Marketing channels refer to the intermediaries used by companies to distribute products to consumers. Channels play an important role in delivering value by physically distributing products and providing supporting services. There are different types of marketing channels that vary based on their functions and characteristics. When designing a channel system, companies must consider objectives, customer and product characteristics, and available resources to determine the appropriate channel intensity and structure. Both choosing the wrong channel intensity and failing to properly manage selected channels can negatively impact sales and productivity.

1. Marketing Channels

2. Marketing Channels
 Companies use intermediaries for taking their
products to users. All such intermediaries
constitute Marketing Channels.
Each company picks specific combination of
marketing channels.
Channels play a pivotal role in value delivery.
They deliver value by actually delivering the
product & the supporting services to the
consumers.

3. Role & Functions of Channels
 Breaks the bulk and caters to the small size needs
of customers.
Takes care of the various flows involved in
distribution.
 The physical flow of the products.
 The title/ownership flow
 The risk flow
 The payment flow
 The information flow
 The promotion flow

4. Role & Functions of Channels
 Connects the Consumers to the company
Provides the
company.
Distribution
efficiency
to
the
 Minimizes the number of contacts needed for
reaching consumers.
 Provides Salesmanship
 Helps in price Mechanism
 Assists in merchandising
 A vital source of competitive advantage

5. Classification of Distribution Channels
Producer
Consumer
Producer
Producer
Producer
Retailer
Wholesaler
Distributor
Wholesal
er
Consumer
Retailer
Retailer
Consumer
Consumer

6. Types & Characteristics of Channels

7. Types & Characteristics of Channels
 Sole Selling Agent- When the manufacturer
prefers to keep itself out of marketing &
distribution task, it appoints a suitable agency as
his sole selling agent.
The agency has large resources & a large
territory to operate. It takes care of most of the
distribution & marketing functions on behalf of
the producer.

8. Types & Characteristics of Channels
 C&F Agent- This is another form of marketing
Channel who are also known as Clearing &
Forwarding Agents. They supply stocks to the
wholesalers & retailers on behalf of the
manufacture.
 They do not resell the products, but merely
transfers them.

9. Types & Characteristics of Channels
 Wholesalers / Stockist- is also a large operator.
They keep large quantities of products &
normally resell to retailers.
Wholesalers generally specialize , some by
product, some by industry & some by markets.
The rationale for their existence is their cost
effective operation in buying goods in large
quantities & reselling them to other channels in
smaller yet sizeable lots.

10. Types & Characteristics of Channels
 India has a strong wholesale network. In
FMCG products , it accounts for over 40% of
the total turnover.
P&G delivers Vicks in over one million stores
through its wholesale network.

11. Types & Characteristics of Channels
 Retailer- Retailer or dealers sell directly to the
final customers. They are at the bottom of
distribution hierarchy.
They operate relatively in smaller territory. The
stocks they keep are operational stocks,
necessary for immediate sale at the retail outlet.
They buy the assorted products in suitable lots
& resell them to households.

12. Service Channels
Consumer
Service Provider
Service
Provider
Agent
Consumer

13. Service Channels
 Service Provider to Agent to Customer- Agents
are used when the service provider is
geographically away from the customers & when
it is not economical for the provider to establish
its own local sales team.
Many financial institutions use this kind of
channels to distribute their services.

14. Designing distribution Channel System
 If the company decides to go for intermediaries, it
can consider different types of channels. The
company can also structure its channels in different
ways.
It can have a single tier or two tier or a three tier
channel structure.
The company may decide to reach different
market segments with different channel
arrangements or with the same channel structure.

15. Steps involved in designing a Channel
System
Formulating the Channel objectives- Channel
objectives will determine the channel design.
If HUL decides that lifebuoy should be
available in more than 80% of the villages in
India, its channel design has to be very intensive
in nature.
A multi tier channel system having C&F agents,
distributors, retailers are what is required.

