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1. STUDY SESSION
MARKETING CHANNELS

2. Agenda
• Introduction
• Importance of Marketing Channels
• Strategy in Marketing Channels
• Supply Chain Management
• Relationship Marketing
• Summary

3. INTRODUCTION
MARKETING CHANNELS

4. Introduction
• Over the past three decades, the overwhelming emphasis
in the Marketing Mix has been on: Product Strategy with
Pricing Strategy and Promotional Strategy also being
stressed.
• Marketing Channel Strategy (Place); the fourth “P” in the
Marketing Mix has been largely neglected.

5. Definition
• A channel of marketing or marketing channels is defined
as the path or route along which goods move from
producers or manufacturers to ultimate consumers or
industrial users. In other words, it is a distribution network
through which producer puts his products in the market
and passes it to the actual users.
• This channel consists of :- producers, consumers or users
and the various middlemen like wholesalers, selling
agents and retailers(dealers) who intervene between the
producers and consumers. Therefore, the channel serves
to bridge the gap between the point of production and the
point of consumption thereby creating time, place and
possession utilities.

6. Types of flows
A channel of distribution consists of three :-
• Downward flow of goods from producers to consumers
• Upward flow of cash payments for goods from consumers to
producers
• Flow of marketing information in both downward and upward
direction i.e. Flow of information on new products, new uses of
existing products, etc from producers to consumers. And flow
of information in the form of feedback on the wants,
suggestions, complaints, etc from consumers/users to
producers.
• An entrepreneur has a number of alternative channels
available to him for distributing his products. These channels
vary in the number and types of middlemen involved. Some
channels are short and directly link producers with customers.
Whereas other channels are long and indirectly link the two
through one or more middlemen.

7. Types of channels
• Producer-Customer:- This is the simplest and shortest channel
in which no middlemen is involved and producers directly sell
their products to the consumers. It is fast and economical
channel of distribution. Under it, the producer or entrepreneur
performs all the marketing activities himself and has full control
over distribution. A producer may sell directly to consumers
through door-to-door salesmen, direct mail or through his own
retail stores. Big firms adopt this channel to cut distribution
costs and to sell industrial products of high value. Small
producers and producers of perishable commodities also sell
directly to local consumers.
• Producer-Retailer-Customer:- This channel of distribution
involves only one middlemen called 'retailer'. Under it, the
producer sells his product to big retailers (or retailers who buy
goods in large quantities) who in turn sell to the ultimate
consumers. This channel relieves the manufacturer from
burden of selling the goods himself and at the same time gives
him control over the process of distribution. This is often suited
for distribution of consumer durable and products of high value.

8. Types of channels
• Producer-Wholesaler-Retailer-Customer:- This is the most
common and traditional channel of distribution. Under it, two
middlemen i.e. wholesalers and retailers are involved. Here,
the producer sells his product to wholesalers, who in turn sell it
to retailers. And retailers finally sell the product to the ultimate
consumers. This channel is suitable for the producers having
limited finance, narrow product line and who needed expert
services and promotional support of wholesalers. This is mostly
used for the products with widely scattered market.
• Producer-Agent-Wholesaler-Retailer-Customer:- This is the
longest channel of distribution in which three middlemen are
involved. This is used when the producer wants to be fully
relieved of the problem of distribution and thus hands over his
entire output to the selling agents. The agents distribute the
product among a few wholesalers. Each wholesaler distribute
the product among a number of retailers who finally sell it to the
ultimate consumers. This channel is suitable for wider
distribution of various industrial products.

9. IMPORTANCE OF
MARKETING CHANNELS
MARKETING CHANNELS

10. Importance
• Search for Sustainable Competitive Advantage
• Growing Power of Retailers in Marketing Channels
• The Need to Reduce Distribution Costs
• The Increased Role and Power of Technology
• The New Stress on Growth

11. Sustainable Competitive Advantage
• A competitive advantage that cannot be quickly and easily
copied by competitors.
A sustainable competitive advantage is becoming more
difficult to attain through:
• Product Strategy- rapid technology transfer enables
competitors to quickly produce similar products
• Pricing Strategy- global economy allows competitors to
find low cost production to match prices
• Promotion Strategy- high cost, clutter, and short life
promotional campaigns limit competitive advantage

12. Sustainable Competitive Advantage
• Channel Strategy is Long Term
• Requires a Channel Structure
• Depends on Relationships and People
• Requires Effective Inter organizational Management

13. Retailers in Marketing Channels
• Are Growing Larger
• Enjoy Substantial Channel Power
• Act as Buying Agents for Customers Rather than Selling
Agents for Suppliers
• Often Operate on Low Price / Low Margin Model
• Operate in Saturated Markets and Fight for Market Share

