3. Wholesalers perform a number of useful functions within the channel of distributions. Whether a firm be a one person operation or one that employs thousands of people and generates billions in sales, all are in business to serve the needs of markets. Here’s how in two sentences. There are no intermediaries in the most direct channel (a zero-level channel). Other channel members can be useful to the producer in designing the product, packaging it, pricing it, promoting it, and distributing it through the most effective channels. For instance, if you have a large email list, you can use that to promote your Facebook page. Consider your unique selling points. B2B Marketing Roles: This diagram shows marketing channel strategies within a B2B organization. d. Factory outlets – small outlet just outside their factory- export factory outlet. A channel’s vertical dimension (length) is determined by the number of types of participants in the channel. Vending machines are used in the developed countries to sell a number of products. Marketing activities directed towards the channel as part of ‘push’ strategy are more effective when accompanied by a well-designed and well-executed ‘pull’ strategy that activates consumer demand. 1. (b) Manufacturers – Wholesaler – Retailer – Consumer – 2 Levels. The organizations marketing channel strategy should help inform decisions on the following issues. An example of differences in perception is when the manufacturer is hoping for higher sales and expects the channel member to carry higher inventory, while the channel member perceives the market conditions to be otherwise. This includes manufacturers who operate sales offices to perform wholesale functions and retailers who operate warehouses or otherwise engage in wholesale activities. Here the indirect channel is more economical. For example, complex technical products, large capital equipments, etc. Here, two or more companies join hands to exploit a marketing opportunity. Marketing channels represent one avenue among many in the field of marketing and sales. Gone are the days when organisations sold to a single target market through a single channel. Core Concepts of Marketing by John Burnett. Channel selection refers to selecting individual channel members. Inventory Control and Order Processing – keeping track of the physical inven­tory, managing its composition and level, and processing transactions to insure a smooth flow of merchandise from producers to buyers and payment back to the producers. One has to take into account government regulations while deciding on the marketing channels. Sometimes, it may be worthwhile to deviate from what compet­itors do. Tasks must be identified fully, and costs must be assigned to these tasks. Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions. Channel choice begins with two questions: to whom shall we sell this merchandise immediately? One of the first decisions you’ll need to make is whether you’re a B2B or B2C business. Given the lower return on investments in the retail business, organisations would be better off investing their money in their main business rather than taking up retailing or other channel functions. like the intermediaries for tangible goods and thus have limited role. Considering the vastness of the internet, however, being found by consumers who are not yet aware of your product becomes difficult. Once you have completed the test, click on 'Submit Answers for Grading' to get your results. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. It involves a careful study and consideration of many factors stated below. Manufacturer – Wholesaler — Consumer – 1 Level. That is why the distribution objective of Coca-Cola Company used to be, ‘Putting the bottle at the arm’s length of desire’. Mostly direct channel, i.e. It is worthwhile to see what the competitors do before designing a distribution system. This method of retailing is an efficient way to provide continuous service. An ability to do this requires the channel manager to evaluate all phases of the distribution network. g. Channel of distribution for services – Generally services differ from physical goods in the sense that they are intangible and hence distribution of services poses special challenges. Importance. The channel must be flexible and efficient. Marketing channels can make the services “available” and “accessible” to the target customers. The factors responsible for the success of mail-order distribution, or remote selling as it is sometimes cal­led, are – (i) minimized perceived risk, and (ii) a smooth transit. i. Marketing strategy is a long-term, forward-looking approach and an overall game plan of any organization or any business with the fundamental goal of achieving a sustainable competitive advantage by understanding the needs and wants of customers.. Scholars like Philip Kotler continue to debate the precise meaning of marketing strategy. 