Marketing Channel – Value Creation
through Value Delivery
• Marketing channel means set of interdependent
organizations involved in the process of making a
product or service available for use or consumption.
Merchants Agent Facilitators
Importance of Channels
It converts potential buyer in to profitable
It not only serve market but make market.
It affect the all marketing decisions.
PULL strategy vs. PUSH strategy.
Example of Pull strategy
• A new cell phone company elect to use push marketing in order to familiarize
customers with what makes them different and valuable.
• They decide on a marketing mix that includes TV, radio, and billboard
advertisements because these forms of ads reach the largest number of
customers and make clear, direct statements.
• By the time the campaign is complete; customers recognize the brand and are
familiar with their products.
• E.g. Uninor – When it was launched.
Example of Push strategy
Hybrid Channels & Multichannel
• It use multiple channels of distribution to
reach customer in a defined market.
HP - uses its sales force, outbound
telemarketing, direct mail, retailers, and the
Life Insurance Corporation of India used
internet, agent, insurance advisors, and
• A supply chain starts from flow of ingredients and components
through the production process and ends at product’s ultimate
sale to customer.
• A system of partnerships and alliances that a firm creates to
source, augment, and deliver its offerings.
• Demand chain planning – Design Supply Chain Backward from
• A firm’s value network includes
firm’s suppliers and its suppliers’ suppliers
its intermediate customers and their end customers.
Benefits of demand chain planning
• A company can make decision for backward or forward
• Detection of disturbances in supply chain.
• Companies can go online.
E.g. DELL is selling its products online and also through
• Firms have introduced supply chain management software.
The Role Of Marketing Channels
• But producers can gain in effectiveness and efficiency
by using intermediaries.
• Intermediaries possess contacts, experience,
specialization, scale of operation, availability and
accessibility to target markets.
• Offers the firm more than it can achieve on its own.
• All Producers does not have the financial resources
and expertise to sell directly on their own.
Channel functions and Flows
Moving goods from producers to customers
Overcomes the time, place and profession on gaps
Gather information about customers
Place the order
Oversee transfer of ownership
• Channel Functions Constitute the Flow.
Forward Physical, Title, Promotion
Backward Ordering, Payment
In Both Directions Information, Negotiation,
0-LEVEL : Manufacturer selling directly to the final customer.
• door-to-door sales, home parties, mail order, telemarketing, TV
selling, Internet selling, and manufacturer-owned stores.
• E.g. Dell online store, HP online store, Tupperware
1-LEVEL : One selling intermediary, such as a retailer.
• E.g. Insurance company(LIC)
2-LEVEL : Two intermediaries – Wholesaler and retailer
• E.g. Sony T.V, Samsung T.V
• Three intermediaries
• E.g. P &G and Durable products
Reverse Flow Channel
• Reverse Flow Channel’s Intermediaries includes manufacturers'
redemption centers, community groups, traditional
intermediaries, trash-collection specialists, recycling centers,
trash-recycling brokers, and central processing warehousing, etc.
to reuse products or containers (refillable chemical-carrying drums)
to refurbish products (circuit boards or computers) for resale
to recycle products (paper)
to dispose of products and packaging (waste products).
Service sector channel
• Banks, Hospitals and Education have their own service
marketing channel to deliver value.
• new concept in the services sector - Information highway
• These information highways combine multiple forms of data
carrying capacity (Internet = Videos + Software + Audio +
Images whereas Phone = Voice)
• Person marketing in services
• Ex : Appolo Hospial, Axis Bank E-banking, Different Apps
Channel Design Decisions
needs and wants
1. Analyzing Customers' Desired
Service Output Levels
Consumer may choose the channels they prefer based on price,
product assortment, and convenience, as well as their own
Lot size : Number of units the marketing channel permits a typical
customer to purchase on a purchase occasion.
Waiting and delivery time : Average time that customer of that channel
wait for receipt of the goods.
Spatial convenience : Degree to which the marketing channel makes it
easy for customers to purchase the product.
Product variety : Assortment of breadth.
Service backup : Add-on services provided by the channel. 12-32
2. Establish Objectives And
Channels objectives vary with product characteristics.
Channel design must take in to account the strength
and weakness of different types of intermediaries.
