Definitions of Marketing Channels According to American Marketing Association, “A channel of distribution, or marketing channel, is the structure of intra-company organization units and extra company agents and dealers, wholesale and retail through which a commodity, product or service is marketed.” According to Philip kotler, “Every producer seeks to links together the set of Marketing intermediaries that best fulfill the firm’s objectives. This set of marketing intermediaries is called the Marketing Channels. (Also called Trades channel or Channel of Distribution.)”
Definitions of Marketing Channels According To William J Stanton,“ A Channel of distribution for product is the rout taken by the title to the goods as they move from the producer to the ultimate consumer or industrial user.” According to Cundiff, Still and Govani, “Marketing channel are the distribution network through which producers produce flow to the market.”
The major focus of channel of distribution is delivery. It is only through distribution that public and private goods and services can be made available for the use of consumptions. The emergence and arrangement of wide variety of distribution oriented institution and agencies, typically called Intermediaries because they stand between production on other hand and consumption on other, can be explained in following terms;iii.Intermediaries can improve the efficiency of the process.iv.They help in the proper arrangement of the rout of transactions.v. They help in the searching process.vi.They help in sorting process.
Objectives of the MarketingChannels To ensure the availability of products at the point of sale. To build the channel members loyalty. To stimulate channel members to put greater selling efforts. To develop managerial efficiency in the channel organization. To identify your organization at buyer level. To have an effective and efficient distribution system, to make your product and services available.
Consumer and Business Channels
Five Marketing Flows in the Marketing Channel forForklift Trucks
Importance of Marketing Channels Time and Place utility. Convenience to Consumers. Relive from Marketing Problems. Information to the producer. Stability in Prices. Promotional Activities. Storage of finished goods. Finance the producer.
Functions of Marketing Channels Information Provider. Price Stability. Promotion. Financing. Title. Help in Production Function. Matching Demand and Supply. Matching Buyer And Seller.
Intensive Distribution The intensive is a form of distribution in which the manufacturer distributes his products through as many outlets as possible. This type of is used for those products that are characterized by low involvement of the customer and where customers look for location convenience. Products like chocolate, biscuits, shaving blades, soaps and detergents are distributed in this manner, so they are easily available to the customer at their nearest location. Manufacturer are constantly tempted to move from exclusive or selective distribution to more intensive distribution to increase the coverage and the sales. This strategy help long term but hurt long term performance.
Intensive Distribution Example Titan watches - Titan sells its through seven different channels; world of titan, Time zone, ValueMart, Sonata stores, Titan Signet Club, Tanishq boutiques, and private multi brand outlets. These channels – some of which are only present in selected cities – provide Titan with wide range coverage, cover different price points, and target different segments of customers. It helps Titan generate sales volume while protecting its brand image at the same time.
Selective Distribution. Here, the firm selects some outlets to distribute its products. This alternative help to focus the selling efforts of the manufacturing firm on the few outlets rather than disappointing it over countless marginal ones. It also enables the firm to establish a good working relationship with channel members. Selective distribution can help the manufacturer gain optimum market coverage and more control but at lesser cost than intensive distribution. Selective distribution is appropriate for consumers shopping goods, such as various types of clothing and appliances and business accessory equipments, such as office equipments and Hand held tools.
Selective Distribution. In contrast, company may choose to be a more selective after some experience with intensive distribution. The decision to change usually hinges on the high cost of intensive distribution or the unsatisfactory performance of middlemen. A firm may move towards more selective distribution to enhance the image of its products, strengthen customer services, improve quality control, and or maintain some influence over its prices.
Exclusive Distribution When the firm distributes its brand through just one or two major outlets in the market, who exclusively deal in it and not all competing brands, we say that the firm is using an exclusive distribution strategy. This is a common from products and brands that seeks high prestigious image. Typical example are designer ware, major domestic appliances and even automobiles. By granting exclusive distribution rights , the manufacturer hopes to have control over the intermediaries price, promotion, credit inventory and service policies. As the manufacturer uses a relative fewer number of distribution channel , he can maintain good relation with the channel members and as a result, expect an increased marketing effort from them.
Exclusive Distribution Branded menswear like color plus, Arrow, Zodiac, Lee and so on are available at exclusive showroom as well as other distribution channel.