4. Furthermore, chains are able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations. A Vertical Marketing System (VMS) comprises of the manufacturer, wholesaler and retailer, all acting as a unified system as against the conventional marketing channel system in which each of the channel members are a separate entity. This requires that a manufacturer contemplating distribution through particular types of retailers become intimately familiar with the precise location and performance characteristics of those being considered. f. Physical possession – The channel members also take the responsibility of storage of goods during the successive stages to the final consumers. This strategy focuses on fewer channels yet retains a desire for higher volumes to capture scale economies in production. d. Three level channel – This type of channel consists of three levels of intermediaries in between the manufacturer and the final consumer. The marketing mix can be divided into four groups of variables commonly known as the four Ps: 1. How does channel strategy complement/enhance the other elements of the marketing mix 3. Hence, they are bound to be capital intensive; they are designed to achieve technical, managerial and promotional economies through integration, coordination and synchronization of marketing flows from the point of production to the point of final consumption. While selecting channel members, it is essential for the organisation to first establish the characteristics that it seeks in these members. An example of this type of system could include a large retailer such as Wal-Mart dictating conditions to smaller product makers, such as producers of a generic type of laundry detergent. Roses from Kash­mir fly to London every day, and milk from Haryana comes to Delhi in refrigerated vans every day. c. Franchise Organisations – Franchisers might also link the successive stages in the manufacturing and distribution process. Lifetime Value of the Customer . Companies’ with multiple product portfolio and producing consumer non-durables with national and international market resort to this channel. Strategy Marketing Channel Strategy Getting the books marketing channel strategy now is not type of challenging means. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. For instance, bulky industrial goods are moved directly by the manufacturers. Fast Moving Consumer Goods (FMCG), consumer durables, convenient goods, etc. Channel length can vary from zero to n in case of consumer goods. Finally, some manufacturers find it feasible to use different channels in different parts of the country. The channels also often help in the design of these communication messages. In a push strategy, the manufacturer uses its sales force and trade promotion strategy to induce intermediaries to promote and sell the product to end-users, whereas, in a pull strategy the manufacturer uses advertising and promotion to induce consumers to ask intermediaries for the product, thus creating a pull from the intermediaries to the manufacturer for the product. Factors Determining the Length of the Channel 5. A conflict may arise on account of unclear roles and rights. This is also known as a direct marketing channel. The services ex­pected can be home delivery, availability of all products under one roof, credit facilities, short lead-time, i.e. i. Franchises – Over the years, large chain store retailers have posed a serious competitive threat to small storeowners. Marketing Mathematics. For example, a sizeable sale of cars for Tamil Nadu takes place in Pondicherry due to sales tax concessions available there. 2. Similarly, in order to be seen or heard by the consumers in the market-place, the cue should be stronger than that of com­petitors. On the other hand, there are small companies which cater to small regions, like Ponvandu Soap, and prefer to have direct distribution to retail outlets for two reasons – (i) their overheads will be less, and (ii) they can use direct distribution as a strategic tool to get competitive advan­tage. For example, vacuum cleaner, water cooler, etc. The choice and design of a marketing channel have to take into account such service requirements. If companies want better control, they can go for direct distribution. In short, many channels and high volume. These may include all or some combination of the following: By providing this linkage, wholesalers assist both the producer and the buyer. For example, food products, garments, clothing, etc. The fol­lowing factors influence the design and selection of marketing channels: Usually, perishable products have a short channel. A channel is a type of social system in which each member is expected to fulfil certain roles and perform certain functions. He will try that brand of soft drink, and, if he is satisfied, he will use the same brand of soft drink every time he gets thirsty. There are many different types of channel strategy to consider depending on the kind of business that you run, and the customers you need to serve. 4. Influential digital storefronts are key strategic partners in the modern economy. This strategy of distribution, coupled with the packaging (similar to the twist-wrapped style for hard-boiled sweets) contributed to the success of Halls. Vending machines are another type of non-store retailing. The channel objectives are conditioned by the particular characteristics of customers, products, middlemen, competitors and environment. Also, there is a mutual benefit to both organisations, which they are otherwise not likely to achieve. Purchased only from a dealer equipped to render prompt and reasonable product service. Type of the product – Depending upon the nature of the product, the length of the channel needs to be decided. As the rise of digital purchasing continues, and the cost of shipping decreases, globalization will drive organizations more and more towards channel strategies that optimize online exposure. It’s essential to employ a digital marketing strategy to work in concert with your other promotions (such as brochures and live events). a) Manufacturers – Retailers – Customers: This option consists of only