16. Steps involved in designing a Channel
System
 Some examples of how the Channel objectives
decide the channel design.
 Reliance Textiles- Objective was to project the
exclusive image of Vimal fabrics, concentration
on urban market to fall in line with
segmentation strategy
The company decided to go for exclusive
showrooms. They had jumbo showrooms in all
major cities & concentrated on class one towns.

17. Steps involved in designing a Channel
System
 ITC Tobacco division- The objective was to
ensure easy availability of ITC cigarettes, build
brands through merchandising.
 The company went for CFAs as well as wide
network of retailers.
 Archie’s Gifts & Greetings- Proximity to the
customers. Make purchases of cards/gifts an
enjoyable experience.
• The company established outlets close to target
buyers. Went for trendy interior design & peppy
ambience.

18. Channel Objectives differ from
Company to Company
 Chambour range of cosmetics is sold through
just 35 outlets in the country, while Lakme
range is sold through 125000 outlets.
The two channel system differ not merely in the
intensity of the retail outlet but in other aspects f
channel design as well.

19. Steps involved in designing a Channel
System
 Identifying
the
Channel
FunctionsIdentification of the functions to be performed
by the channels is the next step in designing the
channel system.
Linking the Channel design to Customers
characteristics- Another step in channel design.
The company may decide to sell either through
discount superstore or a classy boutique

20. Steps involved in designing a Channel
System
 Linking the channel design to product
characteristics- Special products may need
special channels.
For example Mont blanc suit case is only
available at handful of outlets in the country.
Similarly convenience goods need different
channel design as compared to shopping &
specialty goods.

21. Steps involved in designing a Channel
System
 Industrial goods are different from consumer
goods hence would require different channels.
 The consumer goods are not complex in
nature, consumed more frequently & require
very little or nil after sales service hence need
different channels for distribution.
Industrial goods need specialized distributors
with special demonstration & storage facilities.

22. Steps involved in designing a Channel
System
 Even the product life cycle stages also influence
the channel choice.
Evaluating the distribution environment- While
selecting the channel design the company must
evaluate the vital features of distribution
environment.
The design must conform to norms regarding
practices such as exclusive dealership, exclusive
territorial rights, re-sale price maintenance.

23. Steps involved in designing a Channel
System
Evaluating the Competitor’s Channel designsThe company must evaluate the pros & cons of
the channels adopted by the competition &
select the best.
Matching the Channel design to Company
resources- The companies must ensure that
their channel design must match their
resources. The companies with limited
resources must go for conventional designs.

24. Steps involved in designing a Channel
System
 Evaluating the alternatives & selecting the bestThe points here to be considered are
Cost
Efficiency
Risk

25. Steps involved in designing a Channel
System
 Choosing Channel intensity & number of tiersChannel Intensity-
Intensive Distribution
Selective Distribution
Exclusive distribution

26. Wrong Choice of Channel Intensity
 P&G and Nestle- P&G had earlier gone in for
200 stockists & 4000 retailers but still the
channel productivity remained low.
 The company’s sales were primarily coming
from urban areas. The company was incurring a
large cost on channels.
The company had to derecognize more than
150 stockists & thousands of retailers.

27. Wrong Choice of Channel Intensity
 The company had to follow the ECP approach
which focuses on containing costs 7 improving
bottom lines.
In this approach the stocks are replenished at
more frequent intervals. This enables the
retailers to operate with smaller inventories
hence a cut in retailer’s margin would be in
order.

28. Wrong Choice of Channel Intensity
The company drastically cut the trade margins.
The stockist margin from 10 to 3% 7 the
retailers margin from 12 to 8% which led to
resentment among the channels.
Nestle also embraced the HUL like channel
model & added 350000 retail points. As its
sales were nowhere HUL’s, the company could
not sustain the channel intensity. The company
also weeded out the products that were low
profits products.

29. Channel Management

30. Channel Management

31. Channel Management
 Every company has to manage the channels
that it selects to distribute its goods & services.
The companies have to perform many
functions to ensure the channel efficiency and
motivation.
Channel Selection- The channel selection has
be done with a lot of precision. The small
producers face a lot of difficulty in convincing
the dealers to carry stocks by offering them
extra incentives.