2. Many environmental factors such as technol­ogy, economy conditions and government regulations affect the choice of distribution channels. Intermediaries of a channel specialize in more than one function. Considering the vastness of the internet, however, being found by consumers who are not yet aware of your product becomes difficult. Here, one channel member either owns the others, or franchises them, or exercises enough control over the other members to ensure the functioning as one unified system. The Fig. An ability to do this requires the channel manager to evaluate all phases of the distribution network. 2. 3.1 (a) depicts three producers, each using direct marketing to reach three consumers. The government has restrictions on the distribution of a num­ber of products, like coal, paper, fertilizer and sugar. In fact, this should be your prime consideration. (c) Manufacturer – Manufacturers’ Agents – Consumers – 1 Level, (d) Manufacturer – Large retailer/consumer cooperatives – Consumer – 1 Level. Each intermediary moves the product one step further towards the final consumer, and as such, each intermediary forms a level of the channel. Plagiarism Prevention 5. Tyres for replacement for cars on the road are sold mainly through retailers. like the intermediaries for tangible goods and thus have limited role. iii. Many organisations lack the resources (financial as well as other resources), to carry out direct marketing and reach out to their many customers without the help of any intermediary. It is best that we first identify the traits of the ultimate user, since the results of this evaluation might determine the other channel institutions we would use to meet these needs. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. An example of this type of conflict is one auto dealer having a conflict with another auto dealer. A distribution channel, also known as placement, is part of a company's marketing strategy, which also includes the product, promotion, and price. Example- Eureka Forbes, Zenith computers. Uploader Agreement. 3. The basic marketing math that is needed to help make marketing decisions are below. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. Also, what is promised by the cue must be present in the product, or else it will lead to dissatisfaction in the consumer. The purpose of a channel strategy In the business-to-business (B2B) world, a channel strategy aims to provide the best way to expose a company's products or services to potential customers. The producer/manufacturer and the final consumer form a part of the channel and are at both ends of the channel. Service requirements – A shorter channel is more useful when the level of service requirement is high. i. However, they are not concerned about transportation, warehousing, inventory, etc. g. Ordering – This function is with regards to the communication of channel members regarding the intention to purchase. d) Manufacturers – Wholesaler – Consumer: Here, retailers do not exist. Purchaser willing to go to some inconvenience (time and distance) to locate the most acceptable brand. In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers and the retailers themselves. 3.1 shows one major source of cost savings affected by using intermediaries/ distributors. This creates an interesting relationship, similar to the retail relationship in traditional channel marketing, whereas certain digital storefronts are highly valuable strategic partners. Title – The channel members facilitate actual transfer of ownership from one organisation or person to the other. Purchased only from a dealer equipped to render prompt and reasonable product service. Channels for Consumer Goods, Industrial Goods and Services 10. a) Manufacturers – Retailers – Customers: This option consists of only one intermediary. The organisation must periodically evaluate the performance of the channel members against set parameters like the attainment of sales targets, the average inventory levels maintained, the delivery time to customers, and co-operation in promotional and other business aspects. (a) Manufacturer – Dealer – Consumer – 1 Level, (b) Manufacturer – Franchisee – Consumer – 1 Level. Example- Bata, Titan, Reebok. Written By Nathan Ellering @njellering. b. Size of the market – For a market that is large, use of indirect channels proves to be more economical. Aspinwall has given a color classification to products, based on their rating on five factors, which greatly helps us in deciding on the length of the channel for different product categories. Merchandise assortments are generally broad, including both hard and soft goods, but assortments are typically limited to the most popular items, colors, and sizes. That is why manufacturers of consumer durables, like fans and refriger­ators, use sales representatives for institutional buyers and a dealer network for individual buyers. Convenience goods such as salt, sugar, cookies, etc., are good examples of products suitable for this type of distribution. During the marketing strategy section of the marketing plan, goals and budgets are spelled out for each month or quarter so management can review each period’s results and take corrective action as needed. They keep changing with regards to their structures, functions, and their business arenas. Earlier, fast food chains had emerged to suit the changing life-styles of certain sections of people in society. But, in such cases, problems such as the distribution staff forming unions, increase in the cost of maintaining infrastructure, and wage rise, might hamper the organization. So let's take first, the first stage of being demand generation; who's going to generate demand? Information – The marketing channels perform the task of collecting and disseminating of marketing information about customers, competitors as well as potential customers and other market forces. Deciding a proper channel of distribution is not an easy task. This does not mean that perishables can be sold only in areas close to the place of production. Channels are distribution are different than channel marketing. c) Manufacturers – Agent – Wholesaler – Retailer – Consumer: This is the longest indirect channel available to a