one intermediary. ii. To meet the ever-changing conditions in the marketplace, the channel arrangements would require modifications over a period of time. For example, the buying characteristics of the purchaser of a high-end electronics device might be as follows: Knowing the buying specifications of consumers, the channel planner can decide on the type or types of wholesaler and/or retailer through which a product should be sold. There are only two common channels used for services. Franchising has come about in response to this trend. An example of this type of conflict is if an organisation appoints two agents for the same territory. Being highly rated and promoted on Amazon will greatly increase the efficacy of that particular channel. Channel Choice: Managers have many factors to consider when choosing a product distribution channel. The choice between push or pull strategy depends on the marketing communications budget inasmuch as push promotion strategies tend to be cheaper than pull promotion strategies. While middlemen can also be won over to carry a company’s product line if the company is willing to pay more commission than its competitors, the power might shift to the channel. 1. The cue gives him the idea that the soft drink (goal) will quench his thirst. Purchased only after considerable shopping to compare prices and merchandise characteristics. The industry’s output which is sold for OEM is distributed direct from tyre factories to manufacturers. Marketing channels are the ways that goods and services are made available for use by the consumers. This may be achieved by themselves or by creating an independent unit, for example, Sugar Syndicate of India, Associated Cement Company, etc. The immediate and ultimate customers may be identical or quite separate, depending on the type of product, functions performed in the channel, and location in the channel. Achieve a pattern of distribution – structure the channel in order to achieve certain time, place, and form utilities. On the other hand, if he does not get the desired result on the first trial itself, he will look for alterna­tive cues and try some other brand of drink or some other method of quenching thirst. The silos that exist in your sales and marketing departments need to be merged. Multi-channel conflict exists when the manufacturer establishes two or more channels that are competing with each other in selling to the same market. You could not and no-one else going considering book addition or library or borrowing from your connections to right to use them. Horizontal channel conflicts exist when there is conflict between the members at the same level within the channel. Given this, there is also a greater possibility of channel competition and conflict. Examples of this type of channel include door-to-door sales, mail order, telemarketing, TV selling, and manufacturer-owned stores. Push promotes a product to the middlemen who ‘push’ the offering to the consumers, and pull promotion strategy promotes the product to the end user directly. For example, if an organisation sells to customers that are within the territory of the agents, this can lead to a conflict. Stern & El-Ansary define marketing channels as – “sets of independent organisations involved in the process of making a product or service available for use or consumption.”. This requires six contacts. A channel’s horizontal dimension (width) is determined by the number of participants of any one type on the same level in the channel. All goods go through channels of distribution, and marketing depends on the way goods are distributed. Many manufacturers find it necessary to use more than one kind of channel for the same market. A zero level channel – As the name suggests, in this type of a channel, there are no intermediaries or zero level of intermediaries. As a result, they can set retail prices that are lower than those of their small competitors, and thereby increase their share of the market. How do you design the firms marketing channels 4. A few are extremely large, having sales of $500,000 or more on a single day. All goods go through channels of distribution, and marketing depends on the way goods are distributed. Convenience goods such as salt, sugar, cookies, etc., are good examples of products suitable for this type of distribution. Their inclusion primarily depends on their superior efficiency in the performance of basic marketing tasks. b. Drive is a basic instinct. The factors motivating horizontal integration are rapidly changing markets, racing competition, swift pace of technology, excess capacity, seasonal and cyclical changes in consumer demand and the risks involved in accepting financial risks single-handedly. Corporate VMS looks at having the successive stages of manufacturing and distribution under a single ownership. This does not mean that perishables can be sold only in areas close to the place of production. Information – The marketing channels perform the task of collecting and disseminating of marketing information about customers, competitors as well as potential customers and other market forces. On the other hand, without at least some consumer interest, it can be very difficult to gain much channel acceptance and support. In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. Online vendors, such as Amazon, or a good example of non-store retailers. The sales are affected through the company sales force. Distribution intensity plays a significant role in marketing channel strategy. Functions 4. Conflicts can be functional or dysfunctional. Transportation – arranging the physical movement of merchandise. Rationale behind Using Marketing Channels 3. For example, Grahak Peth, Apana Bazar, etc. Here, there are two intermediaries in between the manufacturer and the final consumers; typically a wholesaler and a retailer. Marketing channels are the ways that goods and services are made available for use by the consumers. b. Intermediaries stand between the producers and final buyers in indirect channels. