Republic of the Philippines

Commission on Higher Education

San Jose Community College
San Jose, Malilipot Albay

CHAPTER 2:

EMERGENCE OF
MARKETING CHANNELS
Chapter II: Emergence of Marketing Channels
LEARNING OUTCOMES
At the end of the chapter, readers are expected to have clear understanding, and
develop the competency to perform the following:
1. Define and determine the need to have a marketing channels,
2. Discuss the background development of marketing channels,
3. Conduct research in determining its structures and functions in the actual
workplace,
4. Determine the roles of the marketing channels; and
5. Design a framework for the structures in the implementation of the marketing
channels.

A marketing channel is a medium by which goods and services are made available to
the customers for use and consumption. For easier transfer of goods and services, both
tangible and intangible products, this concept in marketing channel will be emphasized. It is
means by which goods moves from producers or manufacturers to consumers -A level 1
channel of distribution or channel 1 of the distribution channel. Speed in product and service
delivery and physical location significantly affects the efficiency of a. marketing channel. The
middlemen or the channel of distribution can affect the efficiency in transferring the
products.

Another less known form of the marketing channel is the Dual Distribution Channel.
This channel is a less traditional form that allows the manufacturer or wholesaler to reach
the end-user by using more than one distribution channel. It can be a wholesaler, retailer,
jobber, agent etc. The producer can simultaneously reach the consumer through a direct
market, such as a website, or sell to another Company or retailer that will reach the
consumer through another channel, i.e., a store. An example of this type of channel would
be franchising. Franchising is offering the right to sell other company's goods or services in
an area (Merriam Webster Dictionary).

MARKETING CHANNEL

It operates as a team, sharing resources and risks to move products and resources
from its point of origin to its point of final consumption. It helps unite organizations within
marketing channels, particularly when the organizations sense a chance to win a critical
competition for market share. This was first used to describe the existence of a trade
channel bridging producers and users. It is any connection between individuals and/or
organizations that allows or contributes to the occurrence of an exchange. It can be defined
as an array of exchange relationships that create customer value in the acquisition,
consumption, and disposition of products and services.

It is also called as Channel of Distribution or Trade Channel wherein it is a group of

interrelated intermediaries who directs products to consumer. It can be a salesman, broker,
agent, retailer, wholesaler etc.

Merchants and agents are two major types of marketing intermediaries. The purpose
of this is to speed up the delivery or transfer of products to the ultimate or final user of the
products. They take title to merchandise and resell it, while agents receive a commission or
fee for expediting exchange. Agents enjoy the commission from reselling the merchandise.

Wholesalers and retailers are both intermediaries and can be either merchants or
agents.

Marketing Channel is a set of independent organizations that help make a product or

service available for use or consumption by the consumer or business user. Marketing
department cannot go away or distribute products without the intervention of the marketing
channel which acts as a vehicle to transfer the goods to their customers. It is the lifeblood
where products transport from the manufacturer or the producer.
In any business venture, products are either manufactured or services are rendered.
Goods and services are carefully designed with the end goal of selling them to the
consumers. Business has to be acceptable, satisfactory, and worth purchasing. More than
that, it should be sold at a price that is reasonable. In order to be reasonable is to be within
the reach of its intended customers. But affordability is not enough. Giving “up to standard"
products and services that are reasonably priced they should be able to teach the
consumers so as the customers, Hence, one of the most important facets of the marketing
mix is place. The term, place, refers to "placing products and services within the reach of the
consumer". It is bringing the goods within the purchasing distance. It is making them
conveniently accessible to the consumers. Companies can adequately address this concern
by developing the so-called distribution marketing structure.

Marketing channel decisions are among the most important facing marketing
managers. A company's channel decisions directly affect every other marketing decision.
Companies often pay too little attention to their distribution channels. Distribution channel
decisions often involve long-term commitments to other firms (Page 203 Maria Victoria M.
AC-AC, ED. D., Principles of Marketing, Anvil Publishing, Inc., 2009).

Marketing intermediaries make up a marketing or distribution channel. A distribution

channel performs the work of moving products from manufacturers to final consumers or
business users. A good distribution channel shortens the time, place, and possession gaps
between the manufacturers and consumers.