Attributes Intensive Distribution Selective Distribution Exclusive DistributionObjectives Wide spread market Moderate Market coverage, Prestige image, coverage, channel solid image, some channel channel control acceptance, high volume control and loyalty, good loyalty, prices stability sales and high profits. sales and profits and high margins.Resellers Many in number, all type of Moderate in number, well Few in number, well firms (outlets) established better firms established, reputable (outlets) fir outlets (Outlets)Customers Many in number, Moderate in number, brand Fewer in no., trends(Final convenience oriented. conscious, somewhat setters, willing toconsumers) willing to travel to store. travel to store, brand loyal.Major Limited channel control. May be difficult to crave Limited salesWeakness out niche potential.Marketing Mass advertising, nearby Promotional mix, pleasant Personal selling,Emphasis location, items in stock. shopping condition, good pleasant shopping services conditions, good services.
Channel Design Steps involved in Designing a Channel System.2.Formulating Channel Objectives.3.Identifying Channel functions.4.Linking design to Product Characteristics.5.Evaluation of the distribution Environment.6.Evaluation of competitors Channels Design.7.Matching Channel Design to Company Resources.8.Evaluating the Alternatives and Selecting the Best.
Step I - Formulating Channel Objectives. Formulation of channel objective is the first step in designing a channel systems. The objective clarify what is to be achieved by having the channels. All firm seeks to realize certain common objectives by having the channel. In addition, they may also have some specific objectives depending on unique circumstances. The common objectives ared) The effective coverage of target market.e) Efficient and cost effective distribution.f) Ensuring that consumer incur minimum effort in procuring product.g) Helping the firm to carry on manufacturing uninterrupted, confidence that the channels will take care of sales.h) Partnering the firm in financing and sub distribution. S t e p II – Id e n t if y in g c h a n n e l f u n c t io n s . There are various functions of channel like, Information Provider, Price Stability, Promotion, Financing, Title, Help in Production Function, Matching Demand and Supply, Matching Buyer And Seller.
Step III – Linking Channel Design to Product Characteristics. Different product requires different channel systems. The firm should analyze the characteristics of product and choose the channel system that matches the product best. Consumer goods and the and industrial goods, for example, need different channels. And within the category consumer goods, different sub-category such as convenience goods, shopping goods, and specialty goods may need different channels. Step IV – Evaluation of the Distribution Environment. While selecting the channel design, the firm should also take account the distribution environment pertaining in the country/territory. It should evaluate the vital features of the distribution environment and ensure that the proposed channel design is compatible with them. Distribution environment in the broader sense includes the trade related legal environment as well. The legal implication of channel design must be carefully examined before taking a final decision.
Step V – Evaluation of Competitors Channel Design. The firm should also study the competitors channel patterns before deciding its channel design. While the firm may not necessarily follow the competitors in channel design, it should analyze the plus and minus of channel pattern adopted by each of its competitors. Step VI – Matching the Channel Design to Company Resources.n Firm with the Limited Resource Settle for conventional channels – firm with limited resources and small volume of business will normally find it difficult and uneconomical to opt for own channels. For such firms, establishing branch showrooms/depots/retail outlets of their own will result in high distribution cost , which they can not afford. They are better of by depending on unconventional channels.
Firms with larger resources have more options – Firms with larger resources and larger marketing operation can go in for varied distribution channels. In fact, in India firms which may are strong resources usually operates two parallel channels one reaching out to the customers through company depots and showrooms and other through conventional intermediaries. Step VII - Evaluating the alternative and selecting the best. Economic evaluation; Balancing cost; Efficiency and Risk. Conceptual Evaluation; Flexibility and Capability.
Channel Management Decisions. Selecting Channel Members. Training and Motivating Channel Members. Evaluating Channel Members. Modifying Channel design and Arrangement.
Selecting Channel Members. Producer vary in their ability to attract qualified intermediaries. Whether producer find it very easy or difficult to recruit intermediaries, they should at least determine what characteristics distinguish the better intermediaries. They will want to evaluate number of year in business, other lines carried, growth and profit record, solvency, cooperativeness and reputation. If the intermediaries are sales agent, producer will want to evaluate number of character of other line carried and the size and quality of sales force. If the intermediaries are department store and want exclusive distribution, the producer will want to evaluate locations, future growth potential and type of clientele.