14. 77.6%
22.4%
Top 50
Rest
Concentration of Sales Among the
Top 50 Retail Firms

15. 69%
31%
56%
44%
79%
21%
55%
45%
58%
42% Four
Largest
Firms
All Other
Firms
64%
36%
Kinds of Retailers Where Largest Four Firms
Account for At Least 50% of Total Sales
Conventional
Department Stores
Discount
Mass Merchandisers
Variety Stores
Misc. General
Merchandisers
Athletic Footwear Toy Stores

16. 62.8
7.0
1.8 1.6
83.5
14.615.6
13.1
$10,000,000
or more
$5,000,000 to
$9,999,999
$1,000,000 to
$4,999,999
Less than
$1,000,000
Sales as a percentage of
the total
Firms as a percentage
of the total
Percentage Distribution of Retail Firms and Sales
by Size of Firms

17. Retailers in Marketing Channels
• Retailers Act as Buying Agents for Customers Rather than
as Selling Agents for Suppliers.
• Are Growing Larger
• Enjoy Substantial Channel Power
• Act as Buying Agents for Customers Rather than Selling
Agents for Suppliers
• Often Operate on Low Price / Low Margin Model
• Operate in Saturated Markets and Fight for Market Share

18. Retailers in Marketing Channels
• Retailers Often Operate on Low Price / Low Margin
Model
• Retailers Operate in Saturated Markets and Fight for
Market Share

19. Power or Dominant Retailers are therefore the
“Gatekeepers” into the Consumer
Marketplace
•Thus, Effective Channel Strategy
•for Dealing with
•Power Retailers is Crucial

20. Reduce Distribution Costs
• Distribution Costs Often Account for a Significant
Percentage of the Final Price of Products.
• Sometimes Distribution Costs are Higher than the
Manufacturing Cost or the Costs of Raw Materials and
Component Parts

21. Some Examples...
Autos Software Gasoline Fax Machines Packaged Foods
Distribution
Manufacturing
Raw Materials
and
Components
15%
40%
45%
25%
65%
10%
28%
19%
53%
30%
30%
40%
41%
33%
26%

22. Role and Usefulness of Technology
• Technology has the power to greatly enhance the effectiveness
and efficiency of Marketing Channels and could potentially
change the entire structure of distribution around the world.
• Firms that make effective use of these technologies in their
channel strategy can gain a substantial competitive advantage.
Some examples
• The Internet
• Wireless Communications
• B2C and B2B E-Commerce
• Cell Phones
• Global Telecommunications
• Robotics & Automated Warehousing
• Computerized “Salespeople”

23. Stress on Growth Strategy
• Technology has the power to greatly enhance the effectiveness
and efficiency of Marketing Channels and could potentially
change the entire structure of distribution around the world.
• Firms that make effective use of these technologies in their
channel strategy can gain a substantial competitive advantage.
Some examples
• The Internet
• Wireless Communications
• B2C and B2B E-Commerce
• Cell Phones
• Global Telecommunications
• Robotics & Automated Warehousing
• Computerized “Salespeople”

24. In American Business Circles “Growth” has Overtaken
“Restructuring” as the #1 Buzzword
Out
• Reengineering
• Restructuring
• Downsizing
• Flat Organizations
• Lean and Mean
In
• Growth
• Expansion
• New Markets
• Market Share
• Top Line Revenue

25. STRATEGY IN
MARKETING
CHANNELS
MARKETING CHANNELS

26. Channel Strategy
The broad principles by which a firm expects to achieve its
distribution objectives for satisfying its customers

27. Strategy
(1) What role should distribution play in the firm’s
overall objectives and strategies?
(2) What role should distribution play in the marketing mix?
(3) How should the firm’s marketing channels be designed
to achieve its distribution objectives?
(4) What kinds of channel members should be selected to
meet the firm’s distribution objectives?
(5) How can the marketing channel be managed to
implement the firm’s channel design effectively and
efficiently on a continuing basis?

28. Customer satisfaction
The Relationship between customer satisfaction and the
company’s marketing mix can be represented as:
Cs = f (P1, P2, P3, P4)
where:
Cs= degree of customer satisfaction
P1= product strategy
P2= pricing strategy
P3= promotional strategy
P4= place (channel strategy)

29. Conditions
• Distribution Channel Strategy should receive especially
heavy emphasis if one or more of the following conditions
prevails:
• Distribution appears to be the most relevant variable for
satisfying customers
• Parity exists among competitors in the other three
marketing mix variables
• High degree of vulnerability exists because of competitors’
neglect of distribution
• Distribution channel strategy can foster synergies

30. Classic Strategies
Classic Marketing Channel Strategies Still Relevant Today:
• Dual Distribution
• Exclusive Dealing
• Full-Line Forcing
• Price Differentiation
• Price Maintenance
• Refusal to Deal
• Resale Restrictions
• Tying Agreements

31. SUPPLY CHAIN
MANAGEMENT
MARKETING CHANNELS

32. Most Basic Questions
Classic Marketing Channel Strategies Still Relevant Today:
• When Do Customers Buy?
• Where Do Customers Buy?
• How Do Customers Buy?
• Who Buys?
• Who makes the actual purchase?
• Who uses the product?
• Who takes part in the buying decision?

