Marketing Channel Concept

Growing Importance of Marketing Channels

1. Explosion of information technology and E-comme

rce
2. Greater difficulty of gaining a sustainable competiti
ve advantage
3. Growing power of distributors, especially retailers i
n marketing channels
4. The need to reduce distribution costs
Growing Importance of Marketing Channels

1. Explosion of information technology and E-comme

rce

The introduction of E-commerce leads to a new types o

f middlemen called ‘infomediaries’ along with cyber ret
ailer to connect buyers and sellers via the Internet.

E-commerce didn’t change everything, however it is no

w merging with conventional channels in all business ar
ound the world.
Growing Importance of Marketing Channels

2. Greater difficulty of gaining a sustainable competiti

ve advantage

“Sustainable competitive advantage” is a competitive e

dge that cannot be quickly/easily copied by competitors
.

What is the competitive Advantage of Amazon’s e-mail

marketing channel???????
Growing Importance of Marketing Channels

3. Growing power of distributors, especially retailers i

n marketing channels

The economic power has shifted from the producers of

goods to the distributors of goods especially the power
is with retailers.
They play the role of ‘gatekeepers’ act as buying agents
for their customers rather than as selling agents for ma
nufacturers.
Growing Importance of Marketing Channels

4. The need to reduce distribution costs

Sometimes distribution costs are higher than the manuf

acturing cost or the cost of raw materials and compone
nt parts. Therefore, the cost control in the 21st century
will be marketing channels.
Autos Software Gasoline Fax Packaged
Machines Foods
Distribution 15% 25% 28% 30% 41%

Manufacturing 40% 65% 19% 30% 33%

Raw Materials 45% 10% 53% 40% 26%

and
Components
 The Marketing Channel Defined

• The route taken by a product as it moves from p

roducer to the customer or other ultimate user.

• The path taken by the title to goods as it moves

through various agencies.

• A loose coalition of business firms that have ban

ded together for purposes of trade.
 The Marketing Channel Defined
• Manufacturer: the movement of the product throug
h these various intermediaries.
• Intermediaries (wholesalers/retailers): the flow of t
he title to the goods.
• Consumer: a lot of middlemen standing between the
m and the producer of the product.
• Researcher: the structural dimensions and efficiency
of operation.
 The Marketing Channel Defined

• “The external contactual organization that ma

nagement operates to achieve its distribution
objectives.”

(*a managerial decision-making viewpoint)

 The Marketing Channel Defined

• external: the marketing channel exists outside

the firm (not a part of a firm’s internal organiz
ational structure.)

• Inter organizational management

 The Marketing Channel Defined

• contactual organization: firms or parties who

are involved in negotiatory functions as a pro
duct or service moves from the producer to its
ultimate user.

• Negotiatory functions – buying, selling and tr

ansferring title
 The Marketing Channel Defined

• operates: suggests involvement by manageme

nt in the affairs of the channel.

• Involvement may range from initial developme

nt of channel structure all the way to day to da
y management of the channel
 The Marketing Channel Defined

• distribution objectives: management has cert

ain distribution goals to achieve.

• E.g. DELL - INDIA

 You know What?
• India has 15mn stores

• 8 to 10 mn stores keeps FMCG products

• HUL sells to 7mn stores

• ITC sells to 3mn stores

Use of the Term Channel Manager
• Channel manager: anyone in a firm or organiz
ation who is involved in marketing channel de
cision making.

• In practice, the job title involves in channel ma

nagement may vary depends on the firms suc
h as ‘business development manager’, ‘directo
r of channel management’, trade marketing m
anager’ and etc.
Marketing Channels and Marketing Man
agement Strategy
• Marketing management process: a strategic blendin
g of 4 controllable marketing variables (marketing mi
x) to meet the demands of customers to which the fir
m wishes to appeal in the light of internal and extern
al uncontrollable variables (marketing environments).

 Major tasks: to seek out potential target markets and devel

op appropriate and coordinated 4Ps strategies to serve tho
se markets in competitive and dynamic environment.
Marketing Channels and Marketing Man
agement Strategy

• Marketing channel strategy: one of the major strateg

ic areas of marketing management.

 Management must develop and operate its marketing cha

nnels in such way as to support and enhance the other stra
tegic variables of the marketing mix in order to meet the d
emand of the firm’s target markets.
Coca Cola’s RED approach
Channel Strategy versus Logistics Managem
ent

Marketing
mix

Product Pricing Promotion Distribution

strategy strategy strategy strategy

Channel Logistics
strategy management
component component
Channel Strategy versus Logistics Man Distribution
strategy

agement
1st 2nd

Channel Logistics
strategy management
component component

• Channel strategy is much broader and more b

asic component than logistics management.

