Chapter 9

Marketing Channels

SDM- Ch 9 2

Channel Functions

• Information gathering• Consumer motivation• Negotiating with suppliers• Placing orders• Financing • Inventory management• Risk bearing• After sales support

Channel Functions…….

• Physical reach• Customer contact• Building relationships• Market feedback• Understand market trends and keep principals

informed• Handle price risks• Finances market credit and inventory holdings• Provide after sales service

SDM- Ch 9 3

A

SDM- Ch 9 4

Role of Intermediaries

Company 1 Company 2 Company 3

Intermediary

Large number of CONSUMERS

Direct and Indirect….

SDM- Ch 9 5

Channel Flows

• Forward flow – company to its customers – goods and services

• Backward flow – customers to the company – payment for the goods. Returned goods.

• Flows both ways - information

SDM- Ch 9 6

Three Flows Recognized

FORWARD

BOTH WAYS

BACKWARD

Goods and Services

Information

Payment for goods / returns

Company Customers

SDM- Ch 9 7

Channel Flows• Some channel member/s have to perform

them• There is a cost associated with each flow• If a channel member is discontinued, the flow

has to be performed by another• All flows and transactions can be effective only

with timely, accurate and correct information• The channel flow is ideally to be handled by

the most competent channel member who can deliver best service at the lowest cost.

SDM- Ch 9 8

The Five Channel Flows

• Physical flow• Title flow of goods (negotiation,

ownership and risk sharing also)• Payment flows (financing and

payment)• Information flow (about goods, orders

placed and orders executed)• Promotion flows

• Physical flow :-transportation and storage of the product in order to physically deliver the product to end-user

• Title flow(i) Ownership :- nominally taking title to

the product so that in case the product is damaged or lost due to any reason ,the loss is accounted for

(ii) Promotion :- promoting the product to the customers in several ways like advertising ,displaying demonstrating ,giving information about ,etc

(iii) Negotiating :- coming to an agreement about the terms of trade with the upstream and down stream entities in the channel including the customer

• Financing :- taking care of the financial requirement of the members of the channel

• Ordering payment :- receiving and recording the orders, consolidating it and passing it on to the upstream receiving payments ,recording it, consolidating it , and passing it on to the upstream

SDM- Ch 9 11

Degree of Involvement

Manufacturer C&FA or Distribution

Center

Distributor,dealers

Wholesaler or retailer

PhysicalTitle / ownershipInformationRisk sharingPromotions

PhysicalTitle InformationPayment Order processing

PhysicalTitle / ownershipInformationPayment Order placementNegotiation Risk sharingPromotions

PhysicalTitle / ownershipInformationPayment Order placementNegotiation Risk sharingPromotions

Channel formats…

SDM- Ch 9 12

Channel Formats

• Is decided by who ‘drives’ the channel system:– Producer driven– Seller driven– Service driven– Others

SDM- Ch 9 13

Producer Driven

• This is the effort of the manufacturer to reach the product to his consumers. Examples:– Company owned retail outlets – petrol,

Bata, Reliance mobiles– Licensed outlets – KMF– Consignment selling agents– Franchisees– Brokers– Vending machines

SDM- Ch 9 14

Seller Driven

• Use of existing channels to reach the largest number of end users– Existing wholesalers and retailers – Modern retail formats– Specialty stores – Discount stores – like the eralier

Subhiksha– Pheriwalas

SDM- Ch 9 15

Service Driven

• These are the people who facilitate the distribution– Transporters and freight forwarders– Providers of warehouse space– C&F agents– 3P Logistics service providers– Couriers

SDM- Ch 9 16

Other formats• Multi-level marketing systems – Amway,

Tupperware• Co-operative societies• TV home shopping• Catalogue marketing• The internet• Exhibitions, fairs and trade shows• Data base marketing

Channel levels…

SDM- Ch 9 17

Channel Levels

• Zero level – if the product or service is provided to the end user directly by the company.– Used mostly by companies delivering service

like health, education, banking (also known as service channels)

• One level – consists of one intermediary• Two level – consists of two

intermediaries and is the most common for FMCG products

SDM- Ch 9 18

Service Channel

• Companies establish their own unique channels to deliver services like health, education, banking, insurance etc– Hundreds of bank branches to be close to

prospects– Banks may also recruit independent agents to

get customers to walk in– Musician or magician may use mass media,

events or web sites to reach customers

SDM- Ch 9 19

Marketing Channel Systems

• Vertical:– Corporate– Administered– Contractual

• Horizontal• Multi-channel

Vertical….

SDM- Ch 9 20

Vertical Marketing System

• Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts

• Improves operating efficiency and marketing effectiveness

• 3 types:– Corporate– Administered – Contractual

Corporate…

SDM- Ch 9 21

Corporate VMS

• Combines successive stages of production and distribution under single ownership

• Examples: – Bata, Bombay Dyeing, Raymond

Administered…

SDM- Ch 9 22

Administered VMS

• Co-ordinates distribution activities• Gains market power by dominating a

channel• Usually true of dominant brands like GE,

Kodak, Pepsi, Gillette, Coke and HLL in certain locations– Command high level of co-operation in shelf

space, co-operation from resellers, displays, pricing policies and promotion strategies

Contractual…

SDM- Ch 9 23

Contractual VMS

• Independent producers, wholesalers and retailers operate on a contract

• Could take the forms of:– Wholesaler sponsored voluntary chains– Retailer co-operatives– Manufacturer sponsored retail or wholesale

franchise– Franchise organizations – Service firm sponsored retail franchise

SDM- Ch 9 24

Horizontal MS

• Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity– In-store banking in hotels, big stores– Retail outlets in petrol bunks– Coffee Day outlets in airports

Multi-channel…

SDM- Ch 9 25

Multi-channel Distribution

• Company uses different channels to reach / same or different market segments– Most FMCG companies have separate

networks for retail market and institutions

– Most B2B firms use multi-channels for customer segments like Government, institutions etc

SDM- Ch 9 26

Multi-channel Distribution• Used in situations where:

– Same product but different market segments– Unrelated products in same market –

detergents and ice creams (HLL)– Size of buyers varies – Geographic concentration of potential

consumers varies– Reach is difficult

• Benefits include lower cost, better market coverage and customized selling