A company can sell their products through several channels. Marketing channels ike
wholesalers and retailers are set of interdependent organizations involved in the process of
making products or services available to target customers. Most often, manufacturers and
principals would not want to do the distribution themselves because it entails a different set
of competencies, which may affect profitability and efficiency. A manufacturer for instance,
can make a 25% return on sales but will only make 1 or 2% as a retailer. A wholesaler
carrying different complementary but non-conflicting products has better economies to
distribute products than a manufacturer of limited product lines (Page 330 Fundamentals of
Marketing by Go, Josiah and Escareal-Go Chiqui, 2010).

THE MARKETING CHANNEL AS A SOCIAL SYSTEM

When individuals or collectivities (firms/agencies) interact as members of marketing

channel, an inter organizational social system exists. Networking can be used by the
intermediaries to sell the product. One of the company practices is to recruit more
salesperson both fulltime and part time basis.

World Financial Marketing Alliance, Inc. has been created to continue a good business
opportunity. The company has the heart to encourage entrepreneurship and promote
financial awareness in the society. The commitment is to help realize the dreams and
develop a passion to share the concepts to others. The more knowledgeable about how
money works, it can help educate people financially while also building a solid financial
foundation for the family.

The channel can be affected not only by economic variables, but also the fundamental
behavioral dimensions present in all social system such as conflict, power, role, and
communication processes. Aside from financial variables, the other factors are
disagreement, influence, authority and communication barriers.

Member of channel marketing

 1. Wholesalers - companies that specialize in moving goods from manufacturers to
retailer; they buy large quantities of product and then break the quantity down to
smaller lots that they then sell to many different retailers.
2. Bottlers - companies that buy ingredients in large quantity.
3. Dealers - companies that buy an inventory of product.
4. Retailers - store that sell products and services to consumer. Most of it include drug
store, food store and other specialty stores.

CHANNEL FUNCTIONS

A marketing channel performs the work of moving goods from producers to

consumers, overcoming the time, place, and possession gaps that separate goods and
services from those who need or want them. Members of the marketing channel perform a
number of key functions:
 They gather information about potential and current customers, competitors, and
other actors and forces in the marketing environment;
 They develop and disseminate persuasive communications to stimulate purchasing;
 They reach agreement on price and other terms so that transfer of ownership or
possession can be affected;
 They place orders with manufacturers;
 They acquire the funds to finance inventories at different levels in the marketing
channel;
 They assume risks connected with carrying out channel work;
 They provide for the successive storage and movement of physical products;
 They provide for buyer’s payment of their bills through banks and other financial
Institutions; and
 They oversee actual transfer of ownership from one organization or person to
another.

Some functions (physical, title, promotion) constitute a forward flow of activity from
the company to the customer; other functions (ordering and payment) Constitute a
backward flow from customers to the company. Still others (information, negotiation,
finance, and risk taking) occur in both directions.

The question is not whether these channel functions need to be performed- but rather
who is to perform them. All channel functions have three things in common: they use up
scarce resources; they can often be performed better through specialization; and they can
be shifted among channel members.

Channel Marketing Brands involves in selling through marketing channels (also

commonly known as distribution channels) have relationships with the channel partners
(local resellers, retailers, field agents, etc.) that sell their products or services to the end-
Customers. Consumer can encounter these channels just to help them determine the best
products suited to their needs.

It aims is to maximize sales through channel partners who provide then with
advertising and promotional support which are pre-activities and often subsidized by the
brand.

BACKGROUND DEVELOPMENT

Marketing channels always emerge out of a demand that marketplace needs be better
served, However, markets and their needs never stop changing, therefore, marketing
channels operate in a state of continuous change and must constantly adapt to confront
those changes. From its inception to its contemporary standing the evolution of marketing
channels thought can be divided into four stages.

