What is a MarketingChannel?A marketing channel system is theparticular set of interdependentorganizations involved in the process ofmaking a product or service available foruse or consumption.
The Importance of Channels• Decisions about the marketing channel systemare among the most critical facing management.• In the United States, channel memberscollectively earn margins that account for 30 to 50percent of the ultimate selling price.• Marketing channels also represent a substantialopportunity cost-– Converting potential buyers into profitable orders isone of the chief roles of marketing channels.– Marketing channels must not just serve markets, theymust also make markets
• In managing its intermediaries, the firm mustdecide how much effort to devote to push versuspull marketing.1) A push strategy involves the manufacturer usingits sales force and trade promotion money toinduce intermediaries to carry, promote, and sellthe product to end user.2) A pull strategy involves the manufacturer usingadvertising and promotion to induce consumersto ask intermediaries for the product, thusinducing the intermediaries to order it.
The role of marketing channelsChannel Functions and FlowsA marketing channel performs the work of moving goods from producers toconsumers.Some functions constitute a forward flow of activity from the company to thecustomer; other functions constitute a backward flow from customer to the company.A manufacturer selling a physical product and services might require three channels: asales channel, and a service channel.Channel levelsA zero level channel consist of a manufacturer selling directly to the final customer.Major examples are door to door sale, mail order.A one-level channel contains one selling intermediary, a two-level channel containstwo selling intermediaries. These intermediates could be retailers, distributors.As the no. of levels increase the level of difficulty of information sharing andcoordination also increase. Channels normally describe a forward movement ofproducts from source to user.Service Sector ChannelsMarketing channels are not limited to the distribution of physical goods. Producer ofservice and ideas also face problem of making their output available and accessible totarget population.
Channel Development• A new firm typically starts as a local operationselling in a limited market, using existingintermediaries. If the firm is successful, it mightbranch into new markets and use different channelsin different markets.• International markets pose distinct challenges.Customers’ shopping habits can vary by countries.• The channel system evolves as a function of localopportunities and conditions.
Hybrid Channels• Companies that manage hybrid channels mustmake sure these channels work well together andmatch each target customer’s preferred ways ofdoing business.• Customers expect channel integration,characterized by the following features:– The ability to order a product online and pick it up at aconvenient retail location– The ability to return an online ordered product to anearby store of the retailer.– The right to receive discounts based on total onlineand off-line purchases.
Rural DistributionTraditional Channelsfor Reaching Out toRural Customers• Haats• Mandis• MelasInnovative DistributionChannels for RuralMarkets• Hub and Spoke• Model• Mobile shops and offices• Linkage with communitybased organizations(SHGs, NGOs, andcooperatives
Categories of BuyersHabitual shoppersHigh value deal seekersVariety-loving shoppersHigh-involvement shoppers
1. Habitual shoppers- purchase from same place inthe same manner over time.2. High value deal seekers-know their needs andchannel surf a great deal before buying at lowestpossible price.3. Variety-loving shoppers- gather information inmany channels take advantage of high touch servicesand then buy in their favourite channel, regardless ofprice4. High-involvement shoppers-gather informationin all channels, make their purchase in a low-costchannel, but take advantage of costumer supportfrom high touch channel
Channel Levels• The producer and the final consumer are part ofevery channel.• A zero-level channel (also called a direct-marketing channel) consists of—a manufacturerselling directly to the final consumer.• A one-level channel contains one sellingintermediary—such as a retailer.• A two-level channel contains twointermediaries—wholesaler and a retailer.• A three-level channel contains—wholesalers,jobbers, and retailers.
CHANNEL-DESIGN DECISIONSDesigning a marketing channel system involves• analyzing customer needs: Lot size, Waiting anddelivery time, Product variety, Service backup• establishing channel objectives: to minimize totalchannel costs, Legal regulations and restrictions etc.• identifying major channel alternatives: mix ofchannels, the types of available businessintermediaries, the no. of intermediaries needed, theterms and responsibilities of each channel member.• and evaluating major channel alternatives: Eachchannel alternative needs to be evaluated againsteconomic, control, and adaptive criteria.
CHANNEL-MANAGEMENT DECISIONS• After a company has chosen a channelalternative, individual intermediaries must beselected, trained, motivated, and evaluated.Channel arrangements must be modified overtime.• Should evaluate: no. of years in business, Otherlines carried, Growth and profit records, Financialstrength, Cooperativeness, Service reputation,locations, type of client, size and quality of salesforce.
Channel Integration and SystemsVertical marketing systemA VMS by contrast, comprises the producer, wholesaler and retailer. Actingas a unified system.• Corporate VMSAdministered VMS: It coordinates successive stages of production anddistribution through the size and power of one of the member.• Contractual VMS:1. Wholesaler-sponsored voluntary chains2. Retailer cooperatives3. Franchise organizationsHorizontal marketing systems:In which two or more unrelated companies put together resources onprogram to exploit an emerging marketing opportunity.Multichannel marketing systemsIt occurs when single firm uses two or more marketing channels to reachone or more customer segments.• Planning channel architecture
RETAILINGRetailing includes all the activities involved inselling goods or services directly to finalconsumers for personal, nonbusiness use.• A retailer or retail store is any businessenterprise whose sales volume comesprimarily from retailing.• Any organization selling to the finalconsumer—no matter how or where they aresold is doing retailing.
