.construction of display stores;3.construction of display stores;4.extension of credit to customers; and4.extension of credit to customers; and5.training of retail salespersons.5.training of retail salespersons.

The manufacturer may not be in The manufacturer may not be in financial position to handle these financial position to handle these activities, especially if it is activities, especially if it is undertaken on a nationwide scale. undertaken on a nationwide scale. The distributor performs these The distributor performs these functions which in effect, relieves the functions which in effect, relieves the manufacturer from financing such manufacturer from financing such activities.activities.

3.Pricing.3.Pricing. The difficulty of pricing The difficulty of pricing one’s products is aggravated by one’s products is aggravated by lack of direct contact with lack of direct contact with consumers, especially if they are consumers, especially if they are scattered throughout a wide area scattered throughout a wide area of concern. The distributor of concern. The distributor directly deals with the consumers directly deals with the consumers and can provide important and can provide important information regarding the setting information regarding the setting of a realistic factory price.of a realistic factory price.

4.Channels of Communication4.Channels of Communication. . The The changing requirements of users changing requirements of users are oftentimes relayed to the are oftentimes relayed to the distributor. Individual buyers, for distributor. Individual buyers, for instance, may inform the retailer instance, may inform the retailer that they will be buying next that they will be buying next season only items with new season only items with new designs. This information will be designs. This information will be relayed by the distributor to the relayed by the distributor to the manufacturer. The distributor, in manufacturer. The distributor, in effect, is acting as a channel of effect, is acting as a channel of communication.communication.

5.Assistance in Promotion 5.Assistance in Promotion Activities.Activities. When the distributor When the distributor attempts to increase his sales by attempts to increase his sales by promoting his products, he is promoting his products, he is actually complementing the actually complementing the promotional activities of the promotional activities of the manufacturer.manufacturer.

6.Minimization of Number of 6.Minimization of Number of Transactions.Transactions. The distributor The distributor plays an important role in plays an important role in minimizing the number of minimizing the number of transactions within the system.transactions within the system.

One can only imagine the One can only imagine the traffic mess that will be created if traffic mess that will be created if the end-users buy directly from the end-users buy directly from the manufacturers. The trip to the the manufacturers. The trip to the manufacturer alone would be a big manufacturer alone would be a big drain on the user’s pocket and on drain on the user’s pocket and on his leisure time.his leisure time.

Types of Marketing Types of Marketing ChannelsChannels

1.Industrial channels1.Industrial channels

2.Consumer channels2.Consumer channels

1.1. Consumer channels-Consumer channels- are those are those that are used in the distribution that are used in the distribution of consumer goods.of consumer goods.

2.Industrial channels-2.Industrial channels- are those are those which are used in industrial which are used in industrial goods. It consist of three types:goods. It consist of three types:

1.The manufacturer selling directly to 1.The manufacturer selling directly to the industrial users.the industrial users.

2.The manufacturer assigning 2.The manufacturer assigning industrial distributors which sells industrial distributors which sells directly to industrial buyers.directly to industrial buyers.

3.The manufacturer dealing with 3.The manufacturer dealing with agents who call on industrial users.agents who call on industrial users.

Selecting a Marketing Selecting a Marketing ChannelChannel The selection of a marketing channel must not be taken The selection of a marketing channel must not be taken

lightly. This is so because any mistake in making a choice lightly. This is so because any mistake in making a choice could mean considerable amounts of lost income. Large could mean considerable amounts of lost income. Large companies, especially those which sell to foreign markets, companies, especially those which sell to foreign markets, realize the importance of channel selection and they use realize the importance of channel selection and they use models that will help them determine the best channel to models that will help them determine the best channel to adapt.adapt. The availability of various channels pose a channels to The availability of various channels pose a channels to the marketer to make an intelligent decision on which channel the marketer to make an intelligent decision on which channel is best suited to his firm. In the selection of a marketing is best suited to his firm. In the selection of a marketing channel, the company is faced with any of the following channel, the company is faced with any of the following situations:situations:

1.It may have an option of choosing from among the 1.It may have an option of choosing from among the various channels existing; orvarious channels existing; or

2.It may not have that option to choose.2.It may not have that option to choose. Companies which are financially sound have bigger Companies which are financially sound have bigger

facilities, and with products already known in the market, may facilities, and with products already known in the market, may have an option to consider any of the existing channels. have an option to consider any of the existing channels. These companies may even sell directly to ultimate users.These companies may even sell directly to ultimate users.

The small entrepreneur who have just started The small entrepreneur who have just started operations and whose products are not yet known are, operations and whose products are not yet known are, oftentimes, not provided with the option to chooser from oftentimes, not provided with the option to chooser from among the existing channels. He may even have a hard time among the existing channels. He may even have a hard time convincing distributors to carry his product.convincing distributors to carry his product.