THE PRODUCTION ERA AND DISTRIBUTIVE PRACTICES

The origins of marketing as an area of study are inextricably tied to distributive

practices. The earliest marketing courses, in fact, were essentially distribution courses.
Course titles like (Distributive and Regulative Industries of US Distribution of Agricultural
Products' and 'Techniques of Trade and Commerce' abounded at Schools of Commerce
during the early 1900s. These courses addressed the ways in which marketing channels
spawned middlemen who, in turn, facilitated more efficient movements of goods and
services from producers to users. As American productivity and urbanization increased with
each passing decade of the twentieth century, the demand for a variety of production
resources to be used as manufacturing inputs naturally followed suit. Those urban centers
who are rapidly growing demanded larger and more diverse bundles of goods than has been
previously available, by 1929, retailing accounted for nearly $50 billion of US trade. Modern-
looking market channels emerged in response to the need for more cost- effective ways of
moving goods and raw resources. One description of marketing channels taken from this era
stated, "Transportation and storage are concerned with those activities which are necessary
for the movement of goods through space and the carrying of goods through time.'
Increasingly, facilitating devices were needed to transport, assemble, and reship goods.
Thus, the origins of the modern marketing channel cannot be separated from purely
distributive practices.

THE INSTITUTIONAL PERIOD AND SELLING ORIENTATION

The Gross National Product of the US grew at an extraordinary rate during the 194Os
and this industrial expansion contributed to the emergence of sizeable inventory stockpiles.
The cost of managing these inventories grew rapidly as well. Production techniques and
marketing channel processes each became more sophisticated during this period. Issues
pertaining to distribution primarily revolved around cost containment, controlling inventory,
and managing assets. Marketers were shifting from a production to a sales orientation. The
attitude that 'a good product will sell itself receded as marketers encountered the need to
expand sales and advertising expenditures to convince individual consumers and
organizations to buy their specific brands. The classic marketing mix or Four Ps typology -
product, price, promotion, and place - emerged as a guiding marketing principle. Issues
relating to distribution were relegated to the place domain. The idea that relationships
between buyers and sellers could be managed did not yet exist as a topic of study. Many
new types of channel intermediaries surfaced during this period. For example, industrial
distributors emerged in the channel of distribution for most industrial products and
consumer durables. And by the late 1950s, sales by merchant wholesalers reached $100
billion, Producers were continuously seeking new ways to expand their market coverage and
distributive structures, several giant retailers had emerged by this time, and small retailers
were increasingly formalizing and specializing their operations to meet the needs of a more
refined marketplace.

THE MARKETING CONCEPT

In 1951, Robert Keith, Vice President of Marketing at Pillsbury, introduced a seminal

marketing principle to the business world: the marketing concept. According to the
marketing concept, the customer is the nucleus of all marketing mix decisions. As such,
organizations should only make what they can market instead of trying to market what they
have made. The marketing concept is intuitively appealing because its focus is on the
customer! In this sense, however, the marketing concept paints a very one-sided approach
to reconciling a firm's mission with the markets it serves because it positions marketers as
reactive exchange partners - adapting channels of distribution to meet market needs.
RELATIONSHIP MARKETING ERA

The marketing concept proved a logical precursor to the Total Quality Management
(TQM) philosophy espoused by the late W. Edwards Deming. TỌM suggests a highly
interactive approach in which customers become active partners with producers,
wholesalers, or retailers (channel members) to solve marketplace problems. The TQM
philosophy initiates a mindset among managers that a firm's relationship with its customers
fosters market-share gain and customer retention. This mindset developed alongside an era
in marketing theory and practice known as relationship marketing. The relationship
marketing era is characterized by a fundamental shift from a customer voice to a customer
dialogue. Rather than just reacting to customer-initiated feedback, the channel member
proactively initiates and maintains a participative exchange with its customers. The concept
of participation infers a high degree of cooperation and coordination between customers and
their suppliers. Close relationships between customers and their suppliers have
revolutionized marketing channels in two ways:
 Close relationships emphasize a long-term, win-win exchange relationship based
on mutual trust between customers and their suppliers.
 They reinforce the relationship dimension of exchange that is at the heart of
marketing.

The progression through these four stages from a production to a relationship

approach in marketing channels has been fostered by the evolving contributions channel
intermediaries have made toward the creation of customer value.

