What is a Distribution Channel?

Set
Set of
of interdependent
interdependent
organizations
organizations involved
involved in
in the
the
process
process of
of making
making aa product
product or or
service
service available
available for
for use
use or
or
consumption
consumption by by the
the consumer
consumer or or
business
business user.
user.
11-1
 Distribution Channel Functions
These Functions Should be Assigned to the
Channel Member Who Can Perform Them Most
Efficiently and Effectively.
Risk
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
11-2
What Work is Performed by Marketing
Channels?
• Channel Functions and Flows
– Key functions include:
• Gather information about potential and current
customers, competitors, and others
• Develop and disseminate persuasive
communications to stimulate purchasing
• Reach agreements on price and other terms so
that transfer of ownership or possession can be
effected
• Place orders with manufacturers
11-3
What Work is Performed by Marketing
Channels?

• Acquire funds to finance inventories at different

levels in the marketing channel
• Assume risk connected with
carrying out channel work
• Provide for the successive storage
and movement of physical products
• Provide for buyers’ payment of their bills through
banks and other financial institutions
• Oversee actual transfer of ownership from one
organization or person to another
11-4
Five Marketing Flows in the Marketing Channel

11-5
 Channel levels

– Zero-level channel
– One-level channel
– Two-level channel
– Three-level channel
– Reverse-flow channel

11-6
Number of Channel Levels

11-7
How a Distributor
Effects an
Economy of Effort

11-8
 Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints
Identifying Major Alternatives

Types of Number of Responsibilities of

Intermediaries Intermediaries Intermediaries

Evaluating the Major Alternatives

Designing International Distribution Channels
11-9
 Analyzing consumer service needs

Understand What, Where, Why, When and How target customer

buy is the first step in designing marketing channel. Channel
produces following service outputs:

Lot Size
Waiting Time
Product variety
Service backup- Add on services (Credit, delivery,
Repairs, Installations)

11-10
 Setting Channel Objectives and
Constraints
Channel objectives may vary with product
characteristics-
• Perishable products- More direct channel
• Bulky Products- Minimize number of handlings and
shipping distance
• Non standardized Products- Needs specialized
Knowledge
• High Unit Value Products- Direct through Company
sales force

11-11
Identifying Major channel Alternatives
A channel alternative is described by three
elements

• Type of intermediary
• Number of intermediary
• Terms and responsibilities of each channel
participants

11-12
 Type of Intermediary
• Company sales Force
• Distributers
• O&M markets
• C&F agents
• Multichannel/Multilevel
• Manufacture’s Agency

11-13
Number of Marketing Intermediaries

Intensive
Intensive Selective
Selective
Distribution
Distribution Distribution
Distribution

Exclusive
Exclusive
Distribution
Distribution
11-14
 Terms & responsibilities of Channel
Members (Trade Relation Mix)

• Price Policy (Aggressive vs Conservative,

Demand based/Cost based/ competitor
based)
• Conditions of sale (Cash vs Credit)
• Distributers territorial rights
• Mutual Service and responsibilities-franchisee

11-15
 Evaluating Channel Alternatives
Economic Criteria:
Manufacturer’s
sales agent

Selling Company
Cost sales force
Above S-Company
sales Force,
Below S- Sales
agency S

Level of sales
11-16
 Evaluating Channel Alternatives
Control Criteria:
Sales agency- lowest control
Company sales Force- More control

Adaptive Criteria:
On the basis of the shifts in the market trends,
producers decides about various channels.

11-17
Figure 17.4: The Value-Adds versus Costs of Different Channels

11-18
Channel Management Decisions
Selecting
Selecting Channel
Channel Members
Members

FEEDBACK
Motivating
Motivating Channel
Channel Members
Members

Evaluating
Evaluating Channel
Channel Members
Members
11-19
 Selecting Channel members
• Middle man’s number of years in Business
• Other Lines carried
• Growth and Profit record
• Solvency
• Reputation
• Cooperativeness
• Future Growth Potential

11-20
 Motivating channel Members
Always look for need and wants to motivate
Producers can use following powers to gain cooperation:
Coercive Power
Expert Power
Reward Power
Referent Power
Legitimate Power
Producers can also use positive motivators' i.e. high margins,
special deals, premiums, display allowances, Cooperative
allowance, sales contests.

11-21
 Motivating channel Members
• To establish a long term partnership with their channel
partners, producers develop long term programs regarding
market coverage, Inventory levels, Marketing development,
Account solicitations, Technical advice and service, marketing
information.
• Producer may introduce a functional compensation plan for
adhering to policies.
• Distributer’s relationship Planning: Here the firm establishes a
specialized department with in the company to identify
distributers needs and build up merchandising program to
help distributers operate effectively.

11-22
 Evaluating Channel Members
Companies must periodically evaluate them against following:
• Sales quota attainment
• Average inventory level
• Customer delivery time
• Treatment of damaged and lost goods
• Cooperation in promotion and training
programs
• Middle man services owed to customers
11-23
 Modifying Channel arrangements
Modification becomes necessary when:
• Consumer buying patterns change
• Market expands
• Product matures
• New competition arises
• New innovation distribution channel emerges
Three levels of channel modification-
• Adding or dropping individual channel members
• Adding or dropping particular marketing channels
• Developing a totally new way to sell goods in the market

11-24
Innovations in Marketing Systems
Horizontal
HorizontalMarketing
Marketing HybridMarketing
Hybrid Marketing
System
System System
System
Two
Twoor
orMore
Morenon
nonrelated
related AASingle
SingleFirm
FirmSets
SetsUp
Up
Companies
CompaniesatatOne
One Twoor
Two orMore
MoreMarketing
Marketing
Channel
ChannelLevel
LevelJoin
Join Channelsto
Channels toReach
ReachOne
One
Together orMore
or MoreCustomer
Customer
Togetherto
toFollow
Followaa Segments.
New
NewMarketing
Marketing Segments.
Opportunity.
Opportunity. Example:
Example:
Example:
Example: Retailers,Catalogs,
Retailers, Catalogs,and
and
SalesForce
Sales Force
Banks
Banksin
inGrocery
GroceryStores
Stores
Pilsbury
Pilsburyand
andKraft
KraftFoods
Foods 11-25
Hybrid Marketing Channel

11-26
 Channel Dynamics
Growth of Horizontal marketing System: (Symbiotic Marketing)
Here two or more non related companies to put together
resources or programs, each company lacks the capital, know
how, production or marketing resources e.g.
Pilsbury(Manufacturing & Advertising) & Kraft Foods
(Distribution and selling).
Growth of Multichannel marketing System: Here firm uses two
or more marketing channels to reach one or more customer
segments, it results in to-
• Increased market coverage
• Lower channel cost
• More customized selling

11-27
 Channel Dynamics
• Channel Conflict
– Types of Conflict and Competition
• Vertical channel conflict: Company Vs dealers
• Horizontal channel conflict: Amongst dealers
• Multichannel conflict: Amongst different channels
competing for same customers
– Causes of Channel Conflict
• Goal incompatibility
• Unclear roles and rights

11-28
 Channel Dynamics

• Managing Channel Conflict

• Diplomacy: Here each party sends a person or

group to meet with is counterpart to resolve
the conflict.
• Mediation: It means resorting to a neutral
third party who is skilled in conciliating the
interest of both the parties.

11-29