• Channel strategy is concerned with the entire

process of setting up and operating the contac
tual organization that is responsible for meetin
g the firm’s distribution objectives.
Channel Strategy versus Logistics Man Distribution
strategy

agement
1st 2nd

Channel Logistics
strategy management
component component

• Logistics management is more narrowly focus

ed on providing product availability at the ap
propriate times and places in the marketing ch
annel.

• Usually, channel strategy must already be for

mulated before logistics management can eve
n be considered.
 Flows in Marketing Channels
The actual physical movement of the product from the
manufacturer through all of the parties who take p
hysical possession of the product, from its point of
production to final consumers.
1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow
 Flows in Marketing Channels
1. Product flow Manufacturer

2. Negotiation flow
Transportation
3. Ownership flow company

4. Information flow
Wholesalers
5. Promotion flow

Retailers

Consumers
 Flows in Marketing Channels
1. Product flow Manufacturer
Negotiation
2. Negotiation flow involve a
Buying & selling mutual
3. Ownership flow functions associated exchange
between
with the transfer of buyers and
4. Information flow title (right of sellers
ownership) Wholesalers
5. Promotion flow

Retailers

Consumers
 Flows in Marketing Channels
1. Product flow Manufacturer

2. Negotiation flow
3. Ownership flow
4. Information flow
Wholesalers
5. Promotion flow

Retailers

Consumers
 Flows in Marketing Channels
1. Product flow Manufacturer

2. Negotiation flow
Transportation
3. Ownership flow company

4. Information flow
Wholesalers
5. Promotion flow

Retailers

Consumers
 Flows in Marketing Channels
1. Product flow Manufacturer

2. Negotiation flow
Advertising
3. Ownership flow agency

4. Information flow
Wholesalers
5. Promotion flow
Persuasive commu. in the
form of ad., personal Retailers
selling, sales promotion,
and publicity.
Consumers
 Distribution
strategy

1st 2nd

Channel Logistics
strategy management
component component

In the context of channel flows concept:

• Channel strategy and management involve pl
anning for managing all of the flows

• Logistics is concerned almost exclusively with t

he management of the product flow
 Distribution through Intermediaries
Economic considerations in determining whether inter
mediaries will appear in marketing channel:

Specialization and Division of Labor

“Breaking down a complex task into smaller, less complex ones a
nd allocating them to parties who are specialist at performing th
em, much greater efficiency result.”
 Distribution through Intermediaries
Economic considerations in determining whether inter
mediaries will appear in marketing channel:

Contactual Efficiency
The level of negotiation effort between sellers and buyers relativ
e to achieving a distribution objective.
• Or it is the relationship between an input (negotiation effo
rt) and an output (distribution objective).
Example of Contactual Efficiency for Grana
da Guitar Company
*Retailers Only
Negotiation Estimated Dollar Distribution Contactual
Effort (Inputs) Costs of Inputs Objective Efficiency
(Outputs)
1,500 sales visits @ $50 = $75,000 Get 500 music Negotiation effort
1,000 phone calls @ 3 = 3,000 stores to carry new in dollar terms
guitar line. relative to achieving
10 magazine ads @1,000 = 10,000 the distribution
Total $88,000 objective = $88,000

*Wholesalers
Negotiation Estimated Dollar Distribution Contactual
Effort (Inputs) Costs of Inputs Objective Efficiency
(Outputs)
100 sales visits @ $50 = $5,000 Get 500 music Negotiation effort
stores to carry new in dollar terms
100 phone calls @ 3 = 300 guitar line. relative to achieving
20 magazine ads @1,000 = 20,000 the distribution
objective = $25,300
Total √ $25,300
 Distribution through Intermediaries

The use of additional intermediaries will often in

crease the level of contactual efficiency.
 The use of wholesalers has eliminated the need for
direct contact with retailers, thereby greatly reducin
g the number of contacts needed.

(see figure 1.6: How the introduction of additional inter

mediary reduces the number of contacts)
 

Selling Directly

Manufacturers

40 Contact
Lines

Retailers
 

Selling Through One Wholesaler

Manufacturers

14 Contact
Wholesaler Lines

Retailers
 

Selling Through Two

Wholesalers

Manufacturers

Wholesalers 28 Contact Lines

Retailers
Manufacturers
Selling Directly

40 Contact Lines

Retailers

Manufacturers Selling Through One Wholesaler

Wholesaler

Retailers 14 Contact Lines

Manufacturers Selling Through Two Wholesalers

Wholesalers

28 Contact Lines

Retailers
 Try this Task …..

Its tagline might be “taller, stronger, sharper” but Horlicks has not been sharper when it comes to
expansion nor has it been able to grow taller or stronger. In fact, finding Horlicks’ Foodles or Horlicks
biscuits in Mumbai is like looking for a needle in a haystack. Retailers say that the distribution has
virtually stopped and the products themselves don’t find many takers.

ANALYZE THE CHANNEL EFFICENCY OF …………………………..