Channel design is also influenced by the competitions
Channels design must also adapt to the larger
Legal regulations and restrictions also affect channel
3. Identifying and Evaluating Major
Variety of channels for reaching customers : sales forces, agents,
distributors, dealers, direct mail, telemarketing, and the Internet.
Each channel has unique strengths as well as weaknesses.
Most companies use a mix of channels.
Each channel reaches a different segment of buyers and delivers the
right products at the least cost or else, there is channel conflict and
Things to consider:
1. Types of intermediaries
2. Number of intermediaries
3. Responsibilities of each channel member
1. Types of intermediaries
Types of intermediaries refers to channel members
available to carry out channel work. Examples
• Company sales force
• Manufacturer’s agency
• Industrial distributors
• Mail order catalogs
• Company stores
2. No. of marketing intermediaries
Intensive distribution is a strategy used by producers of
convenience products and common raw materials in which they
stock their products in as many outlets as possible.
E.g. Softdrink, news paper, candies.
Exclusive distribution is a strategy in which the producer gives only
a limited number of dealers the exclusive right to distribute its
products in their territories.
E.g. Luxury automobiles, High-end apparels
Moto G (Google’s Mobile) only on Flipkart as of now
Half Girlfriend on Flipkart initially not in paperbacks
Selective distribution is a strategy when a producer uses more
than one but fewer than all of the intermediaries willing to carry
the producer’s products.
E.g. Televisions, Appliances
Titan Raga only in selected Retail shops and all Titan Stores
3. Terms and Responsibilities of
Producers and intermediaries need to agree on:
1. Price policies
2. Conditions of sale
3. Distributors territorial rights
4. Mutual services and responsibilities
4. Evaluating The Major
Each alternative should be evaluated against:
• It compares the likely sales costs and profitability of different
• First step is to determine whether a company sales force or a
sales agency will produce more sales.
• Next step is to estimate the cost of selling different volumes
through each channel.
• Final step is comparing sales and cost.
Control and Adaptive Criteria
It refers to channel members’ control over
the marketing of the product And the ability
to remain flexible to adapt to environmental
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
1. Selecting Channel Members
Selecting channel members involves determining
the characteristics that distinguish the better ones
by evaluating channel members.
• Years in business
• Lines carried
• Profit record
• Service reputation
Selecting intermediaries that are sales agents
• Number and character of other lines carried
• Size and quality of sales force
Selecting intermediaries that are retail stores that
want exclusive or selective distribution involves
• Store’s customers
• Growth potential
2. Training and Motivating Channel
• Carefully integrated training, market research, and
other capability-building programs can motivate and
improve intermediaries’ performance.
• Partner relationship management (PRM) and supply
chain management (SCM) software are used to
Forge long-term partnerships with channel
Recruit, train, organize, manage, motivate, and
evaluate channel members
• Channel power is the ability to alter channel members’
behavior so they take actions they would not have taken
• The manufacturer clearly communicates what it wants
from its distributors in the way of market coverage,
inventory levels, marketing development, account
solicitation technical advice and service, and marketing
information and may introduce a compensation plan for
adhering to the policies.
• To streamline the supply chain and cut costs, many
manufacturers and retailers have adopted ECR practices.
• "ECR (Efficient Consumer Response) is a strategy to increase the
level of services to consumers through close cooperation among
retailers, wholesalers, and manufacturers. ”
• Three areas of ECR:
1. Demand side management or collaborative practices to
stimulate consumer demand by promoting joint marketing and
2. Supply side management or collaborative practices to optimize
3. Enables and integrators, or collaborative information technology
and process involvement tools to support joint activities that
reduce operational problems, allows greater standardization.
3. Evaluating Channel Members
Produces must evaluate
against such standards as:
– Sales quota attainment
– Average inventory levels
– Customer delivery time
– Treatment of damaged and lost
– Cooperation in promotional and
5. Modifying Channel Design and
• In competitive markets with low entry barriers,
the optimal structure will inevitably change over
• The change could mean adding or dropping
individual market channels or channel members
or developing a totally new way to sell goods.
• A new firm typically starts as a local operation selling in a
fairly circumscribed market, using a few existing
• If the firm is successful, it might branch into new markets
with different channel.