Selecting Channel Members. Market considerationb) Consumer or industrial Market.c) Number of potential customers.d) Size of order.e) Buying habits of customers.f) Geographical concentration of Market. Product Considerationsh) Unit value.i) Product Line.j) Standardized Product.k) Technical Nature.l) Bulk and weight.
Selecting Channel Members. Company Consideration2. Volume of Production.3. Financial Resources.4. Experienced and competent Management.5. Services provided by the channels.6. Desire for control of channels. Middleman Consideration8. Availability of desired middlemen.9. Financial ability.10.Attitude of middlemen11.Sales potential12.Cost13.Competition and legal constraints.
Training to Channel Members Companies need to plan and implement careful training programs for their distributors and dealers, because the intermediaries will be viewed as the company by end users. Field Training Orientation Programme. Training for Paper work. Training for Paper work. Training for Care of Company Products. Technical Training. Installation Training. Servicing Training
Motivating Channel Members A company needs to view its intermediaries in the same way that it views end users. The company needs to determine intermediaries need and construct a channel positioning such that its channel offering is tailored to provide superior value to these intermediaries. The company provide training programme, market research programme and other capability building programme to improve intermediaries performance. The company must constantly communicate its view that the intermediaries are partner in joint effort to satisfy end using consumers.
M o t iv a t in g C h a n n e l Me mbe rs Coercive Power: Coercive Power occurs when manufacturer threatens to withdraw a resources or terminates a relationship if intermediaries fail to cooperate. This power can be quite effective if intermediaries are highly dependent upon the manufacturer. But the exercise of coercive power produces resentment and can lead the intermediaries to organize countervailing power. Reward power: It occurs when the manufacturer offer intermediaries an extra benefits for performing specific acts or functions. Reward power typically produces better results than coercive but it can be overrated.
Me mbe rs Expert Power: Expert power can be applied when the manufacturer has special knowledge that the intermediaries value. Once the intermediaries acquires this expertise, however the expert weakens. The manufacturer must continue to develop new expertise so that intermediaries will want to continue cooperating Legitimate Power: Legitimate Power is wielded when the manufacturer requires a behavior that is warranted under the contract. The manufacturer feels it has this right and the intermediaries have this obligation. As long as the intermediaries view the manufacturer as a legitimate leader, legitimate power works. Referent Power: It occurs when the manufacturer is so highly respected that intermediaries are proud to be associated. Companies such as IBM, caterpillar and Hewlett-Packerd have high referent power.
Evaluating Channel Members Evaluation provides the information necessary to decide which channel members to retain and which to drop. Shortfalls in distributor skills and competences may be identified through evaluation and appropriate training programmes organized by producer. Evaluation criteria includes sales volume and value, profitability, level of stocks, quality and position of display, new account opened, selling and marketing capabilities, quality of services provided to customers, market information feedbacks, ability and willingness to keep commitment, attitudes and personal capabilities.
Dell Dell revolutionized the personal computer category by selling product directly to customer via telephone and later the internet, rather than through retailers. Customer could custom design the exact pc they wanted, and rigorous cost cutting allowed for low everyday price. Sound like a winning formula? It was for almost two decades. But 2006 saw the company encounter a number of problems that led to step stock price decline. First, reinvigorated competitors such as HP narrowed the gap in productivity and price. Always focused more on the business market, dell struggled to sell effectively to the consumer market. A shift in consumer preferences to buy in retail stores as opposed to buying direct didn’t help, but self- inflicted damage from an ultra efficient supply chain model that squeezed cost- and quality- out of customer service was perhaps the most painful. Managers evaluate call center employees primarily on how long they stayed on each call- a recipe for disaster as scores of customer cell center employees
Primarily on how long they stay on each call- a recipe for disaster as scores of customer felt there problem where ignored or not properly handled . A lack of R&D spending that hindered new product development. Design various marketing channels for Dell and give its various functions and importance.
Govt. of India recently announced introduction of 3g spectrum which will enable integrated mobile services in the hand sets. Design the distribution channel for a mobile company to distribute these 3g enable hand sets and services to the end users.