EVOLUTION OF MARKETING CHANNELS

There have been major stages in the history of marketing, which are:

1. The Trade Era: Production consisted in handmade goods that were limited and
generally traded through exploration.

2. The Production Orientation Era: Enter the industrial age. Since goods were Scarce,
businesses focused mainly in manufacturing. As long as someone was producing,
someone else would want to buy it. This orientation rose to popularity due to
shortages in the market, hence creating the foundation of Jean-Baptiste Say's famous
remark: "Supply creates its own demand."

3. The Sales Orientation Era: After the Industrial Revolution, competition grew and
focus turned to selling Marketing, branding and sales became an important pillar as
outputs surpassed demand, and companies competed for customers.

4. The Marketing Orientation Era: From the second half of the 20th century onward,
the saturation of markets led companies to bestow upon marketers the opportunity to
perform on a more strategic level/ Through a profound knowledge on the customer,
these professionals were involved in what the company would produce, its distribution
channels and pricing strategy. Employees within an organization were also motivated
to acquire marketing knowledge, which set the grounds to clients obtaining a general
brand experience.

5. The Relationship Marketing Era: The focus of companies shifts toward building
customer loyalty and developing relationships with clients/Authors such as Don
Peppers, Martha Rogers and Philip Kotler were instigators of the importance of
creating bonds, considering that "the cost of attracting a new customer is estimated to
be five times the cost of keeping a current customer happy."

6. The Social/Marketing Era: It concentrates on social interaction and real-time

connection with clients/ Businesses are connected to current and potential Customers
 24/7 and engagement is a critical success factor. Consider how much marketing has
changed in the last century and will continue to shift as channels of communication,
production levels and a society alter. As markets expand and new marketing platforms
emerge, the science and practice of this profession is being transformed by the
minute. What we consider today to be the fastest way to reach our customers might
be obsolete tomorrow. Therein lies the beauty of this profession-change.

The functions performed by channel intermediaries remain essentially the same.

Intermediaries have always helped channels to 'CRAM it: create utility by contributing to
Contractual efficiency, facilitating Routinization, simplifying Assortment, and Minimizing
uncertainty within marketing channels.

CONTACTUAL EFFICIENCY
Channels consist of sets of marketing relationships that emerge from the exchange
process. An important function performed by intermediaries is their role in optimizing the
number of exchange relationships needed to complete transactions. Contactual efficiency
describes this movement toward a point of equilibrium between the quantity and quality
of exchange relationships between channel members. Without channel intermediaries,
each buyer would have to interact directly with each seller, making for an extremely
inefficient state of affairs.

SORTING
Organizations strive to ensure that all market offerings they produce are eventually
converted into goods and services consumed by those in their target market. The process by
which this market progression unfolds is called sorting. In a channels context, sorting is often
described as a smoothing function. This function entails the conversion of raw materials to
increasingly more refined forms until the goods are acceptable for use by the final consumer.
The product is then packaged and distributed to retailers.

Two principal tasks are associated with the sorting function. They are:
1. Categorizing - every channel at large amounts of heterogeneous supplies have to
be converted into smaller homogeneous subsets. The items within these categories are then
categorized further to satisfy the specific needs of individual Consumer’s.
2. Breaking Bulk - it is necessary for intermediaries to break homogeneous lots into
smaller units, The opportunity to acquire smaller lots means smaller capital outflows are
necessary at a single time. The sorting function's contributions to profit are astounding and
convert billions of pesos of unproductive inventory into more sales.

MINIMIZING UNCERTAINTY
The role that intermediaries helps in reducing uncertainty is the most unnoticed tasks.,
Several types of uncertainty develop normally in all market settings.