The Channels Selection The Channels Selection ProcessProcess

Assuming that the manufacturer has the option to Assuming that the manufacturer has the option to choose from among the various channel choose from among the various channel options, he may have to adapt the following options, he may have to adapt the following steps:steps:

1. identification of target customers;1. identification of target customers;2. determination of consumer buying habits 2. determination of consumer buying habits

regarding the goods under consideration;regarding the goods under consideration;3. determination of the location of the potential 3. determination of the location of the potential

customers;customers;4. listing of channel alternatives;4. listing of channel alternatives;5. evaluation of channel alternatives; and5. evaluation of channel alternatives; and6. Selection of channel members.6. Selection of channel members.

The identification of target consumers The identification of target consumers will provide much information to the will provide much information to the manufacturer in deciding which channel is manufacturer in deciding which channel is best. If his target consumers are farmers, best. If his target consumers are farmers, for example, then he will have to consider for example, then he will have to consider channels that are located near the farms.channels that are located near the farms.

Ultimate consumers buy from Ultimate consumers buy from retailers whom they consider as catering retailers whom they consider as catering to their needs. A fine example of channel to their needs. A fine example of channel preferences is demonstrated by the preferences is demonstrated by the continuous patronage of sari-sari stores continuous patronage of sari-sari stores and also the growing preference for and also the growing preference for supermarkets.supermarkets.

Potential consumers could be Potential consumers could be scattered over a wide area or they could scattered over a wide area or they could be concentrated in specific areas. In any be concentrated in specific areas. In any case, location must be identified so a case, location must be identified so a suitable challenge may be used to reach suitable challenge may be used to reach them.them.

After completing the first three steps, a After completing the first three steps, a listing of channel alternatives must be listing of channel alternatives must be prepared. This will help a lot in the final prepared. This will help a lot in the final selection of best marketing channel to use.selection of best marketing channel to use.

The evaluation of the listed alternatives The evaluation of the listed alternatives will be made next, followed by the final will be made next, followed by the final selection of the appropriate channel.selection of the appropriate channel.

Experts have developed certain models Experts have developed certain models for effective decision making which may be for effective decision making which may be useful in selecting the right marketing useful in selecting the right marketing channel. Figure 31 shows a slightly channel. Figure 31 shows a slightly different model than the process stated different model than the process stated above.above.

Evaluating the Evaluating the Prospective Channel Prospective Channel MemberMemberThe list of channel alternatives is really The list of channel alternatives is really

an enumeration of distributors with an enumeration of distributors with possibilities of serving the company possibilities of serving the company as middlemen. The list must be as middlemen. The list must be trimmed down to the exact number trimmed down to the exact number of middlemen required. This can be of middlemen required. This can be achieved through careful and achieved through careful and objective evaluation of the prospects.objective evaluation of the prospects.

A set of criteria that may A set of criteria that may be useful in evaluating a be useful in evaluating a channel is as follows:channel is as follows: 1.Credit and financial condition of the distributor. 1.Credit and financial condition of the distributor.

2.Sales strength2.Sales strength

3.Product lines3.Product lines

4.Reputation. 4.Reputation.

5.Market coverage5.Market coverage

6.Sales performance6.Sales performance

7.Management succession7.Management succession

8.Management ability8.Management ability

9.Attitude. 9.Attitude.

10.size10.size

1. Credit and financial condition 1. Credit and financial condition of the distributor.of the distributor. A review of A review of the credit performance and the the credit performance and the financial statements will provide a financial statements will provide a clue as to the desirability of clue as to the desirability of selecting the prospective selecting the prospective distributor.distributor.

2. Sales strength.2. Sales strength. This refers to the This refers to the sales capacity of the prospective sales capacity of the prospective distributor and is indicated by the distributor and is indicated by the quality, the actual number and the quality, the actual number and the technical competence of the technical competence of the salespeople.salespeople.

3. Product lines.3. Product lines. Determining the Determining the types of products carried by the types of products carried by the prospective distributor will reveal prospective distributor will reveal whether the sales objectives of whether the sales objectives of the firm can be expected.the firm can be expected.

4. Reputation.4. Reputation. This is a very This is a very important requirement in important requirement in determining the possibility of determining the possibility of profitable relationship.profitable relationship.

5. Market coverage.5. Market coverage. The market The market covered by the prospective covered by the prospective distributor must be the market distributor must be the market coverage desired by the coverage desired by the manufacturer.manufacturer.

6. Sales performance. 6. Sales performance. The The prospective distributor must be prospective distributor must be able to show satisfactory sales able to show satisfactory sales performance. This is indicated by performance. This is indicated by sales volume.sales volume.

7. Management succession.7. Management succession. A A prospective distributor who has a prospective distributor who has a qualified person to succeed him in qualified person to succeed him in case of a need for replacement is case of a need for replacement is a plus factor in evaluation.a plus factor in evaluation.

8. Management ability.8. Management ability. When When the quality of management of a the quality of management of a distributorship is poor, it is not distributorship is poor, it is not worth considering the prospect.worth considering the prospect.

9. Attitude.9. Attitude. If the prospective If the prospective distributor has the right attitude, the distributor has the right attitude, the possibility of long-term success in possibility of long-term success in handling the manufacturer’s product handling the manufacturer’s product is possible. This is indicated by the is possible. This is indicated by the distributor’s aggressiveness, distributor’s aggressiveness, enthusiasm, and initiative.enthusiasm, and initiative.