• In smaller markets, the firm might sell directly to retailers, in
large markets, through distributors.
• In rural areas, it might work with general-goods merchants, In
urban areas, with limited-line merchants.
• In one country, it might use international sales agents; in
another, it might partner with a local firm.
• Dell has encountered some of the challenges in recent years.
Global Modification Decisions
• The distribution channel may not work as planned, consumer
buying patterns change, the market expands, new competition
arises, innovative distribution channels emerge, and the product
moves into later stages in the product life cycle.
• A basic question is: What would the firm’s sales and profits look
like with and without this intermediary ?
Avon’s door-to-door system
for selling cosmetics was
modified as more women
entered the workforce.
Global Channel Considerations
• International markets pose distinct challenges, including variations
in customers’ shopping habits, but opportunities at the same time.
• In India, sales from “ organized retail “- hypermarkets,
supermarkets, and department stores- make up only 4% of the
$322 billion market.
• The first step in global channel planning, as is often the case in
marketing; is to get close to customers.
• A good retail strategy that offers customers a positive shopping
experience and unique value, if properly adapted, is likely to find
success in more than one market.
• E.g. Germany’s Aldi, the UK’s Tesco, and Spain’s Zara, Curves
women’s fitness centers and Subway
Channel Integration and Systems
Conventional marketing channel
• Each is a separate business seeking to maximize its
own profits, even if this goal reduces profit for
system as a whole.
• No channel member has complete control over other
1. Vertical Marketing systems
• VMS provide channel leadership and consist of producers,
wholesalers, and retailers acting as a unified system.
• Conventional Vs. Vertical Marketing System
Advantages of VMS
Eliminate competition and conflict.
A centralized management has direct control over all aspects of
Provide clear lines of authority and tight span of control as a
company can control all of the elements of producing and selling
a product, which can lead to high operating efficiency.
Disadvantages of VMS
• Employees at the bottom of a vertical structure may feel less
valued than those higher up in the chain.
• It can also take a great deal of time for top management
decisions to filter down through multiple layers, reducing the
organization’s ability to react quickly to a rapidly changing
• Because of the centralized control of power, weak leadership at
the top can hamper the effectiveness of the entire organization.
1. Corporate VMS
Integrates successive stages of production and
distribution under single ownership.
Ex: Apple who is responsible for doing everything
related with their products , Future group.
2. Administered VMS
• It coordinates successive stages of production and
distribution through size and power of one of the
3. Contractual VMS
It consists of independent firms at different levels of production
and distribution who join together through contracts to obtain
more economies or sales impact than each could achieve alone.
B. Retailer cooperatives
C. Franchise organizations
2. Horizontal Marketing Systems
• Two or more unrelated companies put together resources or
programs to exploit an emerging marketing opportunity.
• By working together, companies can combine their capital,
production capabilities, or marketing resources to accomplish more
than any one company could alone.
• E.g. Many supermarket chains have arrangements with local banks to
offer in-store banking.
Nestle and General
Mills work together to
market cereal outside
of North America
Advantages of HMS
Employees may attain greater satisfaction in a horizontal structure
due to greater freedom and autonomy.
The use of cross-function teams can also lead to high levels of co-
operation throughout the organization.
The heavy emphasis on innovation can lead to better ideas that keep
the organization ahead of the competition.
The absence of multiple structure layers provides streamlined
communication and processes, making the organization more flexible
and adaptable to change.
Disadvantages of HMS
The decentralized structure could lead to a “loose ship”, as the team
and project leaders have high levels of responsibility over their team
A resulting lack of control can lead to finger pointing when things go
away, which can hinder productivity.
3. Integrated Multichannel Marketing
Strategies and tactics of selling through one channel reflect the
strategies and tactics of selling through other channels.
It is also known as Hybrid marketing channel.
• Increase in Market coverage.
• Lower channel cost.
• More customized selling.
• More channel conflicts.
• Problem in controlling.
• Degree of freedom.
• Non cooperation among the different
Conflict, Cooperation, and
Channel conflict is generated
when one channel member’s
actions prevent another channel
from achieving its goal.