NEED UNCERTAINTY
Need uncertainty refers to the doubts that sellers often have regarding whether they
actually understand the needs of their customers Most of the time neither sellers nor buyers
understand the exact machines, tools, or services required to reach optimal levels of
productivity. Since intermediaries’ function as bridges linking sellers to buyers, they can
become much closer to both producers and users than producers and users are to each
other. In channels where there is a lot of need uncertainty, intermediaries generally evolve
into specialists. The ranks of intermediaries must then increase, while the roles they play
become more complex. Conversely, the number of intermediaries generally declines as need
uncertainty decreases.
MARKET UNCERTAINTY
Market uncertainty depends on the number of sources available for a product or
service, Market uncertainty is generally difficult to manage because it often results from
uncontrollable environment factors such as social, economic, and competitive factors. One
means by which organizations can reduce their market uncertainty is by broadening their
view of what marketing channels can do.

TRANSACTION UNCERTAINTY
Transaction uncertainty relates to channel flows between buyers and sellers. The
delivery of materials frequently must be timed to precisely imperfect coincide with the use of
those goods in the production processes of other products or services. Problemns arising at
any point during these channel flows can lead to higher transaction uncertainty. Uncertainty
within marketing channels can be minimized through careful actions taken over a prolonged
period of exchange. Naturally, as exchange processes become standardized, need, market,
and transaction uncertainty is lessened. The functions performed by marketing
intermediaries concurrently satisfy the needs of channel members in several ways.

1. Facilitating Strategic Aims

The most basic way that the needs of market channels can be assessed and
then satisfied center on the role channel intermediaries can perform in helping
channel members reach the goals mapped out in their strategic plans.
2. Fulfilling Interaction Requirements
This refers to the degree of coordination and on-site service required by
members of a marketing channel, Coordination provides the means by which harmony
in ordering systems, delivery timing, and merchandising is achieved between buyers
and sellers.
3. Satisfying Delivery and Handling Requirements
These questions typify the processes involved in matching channel functions to
the need for efficient resource management within marketing channels, Channel
members are often unaware of their precise delivery and handling requirement needs.
By minimizing transaction uncertainty, channel intermediaries help clarify these
processes.

4. Managing Inventory Requirements

The costs of financing and carrying inventory differ across product categories and
channel members, The proficiency, with which they determine and ultimately satisfy
warehousing, stock-out, and product substitutability needs, sets intermediaries apart from
each other. Channel intermediaries help by bridging producers and their customers, are
instrumental in aligning an independent organization's mission with the market(s) it serves.
Channel intermediaries foster relationship-building by providing these fundamental functions
in the marketing channel.

STRUCTURES AND FUNCTIONS (FRAMEWORK)

The concept of channel structure is one that often is not explicitly defined in the
marketing literature. Perhaps the most typically discussed is length- the number of levels of
intermediaries in the channel.

Manufacturer consumer (two- level)

Manufacturer retailer consumer (three- level)
Manufacturer wholesaler retailer
consumer (four- level)
 Manufacturer agent wholesaler
retailer consumer (five- level)

CHANNEL STRUCTURE
Manufacturer to customer manufacturer makes the goods and sells them to the
consumer directly with no intermediary, such as a wholesaler, agent or retailer. Goods come
from the manufacturer to the user without an intermediary or middleman. For example, a
farmer may sell some produce directly to customers. For example, a bakery may sell cakes
and pies directly to customers.

Manufacturer to retailer to consumer purchases are made by the retailer from the
manufacturer and then the retailer sells the merchandise to the consumer. This channel is
used by manufacturers who specialize in producing shopping goods. For example, clothes,
shoes, furniture and fine China. This merchandise may not be needed immediately and the
consumer may take her time and try on the items before making a buying decision.
Manufacturers that specialize in producing shopping goods prefer this method of distribution.

Manufacturer to wholesaler to customer consumers can buy directly from the

wholesaler. The wholesaler breaks down bulk packages for resale to the consumer. The
wholesaler reduces some of the cost to the consumer such as service cost or sales force
cost, which makes the purchase price cheaper for the consumer. For example, shopping at
some of the warehouse clubs, the customer may have to buy a membership in order to buy
directly from the wholesaler.

