Chapter 9
Marketing Channels
Channel Functions
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Information gathering
Consumer motivation
Negotiating with suppliers
Placing orders
Financing
Inventory management
Risk bearing
After sales support
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Channel Functions…….
A
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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
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Role of Intermediaries
Company 1
Company 2
Company 3
Intermediary
Large number of CONSUMERS
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Direct and Indirect….
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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
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Three Flows Recognized
Goods and Services
FORWARD
BACKWARD
Payment for goods / returns
Information
Company
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BOTH WAYS
Customers
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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.
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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
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• 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
Degree of Involvement
Manufacturer
Physical
Title /
ownership
Information
Risk sharing
Promotions
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C&FA or
Distribution
Center
Physical
Title
Information
Payment
Order
processing
Distributor,
dealers
Physical
Title /
ownership
Information
Payment
Order
placement
Negotiation
Risk sharing
Promotions
Wholesaler or
retailer
Physical
Title /
ownership
Information
Payment
Order
placement
Negotiation
Risk sharing
Promotions
Channel formats…
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Channel Formats
• Is decided by who ‘drives’ the
channel system:
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Producer driven
Seller driven
Service driven
Others
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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
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Seller Driven
• Use of existing channels to reach the
largest number of end users
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Existing wholesalers and retailers
Modern retail formats
Specialty stores
Discount stores – like the eralier
Subhiksha
– Pheriwalas
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Service Driven
• These are the people who facilitate
the distribution
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Transporters and freight forwarders
Providers of warehouse space
C&F agents
3P Logistics service providers
Couriers
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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…
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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
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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
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Marketing Channel
Systems
• Vertical:
– Corporate
– Administered
– Contractual
• Horizontal
• Multi-channel
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Vertical….
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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…
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Corporate VMS
• Combines successive stages of
production and distribution under
single ownership
• Examples:
– Bata, Bombay Dyeing, Raymond
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Administered…
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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…
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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
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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…
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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
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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
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