Types of Retailers• Specialty store• Department store• Supermarket• Convenience store• Discount store• Off-price retailer• Superstore• Catalog showroom
Levels of Retailers• Self-service• Self-selection:- Customers can ask for assistance.Higher operating expenses than the previous one.• Limited-service:- More sales assistance becausecustomers need more info.• Full-service:- Provides salespeople who are readyto assist in every phase of the locate-compare-select process.
Non-store Retailing: 4 majorcategories• Direct Selling: Oldest one. 3 types:– One-to-one selling: A salesperson visits & tries to sell products to a singlepotential user. Ex: Avon, Electrolux.– One-to-many: A salesperson goes to the house of a host who has some peoplein the house. Ex: Tupperware.– Multilevel: A variant of direct selling in which companies recruit independentbusinesspeople who act as distributors for their products. These distributors inturn recruit & sell to sub-distributors, who eventually recruit others to selltheir products, usually in customer homes. Ex: Amway,• Direct Marketing: Includes telemarketing, TV direct response marketing &electronic shopping. Ex: 1-800-FLOWERS, Home Shopping Network.• Automatic Vending: Vending machines offer 24 hour selling, self-service &unhandled merchandise. Ex: COKE, Pepsi.• Buying Service: A store less retailer serving specific clienteles- usually theemployees of large organizations, such as schools, hospitals, unions, &government agencies. Ex: United Buying Service
Major types of CorporateOrganizations• Corporate Chain Stores: Two or more outlets that are commonly owned &controlled, employ central buying & merchandising, & sell similar lines ofmerchandise. Their size allows them to buy in large quantities. Ex:Bigbazaar, Central market• Voluntary Chain: Wholesaler-sponsored group of independent retailersengaged in bulk buying & common merchandising. Ex: Wal-Mart• Retailer Cooperative: Independent retailers who set up a central buyingorganization & conduct joint promotion efforts. hardware, food, agricultureproducts, and even movie theatres.• Consumer Cooperative: A retail firm owned by its customers. Started bycommunity residents. Ex. service co-ops such as child care, health careclinics, and funeral services• Franchise Organization: Contractual association between a franchiser &franchisees. Normally based on some unique product, service or method ofdoing business. Prominent in fast foods, video stores, health/fitnesscentres, auto rentals. Ex: McDonalds, Pizza Hut, Taco Bell, Burger King.• Merchandising Conglomerate: A free-form corporation that combinesseveral diversified retailing lines & forms under central ownership , alongwith some integration of their distribution-&-management function Ex: F.W.Woolworth, Kids Mart.
Changes in theRetail Environment• New retail forms and combinations• Growth of intertype competition• Competition between store-based and non-store-based retailing• Growth of giant retailers• Decline of middle market retailers• Growing investment in technology• Global profile of major retailers
Kind of retailing or decisions ofretailing• target market,• product assortment & procurement,• services and store atmosphere,• price,• communication,• and location.
• Merchant Wholesalers – These wholesale suppliers own and produce aproduct or service and resell their products toresellers, retailers, distributors and other wholesalers. If you can buy theproducts you require direct from the supplier you will usually be able toobtain the best prices and profit margins.• General Wholesalers - Wholesalers that fall into this category will usuallybuy large quantities of products from one or more suppliers and will beintending to add value to them by reselling in smaller quantities todistributors, retailers and resellers. This type of wholesale supplier willoften have multiple suppliers adding diversity to their product range andchoice for their customers. This type of wholesaler may resell products froma number of different industries and in several different categories.• Speciality Wholesalers - This type of wholesaler will resell products in aspecific industry or product category, but may have products from multiplesuppliers. Because specialty wholesalers specialize in a specific industry orproduct type they tend to have good product knowledge and good pricing.
• Specific Product Wholesalers - These are wholesalers who only supply 1type of product for example footwear or computers. They may supplyseveral brands but only within one product category. Manufacturers oftenuse this type of wholesaler to distribute one or more of their products.• Discount Wholesalers – This type of wholesaler will supply significantlydiscounted stock. Generally the stock is discounted because the productsare discontinued lines, returned goods or refurbished goods.• Drop Ship Wholesalers - This type of wholesaler will complete the sale of aproduct but will have it dispatched from their supplier directly to theircustomer without actually handling the goods.• On-line Wholesaler - Wholesalers who sell their products on-line offerdiscounted prices as they can reduce their overheads such as rent and ratesof physical premises. This type of wholesaler is therefore able to add alower percentage to their purchase price and still make margin.
What areIntegrated Logistics Systems?Physical distribution has now been expandedinto the broader concept of supply chainmanagementAn integrated logistics system (ILS) includesmaterials management, material flow systems,and physical distribution, aided by informationtechnology.
Market logistic 4 steps:Ist• Deciding on the company’s value proposition to itscustomersIInd• Deciding on the best channel design and networkstrategy for reaching the customersIIIrd• Developing operational excellence in sales forecasting,warehouse management, transportation management,and materials managementIVth• Implementing the solution with the best informationsystems, equipment, policies, and procedures
Market Logistics• Sales forecasting• Distribution scheduling• Production plans• Finished-goodsinventory decisions• Packaging• In-plant warehousing• Shipping-roomprocessing• Outboundtransportation• Field warehousing• Customer delivery andservicing
Four major decisions must be madewith regard to market logistics:OrderProcessingWarehousingInventory Transportation