Manufacturer to agent to wholesaler to retailer to customer distribution that involves

more than one intermediary involves an agent called in to be the middleman and assist with
the sale of the goods. An agent receives a commission from the producer. Agents are useful
when goods need to move quickly into the market soon after the order is placed. For
example, a fishery makes a large catch of seafood; since fish is perishable it must be
disposed of quickly. It is time consuming for the fishery to contact many wholesalers all over
the country so he contacts an agent. The agent distributes the fish to the wholesalers. The
wholesalers sell to retailers and then retailers sell to consumers (Blunt, Lanee 2016).

CHANNEL TYPES AND FUNCTIONS

Every manufacturer needs to distribute its product to customers and/or consumers.
Some do this directly; an industrial manufacturer with a small number of customers, or a
supplier of components to a larger manufacturer, a very few manufacturers of consumer
goods (such as Avon, which sells and distributes cosmetics directly to buyers in their
homes). The majority of companies, however, use intermediaries. There may be one or more
levels between manufacturer and Consumer or Customer, such as:

1. One level: manufacturer - retailer Consumer, or manufacturer - distributor - industrial

buyer.
2. Two levels: manufacturer - wholesaler - retailer - consumer, or manufacturer agent -
distributor - buyer.
3. Three levels: manufacturer - wholesaler - jobber - retailer - consumer.

The economic reason for the existence of intermediaries is more efficiency and
effectiveness. If every manufacturer is a market distributing separately to every buyer, the
members of channels would be enormous: the interposition of a distributor cuts down those
members drastically.

There are many different functions performed by channel members:

1. Physical distributions - the transport and storage goods.
2. Matching – making available the assortment of goods and services desired by the
channel member's customers.
3. Time and place - making them available at the time and in the place desired by the
customers and consumers.
4. Finance - finances the first three functions.
5. Transferring title - ensuring the legal and ownership passes to the final buyer.
6. Risk-taking - bearing part of the risk inherent in business.
7. Research and prospecting- finding out what potential buyers want.
8. Promotion and selling - persuading potential buyers to buy.
9. Service - pre-and after-sales service.
10. Support services - insurance, documentation, management.

In any industry, the above-mentioned functions may be carried out by manufacturers

themselves, by various types of intermediaries, and by external agencies (for example the
financing, insurance and some aspects of promotion will be done by companies outside the
industry). Within each industry, there is likely to be established pattern of distribution, with
recognized channel members carrying out the functions traditionally allotted to them; but
these patterns may vary from industry to industry.

CHANNEL STRUCTURES
Structures may change overtime. For instance, there has been a growth in what is
called "vertical marketing systems", in which there is a greater degree of control between
the different levels of the system than in a conventional system in which all members are
independent business making their own decisions. A vertical marketing system may reflect
vertical integration by a manufacturer. Another form is the contractual system in which there
are legalities between channel members, such as wholesaler-retailer voluntary chains.
Finally there franchise systems, which cover, for instance, Coca-Cola’s franchised bottlers,
motor manufacturer franchised dealers, and a wide variety of businesses from fast-food
outlets through hotels to car hire and print shops, as stated by Kotler (1991).

Channels for consumer products - Producers can use different channels of

distribution in the process of supplying their products to the final consumers.

Consumers are the final or ultimate user of a finished product.

There are alternative ways to select type and number of channel.

1. The legal right and ownership of goods go on transferring from one to another channel
member before reaching the hands of final consumers. There must be a legality of
documents needed in the final transaction.
2. The levels and numbers of distribution channels should be selected and used carefully
considering the nature of products, market situation, firm's capacity etc.

Distribution channel plays a very special role in marketing a product. The nature of
products helps in selecting the most appropriate channel or intermediaries in transferring
the products. The market situation identifies.
Each intermediary involved in distribution channel is counted as one level of the
channel. If a producer sells his products directly to consumers, then it is ´zero level
channels. Some books describe it in different ways such as channel 1 or level 1 wherein it is
directly from the producer to the consumers.

Channels for industrial product - the products, which are used by industrial firms to
produce other finished goods, are called industrial products. These are the goods that need
to be processed for industry purposes. These are the raw materials, machines, equipment,
management materials and production supplies etc. include in industrial products. Normally,
the manufacturing companies using these products. The channel structure used for
consumer goods cannot be used for industrial goods. Only the industrial companies can
enjoy industrial goods but for consumer they are restricted to consume it. The channel for
sale and distribution of such goods depends on type and nature of industrial goods,
necessity, number of users, geographical distance etc.