firm. In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. Be strategic about how you start marketing through the channels that you use. They bring suppliers and buyers together. Prohibited Content 3. An organisation needs to take into consideration what is desirable while not losing focus on what is feasible, affordable and available. A channel comprises several intermediaries. Distribution channels are also constantly evolving with time. This system requires eight different contacts. That is why the distribution objective of Coca-Cola Company used to be, ‘Putting the bottle at the arm’s length of desire’. Example: – Bata, Corona etc. Marketing Channel Design 8. In short, many channels and high volume. More the spread of the market, more expensive it becomes to serve the market directly. Strategy Marketing Channel Strategy Getting the books marketing channel strategy now is not type of challenging means. An intensive distribution approach will take advantage of as many sales outlets, distributors, and direct selling opportunities the organization can identify and justify (at a given volume). A Horizontal Marketing System (HMS) involves cooperation between two or more organisations on the same level of distribution to accomplish a common goal. The agent middlemen may be commission agents, export merchants who manage trade on behalf of the manufacturer. Because of the features like intangibility, perishability, inseparability, distribution of services becomes critical. Channel Strategy refers to the activities carried out by organization so as to pass the product or service from production stage to end users hands. The channel manager must be very specific in describing the tasks, and must define how these tasks will change depending upon the situation. Trade channels are classified as conventional and non-conventional with further divisions. Just making enquiries about the product, getting it, etc. A conflict may arise on account of unclear roles and rights. d. Three level channel – This type of channel consists of three levels of intermediaries in between the manufacturer and the final consumer. They vary from direct selling, to using one or more intermediaries. Importance. ” The answer to this question determines the type of wholesaler – if any – that the manufacturer should use. The factors responsible for the success of mail-order distribution, or remote selling as it is sometimes cal­led, are – (i) minimized perceived risk, and (ii) a smooth transit. What makes your product/service different from everyone else's? b. This strategy is used by established companies and by new companies seeking distribution. Wholesale volume is greater than that of retail because it includes sales to industrial users as well as merchandise sold to retailers for resale. Mostly direct channel, i.e., zero level is used. This is the most popular choice and is used by both small and big companies alike. The title may be transferred directly, as and when the commodity is bought or sold outright, or indirectly, as and when the transaction is negotiated through a functional middleman such as an agent or broker who does not take credit to it. Thus the concept of marketing channels is not restricted to the physical goods only. Thus, it is a red good which needs a very extensive distribution network. Wholesalers: An example of a wholesaler is Optimum Sleep, which sells furniture wholesale. Price:The amount of money paid by customers to purchase the product. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. For products such as groceries, ready to eat and ready to cook food products, etc. Example- Pepsi and Coke. Multi-channel marketing occurs when a single organisation uses two or more marketing channels to reach the same or more than one market segment. If satisfied, the consumer starts behaving like the proverbial Povlov’s dog and reaches the stage of automatic response behavior. To motivate channel members to perform, the organisation must ensure that they help the intermediaries with the training of the personnel, supervision and encouragement. Here, independent channel components integrate on contractual lines to attain economies of scale and maximize the market impact. The cue gives him the idea that the soft drink (goal) will quench his thirst. 7. Push promotes a product to the middlemen who ‘push’ the offering to the consumers, and pull promotion strategy promotes the product to the end user directly. For making the cues stronger, the emphasis is usually on advertising through the media. will take immense effort from the customer. For instance, bulky industrial goods are moved directly by the manufacturers. It provides the producer with wide market coverage information about local market trends in an efficient manner. Various channel patterns are discussed below: For example, cosmetics, farm products like fresh fruits, vegetables, encyclopaedia, many innovative products through home shopping, etc. Sometimes, it may be worthwhile to deviate from what compet­itors do. Examples of this type of channel include door-to-door sales, mail order, telemarketing, TV selling, and manufacturer-owned stores. Content Filtration 6. Finally, some firms opt for a low volume approach with very few channels selected. Hence intermediaries are not much useful. If everyone on the road had a beautiful, unique sports car, much of the allure and justification for a high price point would be gone. ii. This is developed in such a manner that the co-ordination of marketing activities is achieved by using the programs of one or few firms. For instance, if you have a large email list, you can use that to promote your Facebook page. Place (or distribution):The activities that make the product available to consumers. Gone are the days when organisations sold to a single target market through a single channel. From the buyer’s perspective, the wholesaler typically brings together a wide assortment of products and lessens the need to deal directly with a large number or producers. Marketing strategy is a long-term, forward-looking approach and an overall game plan of any organization or any business with the fundamental goal of achieving a sustainable competitive advantage by understanding the needs and wants of customers.. Scholars like Philip Kotler continue to debate the precise meaning of marketing strategy. In total, non-store retailing accounts for a relatively small percentage of total retail sales, but it is growing and very important with certain types of merchandise, such as life insurance, cigarettes, magazines, books, CDs, and clothing. For example, industrial tools, Personal Computers, etc. Privacy Policy 9. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. The route that the product takes on its way from production to the consumer is important because a marketer must decide which route or channel is best for his particular product. Vending machines are used in the developed countries to sell a number of products. Channel choices themselves depend on the company’s marketing strategy with respect to segmentation, targeting, and positioning. Basic Push Promotional Strategies in Marketing Channels Promotional strategies emphasizing the push approach initiated by the manufacturer but requiring channel member support and follow-through can take many forms. An example of a corporate vertical marketing system would be a company such as Apple, which has its own retail stores as well as designing and creating the products to be sold in those retail stores. A product that is perishable in nature would need a shorter channel. On the other hand we can see in Fig. d. Financing – The marketing channels work towards the acquisition and allocation of funds required to finance inventories at different levels of the marketing channels. A marketing channel system decisions affects the other marketing decisions also, and therefore are among the most critical decisions. For example, the buying characteristics of the purchaser of a high-end electronics device might be as follows: Knowing the buying specifications of consumers, the channel planner can decide on the type or types of wholesaler and/or retailer through which a product should be sold. Intermediaries stand between the producers and final buyers in indirect channels. There are many different kinds of retailers, including: In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers. Given this, there is also a greater possibility of channel competition and conflict. After the basic design of the channel is determined, the firm faces the task of effective channel management. And, who are our ultimate users and buyers? Depending on customer needs, marketing channel strategies can utilize distribution centers or move products directly to a store. The channel is instrumental in overcoming the gaps between the producers and consumers in terms of time, place and possession or ownership. As such, the use of intermediaries is mainly to make the goods available and accessible to target markets. (a) Manufacturer – C&F Agent – Redistribution Stockist – Retailer – Consumer – 4 Levels. These may include all or some combination of the following: By providing this linkage, wholesalers assist both the producer and the buyer. In order to do this, these firms must be assured that their products are distributed to their intended markets. Intermediaries, because of their specialisation, experience, and scale of operations, are able to achieve more than what the organisation can in terms of reaching to the target markets. Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions. c. Franchise Organisations – Franchisers might also link the successive stages in the manufacturing and distribution process. A marketing channel mainly performs the task of moving goods from the producers or manufacturers to the final users. In the case of a very small operator, e.g., someone making and selling pickles, the person concerned will distribute the product herself in order to avoid extra cost, and also do the job of the smart-talking saleswoman. The wholesaler assists the producer by making products more accessible to buyers. However, the choice of location for retail outlets, point of purchase displays and advertisements can make the cues stronger. Terms of Service 7. They should also establish channel objectives and constraints based on: b. "Our overarching three-year goal is to gain a seat at the strategic table with our clients," Hebert said. Contractual VMS involves independent organisations at different stages of manufacturing and distribution and integrates their efforts on a contractual basis to obtain more economies of scale than would be possible for them to do individually. f. Physical possession – The channel members also take the responsibility of storage of goods during the successive stages to the final consumers. An individual firm's success depends not only on how well it performs but also on how well its entire marketing channels compete with competitor channels. Retailers: Walmart is one of the largest and most successful retailers in history. Copyright 10. The services ex­pected can be home delivery, availability of all products under one roof, credit facilities, short lead-time, i.e. For example, complex technical products, large capital equipments, etc. Weighing the pros and cons of various channels, both in terms of the number of channels and the volume within each channel, can have a significant strategic impact on a firm’s position in a market. Manufacturer – Agents – Consumer – 1 Level. It has to further periodically evaluate the perfor­mance of individual channel members against their own past sales, the sales of other channel members, and, possibly, sales targets. This is another marketing System emerging in which two or more unrelated organisations come together and pool their resources to exploit a marketing opportunity. Disclaimer 8. While, in the ‘pull’ strategy the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, thereby, induce the intermediaries to order it. If companies want better control, they can go for direct distribution. Channel choice begins with two questions: to whom shall we sell this merchandise immediately? Organizations must understand the competitive environment of the industry, particularly how to use a variety of marketing channels to get their products in front of their core target market at the right time and place. Each firm usually confronts a number of alternate ways to reach the market. (a) Exclusive distribution – Here the distributor has an exclusive relation with the producer and is not allowed to keep competitors’ products and brands. Of particular importance is the question, “from whom do my retail outlets prefer to buy? Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions. Pick a channel to focus on, build out your program, then move to the next. Hence manufacturers send their sales personnel who can also clarify customers’ technical queries and freeze the product specifications. Consider a product of customer’s choice made by a manufacturer at the right price. Once you have completed the test, click on 'Submit Answers for Grading' to get your results. Fast Moving Consumer Goods (FMCG), consumer durables, convenient goods, etc. If a person goes without water for four hours, he will have an urge or drive arising out of the thirst to search for a goal which will reduce the intensity of the drive. The title may be transferred directly, as and when the commodity is bought or sold outright, or indirectly, as and when the transaction is negotiated through a functional middleman such as an agent or broker who does not take credit to it. The channel system of an organisation evolves in response to local opportunities and conditions. An example of this type of conflict is if an organisation appoints two agents for the same territory. For example, if the manufacturers prefer to have lower prices and larger volumes whereas the dealers want higher prices and medium volumes, it can lead to a conflict. Companies’ with multiple product portfolio and producing consumer non-durables with national and international market resort to this channel. (b) Selective distribution – Here the distributors can keep products of very few limited producers and generally of one category of products such as home appliances. Picking the right marketing communication channel for your message will contribute significantly to the success of … Conflicts might arise if the channel member is highly dependent on the manufacturer. Before uploading and sharing your knowledge on this site, please read the following pages: 1. Channel design refers to deciding on the type of distribution channel as well as the number of levels in the channel. All goods go through channels of distribution, and marketing depends on the way goods are distributed. Discuss the various factors that affect channel choice. Each channel system has a different potential for creating sales and producing costs. A wrong choice of distribution channel ultimately increases the price of the product. In Japan, food distribution may involve as many as six levels. Control and Adaptive Criteria – The channel alternatives are evaluated in terms of companies having better control and more adaptable channels. An example of this type of system could include a large retailer such as Wal-Mart dictating conditions to smaller product makers, such as producers of a generic type of laundry detergent. Selective distribution focuses on narrowing down the number of channels within the distribution strategy, but not the overall volume of goods sold through those channels. e. More than three levels – In some cases, one can observe longer marketing channels, that is, channels that have more than three intermediaries. The channel must be flexible and efficient. However, most companies prefer distribution through middle­men as against direct distribution, to economize on costs. Distribution channels are also constantly evolving with time. Here, the manufacturer sells directly to the customer. The two important lessons that this model teaches us are as follows: i. For example, if an organisation sells to customers that are within the territory of the agents, this can lead to a conflict. Purchased only from a well-established, reputable dealer. How does channel strategy complement/enhance the other elements of the marketing mix 3. Intensive distribution focuses on delivering a firm’s goods to as many storefronts as possible and maximizing the amount of sales to pursue scale economies. The characteristics could be with regards to the number of years the channel members have been in business, their growth and profit record, their market reputation, and their capabilities to handle the product. CC licensed content, Specific attribution, https://archive.org/details/ost-business-core-concepts-of-marketing, http://www.texample.net/tikz/examples/marketing-distribution-channel/, https://en.wikipedia.org/wiki/Distribution_(business), https://en.wikipedia.org/wiki/Marketing_channel, https://en.wikipedia.org/wiki/Digital_distribution, https://en.wikipedia.org/wiki/Marketing_mix, https://upload.wikimedia.org/wikipedia/en/c/c7/B2B_Marketing_Roles_v2.png, http://en.wiktionary.org/wiki/department_store, http://www.boundless.com//marketing/definition/marketing-channel, http://www.flickr.com/photos/59574125@N05/5487448787/sizes/n/in/photostream/. The route that the product takes on its way from production to the consumer is important because a marketer must decide which route or channel is best for his particular product. There are three types of Contractual VMS: a. Differences in perception about the market requirements and their responses may lead to conflict. If everyone had the same high fashion item, it would no longer be a high fashion item. He can even see through his video monitor the size, shape, color, etc., of products from differ­ent angles and then place an order. Everything you need to know about marketing channels. On the other hand, there are small companies which cater to small regions, like Ponvandu Soap, and prefer to have direct distribution to retail outlets for two reasons – (i) their overheads will be less, and (ii) they can use direct distribution as a strategic tool to get competitive advan­tage. b. Big companies like Brooke Bond and Bata have direct distribution facilities. Thus, it needs to be taken into consideration several factors that need to think about distributing i.e.. The ma­chines of individual channel members against their own past sales and cost as shown Figure! Of ( or distribution ): the amount of money paid by customers high. 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