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. 3.1 shows one major source of cost savings affected by using intermediaries/ distributors. In order to do this, these firms must be assured that their products are distributed to their intended markets. "Our overarching three-year goal is to gain a seat at the strategic table with our clients," Hebert said. Channels create utility, improve exchange efficiency and help match supply and demand. Purchaser willing to go to some inconvenience (time and distance) to locate the most acceptable brand. Goods that have a high unit price and a high margin are delivered directly by the manufac­turers. Cues to reach the goal may be situational (available at that point of time and place) or in memory (residing in memory). Product variety – When the product variety sought by customers is high, selling through indirect channels is advisable. If satisfied, the consumer starts behaving like the proverbial Povlov’s dog and reaches the stage of automatic response behavior. These companies also spend heavily on advertising and use the ‘market pull’ strategy. This is common for goods such as soda, snacks, household items, and other common low cost goods. For example, automobiles. Trade channels are classified as conventional and non-conventional with further divisions. are included in this category. Wholesalers: An example of a wholesaler is Optimum Sleep, which sells furniture wholesale. It provides the producer with wide market coverage information about local market trends in an efficient manner. will take immense effort from the customer. iii. This is the most popular choice and is used by both small and big companies alike. There are three types of Contractual VMS: a. d. Financing – The marketing channels work towards the acquisition and allocation of funds required to finance inventories at different levels of the marketing channels. Channel choice is also greatly influenced by channel objectives. Also, what is promised by the cue must be present in the product, or else it will lead to dissatisfaction in the consumer. 3. Marketing Channel Design 8. Instead, most use intermediaries to bring their products to market. For Example Javed Habib give franchise of his flagship brand HABIB on contractual basis. In any case channel length does not exceed 1 level. The functions of the distribution channels are: a. Wholesaler sponsored voluntary chains – Here, wholesalers organise voluntary chains of independent retailers who help them compete with the larger chains. 2. ii. Channel selection should be such that the search time gets reduced. Next we want to very much focus with our channel partners on our roles and responsibilities at different stages of a customer's life cycle. Hence manufacturers send their sales personnel who can also clarify customers’ technical queries and freeze the product specifications. Product:The goods and/or services offered by a company to its customers. Intermediaries, because of their specialisation, experience, and scale of operations, are able to achieve more than what the organisation can in terms of reaching to the target markets. A ‘push’ strategy uses the manufacturer’s sales force, trade promotional money, or other means to induce intermediaries to carry, promote, and sell the product to end-users. For example, when automobile manufacturers try to enforce policies on their dealers, it leads to a conflict. Strength and weakness of intermediaries. A similar channel marketing strategy is central to Atrion's mission. There is no need for currency notes and coins in this method. Choice of a channel of distribution involves the selection of the best possible combination of middlemen or intermediaries. Purchased only from a well-established, reputable dealer. Vertical Marketing Systems (VMS) represent a major step towards resolving dysfunctional conflict. Disclaimer 8. 7. It is particularly useful with convenience goods. Channel choice begins with two questions: to whom shall we sell this merchandise immediately? A channel strategy is a vendor's plan for moving a product or a service through the chain of commerce to the end customer. Given the complex nature of multiple segments that are tapped, multi-channel marketing has become the order of the day. The government has restrictions on the distribution of a num­ber of products, like coal, paper, fertilizer and sugar. Just making enquiries about the product, getting it, etc. As organizations develop their marketing channel strategies, an important question arises regarding distribution intensity. Example- Biscuits and chocolates, soaps, shampoos, Parle-g etc. Rationale behind Using Marketing Channels, Factors Determining the Length of the Channel: Size of the Market, Order Lot Size, Service Requirements, Product Variety and Type of Product, or Consumer Goods, Industrial Goods and Services (With Examples). It is best that we first identify the traits of the ultimate user, since the results of this evaluation might determine the other channel institutions we would use to meet these