Types of Marketing Channel

Distribution Channels are best described by the number of channel levels or it can be
stated that the number of channel levels determines the type of distribution channel that a
company adapts. Company have its own way to distribute their products and sometimes
they want an outside marketing arm to sell their products, but most of the time they have
inside personnel who sell their product either in a fulltime or part time basis. Each
middleman who brings products or services, the consumer is a channel level, Therefore,
producers, distributors, and final consumers are part of channel level.
They are the ones supporting the company to sell the products to their target market.

Below are examples of four channels generally adapted by the companies to bring
their goods and services to the consumers for use or consumption.

manufacturer Direct Marketing channel consumer

FIGURE 1

Direct marketing channel: The first type of marketing channel is a direct marketing
channel. This structure has no middlemen and intermediary levels. Goods and services are
sold or serve directly to the customers/consumers.

manufacturer retailer consumers

FIGURE 2: RETAILER MARKETING CHANNEL

Retailer marketing channel: This structure has middlemen and one intermediary
level. The market intermediary in this type of marketing channel is the retailer. The retailer
is the conduit of the manufacturer and the consumers. Here, goods and services are sold or
served indirectly to the consumers/customers through the retailers. These retailers get the
goods and resell them to the consumers at a higher price. The added amount will include
their operational expenses in bringing the products/services to the customers and their set
profits. consumers
manufacturer wholesaler retailer

FIGURE 3: Wholesaler/Retailer Marketing Channel

Wholesaler/retailer marketing channel: This structure has middlemen and two

intermediary levels. The market intermediary in this type of marketing channel are the
wholesaler and the retailer. The wholesaler and the retailer are the conduits of the
manufacturer to the consumers. Here, goods and services are sold or served directly to the
consumers/ customers through first, the wholesalers who sell them to retailers. These
wholesalers purchase the goods in bulks at a certain price, more likely with big discounts.
These discounts are shared by the wholesalers to retailers who find the business viable and
profitable. They purchase these products to sell to the financial consumers.

manufacturer wholesaler jobber retailer consumers

FIGURE 4 Wholesaler/Jobber/Retailer Marketing Channel

 Wholesaler/jobber/retailer marketing channel: This structure has middlemen and
three intermediary levels. The market intermediaries in this type of marketing channel are
the wholesaler, the jobber, and the retailer. The wholesaler, jobber, and retailer are the
conduits of the manufacturer to the consumers. Here, goods and services are sold or served
indirectly to the consumers/customers through first, the wholesalers who sell them to
jobbers who the sell them to retailers. These wholesalers purchase the goods in bulks with
big discounts, a percent of which is shared to both jobbers and retailers. The retailers sell
these products to final Consumers.

NUMBER OF MIDDLEMEN
A channel of distribution is a path that a product takes as it moves from the
manufacturing or producer to the final consumer. It is also known as trade channel or
marketing channel.
Under product trade channel, middlemen play a vital role. Middlemen serve as links
between producer and the ultimate consumer or industrial user.
The channel members are the manufacturers, wholesalers and retailer and ultimate
consumer. These institutions directly participate in the transfer of goods. Middlemen are the
wholesalers and retailers. Therefore, in a channel of distribution it always includes from
products point of origin to consumption.
"The number of middlemen is always minus two (2) from the number of channel
members".

Example:
Trade Channels for Consumer Goods

Types of Distribution Systems

The marketing channels are created in order to cater the needs of other business. The
following are the different ways to present the systems used in the distribution process.

Conventional Distribution System "traditional/customary" channel for goods, is the

most popular and widely used channel organization. In this structure, various channel
members make little or no effort to cooperate with each other. They simply buy and sell from
each other: and that is all. Each channel member considers only his/her own best interest
and nothing else.
 Vertical Marketing System (VMS) in contrast to Conventional Distribution System,
wherein the whole channel focuses at the end of the channel on the same target markets.
This type of distribution channel organization system is the vertical marketing system.
 Corporate Channel: Some corporations develop their own vertical marketing
systems. They do this by undergoing international expansions and/or buying
other firms. In a corporate vertical marketing system, a firm at one channel level
owns the firms at the next level or owns the entire channel. Middlemen can
engage in this vertical integration structure. For example, many grocery chains
own food processing facilities such as dairies that supply their own store.