E.g. Software giant Oracle Crop.:
conflict is b/w sales force and its
Channel Coordination occurs when
channel members are brought together
to advance the goals of the channel, as
opposed to their own potentially
Types of Conflict
Horizontal channel conflict: It occur b/w channel
member at same level. E.g. Retailer on issue of
Vertical channel conflict: It occur b/w different levels
of channel. E.g. Conflict b/w producer and retailer on
issue of deliveries of goods.
Multichannel conflict: It exist when the manufacturer
has established two or more channels that sell to the
same market. E.g. Retailer-distributor-manufacturer
conflict related to credit facility.
Causes of Channel Conflict
1. Goal incompatibility: Understanding of objectives of channel
member is different. E.g. Manufacturer:- High market share and
Channel member:- Max sales
2. Unclear roles and rights: Lack of clearly define roles and
responsibility and channel member understand it differently.
Ex:- HP may sell PCs to large account through its own sales force,
but its dealers may also be trying to sell to large account.
3. Difference in perception: Understanding of market place is
different .action do not match.
4. Intermediaries’ dependence on manufacturer: This create high
potential for conflict. E.g. The fortune of exclusive dealers, such
as auto dealer, are affected by the manufacturer's product and
1) Strategic justification: A convincing strategic justification that they
serve distinctive segment and do not compete as much as they
might think can reduce potential for conflict among channel
2) Dual compensation: It pays existing channels for sale made through
3) Super ordinate goals: Member can be motivated to perceive
customer satisfaction as ultimate goal.
4) Employee exchange: A useful step is to exchange persons b/w two
or more channel level. E.g. GM’s executive might agree to work for
short time in some dealership, and some dealership owners might
work in GM’s dealer policy department.
5) Joint membership: The manufacturer and other intermediaries
come together in good cooperation which may lead to better
understanding b/w them. E.g. Joint membership in trade association
6) Co-optation: It is an effort by one organization to win the
support of leaders of another by including them in advisory
councils, boards of directors, which reduce channel of conflict.
7) Diplomacy, Meditation, and Arbitration:
• Diplomacy takes place when each side sends a person or
group to meet with its counterpart to resolve the conflict.
• Meditation relies on a neutral third party skilled in conciliating
the two parties interest.
• In Arbitration two parties agree to present their argument to
one or more arbitrators and accept their decision.
8) Legal recourse: If nothing else prove effective, a channel
partner may choose to file a lawsuit.
Dilution and Cannibalization
• Marketer do not dilute their brand through selecting
• To reach affluent, marketer can use e-commerce
sites for customer who have long working hours and
have little time to shop.
Legal and Ethical Issues in Channel
• Law seeks to prevent companies from using exclusionary tactics
that might keep competitors from using a channel.
• There are 4 practices, including exclusive dealing, exclusive
territories, trying agreements, and dealers’ rights.
Exclusive dealing: only certain outlet are allowed to carry a
seller’s products. Here, dealers not handle competitors product.
Exclusive territories: The producer may agree not to sell to other
dealers in a given area, or the buyer may agree to sell only in its
Tying agreement (full-line forcing) : Producer of strong brand
sometimes sell it to dealers only if they will take some or all of
the rest of line. This practice is called.
Dealers’ right: producer free to select dealers, but termination is
somewhat restricted. Seller can not drop dealer if they refuse to
cooperate in doubtful arrangement, such as exclusive dealing or
E- commerce marketing practices
• E- commerce means that the company or site offers to transact
or facilitate the selling of products and services online.
Pure- click companies
• Search engines, ISPs, company sites, transaction sites, content
sites and enabler sites.
E-commerce success factors
• Customer service is very important.
• Company should make their websites fast, simple and easy to use.
• Firms are using live online chat to give customers guidance and
• Example : Ritz camera
• Some companies use “Mascot” that can act as company
• Firms are using B2B auction sites, spot exchanges, online product catalogs,
barter sites and other online resources to obtain the better prices.
• The purpose of B2B website is to make markets more efficient.
Brick- and- Click Companies
• Existing companies that have added an online site for information or e-
• With the help of mobile banking, cell phone users can check
their bank account balances.
• Some stores allow their customers to pay with phones instead
of credit cards and cash.
• As the stock market changes constantly, investors often use
mobile phones to conduct transactions and check stock