10. Size.10. Size. When the prospective When the prospective distributor is into large-scale distributor is into large-scale operations, large sales volume for operations, large sales volume for the manufacture’s products is the manufacture’s products is possible. Large firms usually possible. Large firms usually employ more salespeople; have employ more salespeople; have better equipment and offices, better equipment and offices, personnel, and facilities.personnel, and facilities.

FIGURE 31FIGURE 31Channel Design Decision ModelChannel Design Decision Model

Recognize need for channel design decisionRecognize need for channel design decision↓↓

Set and coordinate distribution objectivesSet and coordinate distribution objectives↓↓

Specify the distribution tasksSpecify the distribution tasks↓↓

Develop alternative channel structuresDevelop alternative channel structures↓↓

Evaluate the relevant variablesEvaluate the relevant variables↓↓

Choose the best channel structureChoose the best channel structure↓↓

Select the channel members Select the channel members

Factors that Influence Factors that Influence Channel SelectionChannel Selection

1. The nature of the product 1. The nature of the product

2. The nature of market2. The nature of market

3. The size of the company3. The size of the company

1. The nature of the product1. The nature of the product will will determine which channel of determine which channel of distribution id best suited. Highly distribution id best suited. Highly expensive products like ships and expensive products like ships and airplanes, for instance require airplanes, for instance require more direct dealing with users.more direct dealing with users.

2. The nature of market2. The nature of market is also is also an important consideration. an important consideration. Buyers of detergent soaps, for Buyers of detergent soaps, for instance, are scattered instance, are scattered throughout the country, so the throughout the country, so the manufacturer will have to choose manufacturer will have to choose a channel that will serve this a channel that will serve this particular market.particular market.

3. The size of the company3. The size of the company and and its organizational set-up will also its organizational set-up will also be a factor in selecting a channel. be a factor in selecting a channel. Large companies can afford to Large companies can afford to adapt even a multi-channel adapt even a multi-channel approach in its distribution approach in its distribution activities.activities.

Distribution StrategiesDistribution Strategies

Decision must be made by the firm Decision must be made by the firm on how broadly or narrowly its on how broadly or narrowly its products will be distributed. This will products will be distributed. This will determine the number of determine the number of intermediaries that will be tapped.intermediaries that will be tapped. Distribution strategies consist of Distribution strategies consist of three types:three types:

1.Intensive distribution 1.Intensive distribution 2.Selective distribution 2.Selective distribution 3.exclusive distribution3.exclusive distribution

1.Intensive distribution1.Intensive distribution is a strategy is a strategy that requires the firm to sell its product that requires the firm to sell its product trough every available outlet in a market trough every available outlet in a market where a consumer might reasonably try where a consumer might reasonably try to find them. Intensive distribution is to find them. Intensive distribution is applicable to convenience goods like applicable to convenience goods like groceries, cigarettes, and soft drinks. groceries, cigarettes, and soft drinks. When the consumer feels a need for a When the consumer feels a need for a convenience good, it must be satisfied convenience good, it must be satisfied immediately and the product that is immediately and the product that is readily available has the advantage of readily available has the advantage of getting sold.getting sold.

2.Selective distribution2.Selective distribution is selling trough only is selling trough only those outlets which will give the product those outlets which will give the product special attention. This strategy decreases the special attention. This strategy decreases the number of outlets who will carry the product. number of outlets who will carry the product. Selective distribution is used for purposes like Selective distribution is used for purposes like avoiding making sales to middlemen with any avoiding making sales to middlemen with any of the characteristics as follows:of the characteristics as follows:

1.poor credit rating; 1.poor credit rating; 2.a reputation for making too many returns or 2.a reputation for making too many returns or

requesting too much service;requesting too much service;3.place orders that are too small to justify making 3.place orders that are too small to justify making

calls or service; andcalls or service; and4.are not in a position to perform satisfactorily. 4.are not in a position to perform satisfactorily.

3.3. An An Exclusive distributionExclusive distribution agreement is one where the producer agreement is one where the producer grants exclusive selling rights grants exclusive selling rights to a middleman in a certain area. In to a middleman in a certain area. In return, the middleman is required to return, the middleman is required to

carry all the producer’s products. carry all the producer’s products. Exclusive distribution is applicable to Exclusive distribution is applicable to

specialty products or services like specialty products or services like automobiles and expensive watches. automobiles and expensive watches. The agreement is designed to help The agreement is designed to help

control prices and the service offered control prices and the service offered in a channel.in a channel.

Figure 32Figure 32

Distribution Strategy and the Number of Distribution Strategy and the Number of OutletsOutlets

STRATEGYSTRATEGY NUMBER OF OUTLETSNUMBER OF OUTLETS

INTENSIVEINTENSIVE many many

SELECTIVESELECTIVE few few

EXCLUSIVEEXCLUSIVE one one

Prepared by:Prepared by:

Jose Lito AguasonJose Lito Aguason

Mariel Sen MananganMariel Sen Manangan

Charmaine BantolinoCharmaine Bantolino

Rogen RabaneraRogen Rabanera

Thank Thank you!!!!!!you!!!!!!