 Administrative VMS: In an administered channel system. the channel

members informally agree to cooperate with each other. They can agree to
schedule ordering, standardized accounting activities, and coordinate promotion
efforts. An administered VMS Coordinates distribution activities through the
market and/or economic power of one channel member or through the shared
power of two channel members. Typically, brand and market position are
effective enough to gain the voluntary cooperation of retailers in the aspect of
inventory levels, advertising, and store displays.

 Contractual VMS: Ina contractual channel system, the channel members agree
by contract to cooperate with each other. In this system, the members achieve
some of the advantages of corporate integration while retaining some of the
flexibility of a traditional channel system. In a contractual VMS, independent
firms, producers, wholesalers, and retailers operate under contracts that specify
how they will endeavor to improve distribution efficiency and effectiveness.
Three contractual systems have developed today. They are wholesaler-
sponsored voluntary chains, retailer owned cooperatives, and franchise system.
In wholesaler-sponsored voluntary chains, retailers are organized to compete
with other large chain organizations, while retailer owned cooperatives, organize
new or joint firms to do wholesaling. The franchise systems involve linking with
franchisee to sell the products and services to companies.

Coordinated Channel Marketing

Brands carry out online and offline advertising on behalf of channel partners to aid
them in generating sales of their branded products. Those online and offline marketing
initiatives can either be isolated or coordinated to inform one another.

An alternative term is a distribution channel or 'route-to-market'. It is a 'path' or

'pipeline through which goods and services flow in one direction (from vendor to the
consumer), and the payments generated by them flow in the opposite direction (from
consumer to the vendor). A marketing channel can be as short as being direct from the
vendor to the consumer or may include several inter-connected (usually independent but
mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each
intermediary receives the item at one pricing point and moves it to the next higher pricing
point until it reaches the final buyer.

Marketing Channels can be long term or short-term

 Short term channels are influenced by market factors such as: business users,
geographically concentrated, extensive technical knowledge and regular servicing
required, and large orders. Short term products are influenced by factors such as:
perishable, complex, and expensive. Short term producer factors include whether the
manufacturer has adequate resources to perform channel functions, Broad product
line, and channel control are important. Short term competitive factors include
 manufacturing feels satisfied with marketing intermediaries' performance in
promoting products.

 Long term market factors include consumers, geographically dispersed, little

technical knowledge and regular servicing is not required, and small orders. Product
factors for long term marketing channels are durable, standardized, and inexpensive.
Producer factors are manufacturer who lacks adequate resources to perform channel
functions, limited product line, and channel control is not important. The competitive
factors consist of manufacturer who feels dissatisfied with marketing intermediaries'
performance in promoting products.

ROLES OF MARKETING CHANNELS

1. To provide an effective link between production and the target consumer in today's
environment, the main question is who will perform this task and will it be executed given
the new tools of technology and management?"

2. "Marketing channel decisions are among the most important factors facing
marketing managers. A company's channel decisions directly affect every other marketing
decision. Companies often pay too little attention to their distribution channels. Distribution
channel decisions often involve long-term commitments to other firms."

3. "Marketing channel selection largely depended on two criteria. One consideration is

the circumstances existing in the market and the second is dependent consumer needs.
Furthermore, distribution channels may vary overtime. For on example, the charnel for
distributing beer has been redirected from clubs and entertainment houses to supermarkets
and groceries. Hence, there is a need for marketers and their modes of distribution be
consistently aware of consumer needs. This will help them keep their distribution methods
updated."

Explain each item.

1. Describe the channel structures.

2. Explain why services must be done on pre and after sales. Cite examples.
3. Discuss the functions performed by channel members.
4. Why do distribution vary overtime? Explain.
5. How does intensity of channel coverage help in the distribution process?