33. Supply Chain Management
Is this just another “buzzword” for logistics
getting the right product in the right quantity,
at the right time and right place?
OR
Is there something more substantive to this term?

34. Supply Chain Management
Supply Chain Management takes a broader perspective by
viewing logistics as an integral part of the marketing
channel relationship.
A long-term “partnership” among marketing channel
participants aimed at reducing inefficiencies, costs, and
redundancies in the logistical system in order to provide
high levels of customer service.

35. Factor
Inventory Management
Total Cost Approach
Time Horizon
Information Sharing and
Monitoring
Joint Planning
Compatibility of Corporate
Philosophies
Channel Leadership
Sharing of Risks and
Rewards
Inventory Flow
Traditional
Logistics System
Independent Effort
Minimize Firm Costs
Short-Term
Limited to Needs of
Current Transaction
Transaction Based
Not Relevant
Not Needed
Each Channel Member
on Their Own
“Warehouse” Mentality
Storage Safety Stocks
Supply Chain Mgmt. System
Joint Effort to Reduce
Channel Inventories
Channel-Wide Cost Efficiencies
Long-Term
Continuous Effort to
Gather and Monitor
Ongoing
Important for Major Initiatives
Required for
Coordination and Focus
Risks and Rewards Shared
over Long-range
“Distribution Center”
Orientation-JIT, Quick
Response, Cross Docking
Contrasts Between a Traditional Logistics System and Supply Chain Based System

36. Common Issues
1. Order Processing Time
2. Order Assembly Time
3. Delivery Time
4. Inventory Reliability
5. Order Size Constraints
6. Consolidation Stipulation
7. Consistency of Delivery
8. Frequency of Sales Visits
9. Ordering Convenience
10. Order Progress Information
11. Inventory Backup During
Promotion
12. Invoice Formats
13. Physical Condition of Goods
14. Claims Response
15. Billing Procedures
16. Average Order Cycle Time
17. Order Cycle Time Variability
18. Rush Service
19. Product Availability
20. Competent Technical Reps
21. Equipment Demonstrations
22. Availability of Literature
23. Accuracy in Filling Orders
24. Terms of Sale
25. Protective Packaging
26. Degree of Cooperation

37. RELATIONSHIP
MARKETING
MARKETING CHANNELS

38. Alliances and Partnerships
Continuing and mutually supportive relationship between
the manufacturer and its channel members in an effort to
provide a more highly motivated team, network, and
alliance of channel partners.
Traditional “us-against-them” mentality is replaced with a
new cooperative perception of “us” in an effective channel
partnership or strategic alliance.
Thus, partnerships or strategic alliances go well beyond the
ad-hoc, on-again / off-again interactions typical of
traditional relationships among channel members.

39. Requirements
(1) Recognition of interdependence of channel members
(2) Close cooperation between channel members
(3) Careful specification of roles, rights, and responsibilities
in the relationship
(4) Coordinated effort focused on common goals
(5) Good communications and trust between channel
members

40. Relationship Marketing
The practice of building long-term relations with key parties
- customers, suppliers, distributors- in order to retain their
long-term preference and business.
Because of the importance of channels of distribution,
building good relationships in the marketing channel is key
to successful relationship marketing
Find Out the Needs and Problems of Channel Members
-informal information system (“grapevine”)
-research studies of channel members
-research studies by outside parties
-marketing channel audit
-distributor advisory councils

41. Relationship Marketing
Offer Support to Channel Members that is Consistent with
Their Needs and Helps Solve their Problems
-cooperative arrangements
-partnerships and strategic alliances
-distribution programming
Provide Leadership to Motivate Channel Members
-use power effectively
-recognize causes of conflict
-resolve conflicts

42. SUMMARY
MARKETING CHANNELS

43. Bases of Power
Effective Channel Management Depends on How Well
These Power Bases are Combined and Used
• Reward Power
• Coercive Power
• Legitimate Power
• Referent Power
• Expert Power

44. Causes of Conflict
• Role Incongruities
• Resource Scarcities
• Perceptual Divergences
• Expectation Differences
• Decision Domain Disagreements
• Goal Incompatibilities
• Communication Difficulties

45. Ten Trends
1. Growing Emphasis on Marketing Channel Strategy
2. More and More Stress on Technology
3. Focus on Efficiency and Reducing Distribution Costs
4. Shortening and Flattening of Distribution Channels
(Disintermediation)
5. Development of New Types of Intermediaries in Channels (Re
intermediation)
6. Continued Growth in Partnerships and Alliances (Relationship
Marketing)
7. Increasing Power for Retailers and Wholesalers
(Gatekeepers)
8. Mergers and Acquisitions to Gain Distribution Clout
9. Flexible and Focused Distribution to Match Micro, Niche, and
Database Marketing
10. Attention to the Behavioral Dimensions of Distribution to
Augment Technology