needs. These are the situational cues and are very effective for products bought on an impulse rather than as well-thought out choices. Size of the market – For a market that is large, use of indirect channels proves to be more economical. This is developed in such a manner that the co-ordination of marketing activities is achieved by using the programs of one or few firms. For level of sales below X1 (as shown in the figure above) provider’s sales agency will have economic advantage over their own sales force. Various constituents of the marketing mix like promotion etc., are closely related to the channels of distribution. e. More than three levels – In some cases, one can observe longer marketing channels, that is, channels that have more than three intermediaries. Because of the features like intangibility, perishability, inseparability, distribution of services becomes critical. Good distribution strategies can contribute a strongly to customer value and to create a competitive advantage for a firm. Conflicts might arise if the channel member is highly dependent on the manufacturer. The Japanese have the ‘just in time’ inventory system by which they have cut down tremendously on inventory holding. Selective distribution focuses on narrowing down the number of channels within the distribution strategy, but not the overall volume of goods sold through those channels. Example- Bata, Titan, Reebok. Take the example of a pain reliever like Aspirin. Tyres for replacement for cars on the road are sold mainly through retailers. For example, if the manufacturers prefer to have lower prices and larger volumes whereas the dealers want higher prices and medium volumes, it can lead to a conflict. Consumer goods channels take many forms. This gives producers greater control over their products distribution. the time between placing the order and receipt of the product, help during installa­tion of the product, and after-sales service. These developments, and improved transportation facilities, add to the possibility of producing items to suit individual requirements at moderate costs. Consequently, the literature offers many different defin For example, a company that manufactures high-quality shoes made with premium leather would probably not want to distribute its product through a discount retailer. Copying the competitor’s game plan may be the easiest thing to do. Merchandise assortments are generally broad, including both hard and soft goods, but assortments are typically limited to the most popular items, colors, and sizes. An example of a large retailer would be Wal-Mart shown here. That is, they carry many different types of merchandise that may include hardware, clothing, and appliances. Example- Pepsi and Coke. The firm must also understand the buying specifications of the retailers themselves. They should also establish channel objectives and constraints based on: b. Thus the concept of marketing channels is not restricted to the physical goods only. A marketing channel is the series of interdependent marketing institutions that facilitate transfer of title to a product as it moves from producer to ultimate consumer or industrial user. Each channel alternative can be evaluated against the following criteria: i. Selective distribution focuses on utilizing fewer channels to maintain a higher level of strategic control, but still pursues high volume within those select channels. Generally shorter channels are observed. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. If everyone had the same high fashion item, it would no longer be a high fashion item. If a person goes without water for four hours, he will have an urge or drive arising out of the thirst to search for a goal which will reduce the intensity of the drive. Consumer goods category includes huge array of products. We will look at the changing channel dynamics with regards to the recent channel developments like the Vertical, Horizontal and Multi-channel Marketing Systems. Companies have to decide on the number of intermediaries to use at each channel level. Warehousing – the receiving, storage, packaging, and the like necessary to maintain a stock of goods for the customers they service. Marketing channel intensity takes into account both the variance and number of channels an organization may use to deliver goods and services to consumers. All goods go through channels of distribution, and marketing depends on the way goods are distributed. Channel design refers to deciding on the type of distribution channel as well as the number of levels in the channel. Depending on the product being sold and ultimate end user, companies can choose a marketing channel strategy that involves utilizing distribution centers (wholesalers) or moving their products directly to a store, or retailer. Channel objectives are based on the requirements of the purchasers and users, the overall marketing strategy, and the long-run goals of the corporation. After having selected the channel alternative, it is time for the organisation to select individual channel members and motivate and evaluate them, and modify the channel arrangements over a period of time to provide better service to the end users. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. ii. Pick a channel to focus on, build out your program, then move to the next. 3. Each firm usually confronts a number of alternate ways to reach the market. Marketing is how you get potential customers to consider buying what you sell. 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