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What do the leading principles of marketing textbooks say
about Channels? We recommend you read through the
relevant section of one of these texts.
Key terms
Marketing channel: A group of individuals and organizations that direct the flow of
products from producers to customers within the supply chain.
Channel members: All parties in the marketing channel that negotiate with one
another, buy and sell products, and facilitate the change of ownership between
buyer and seller in the course of moving the product from the manufacturer into the
hands of the final consumer.
Marketing intermediaries: Middlemen that link producers to other intermediaries or
ultimate consumers through contractual arrangements or through the purchase and
resale of products.
Discrepancy of quantity: The difference between the amount of product produced
and the amount an end user wants to buy.
Discrepancy of assortment: The lack of all the items a customer needs to receive
full satisfaction from a product or products.
Temporal discrepancy: A situation that occurs when a product is produced but a
customer is not ready to buy it.
Spatial discrepancy: The difference between the location of a producer and the
location of widely scattered markets.
Retailer: A channel intermediary that sells mainly to consumers.
Merchant wholesaler: An institution that buys goods from manufacturers and resells
them to businesses, government agencies, and other wholesalers or retailers and
that receives and takes title to goods, stores them in its own warehouses, and later
ships them.
Agents and brokers: Wholesaling intermediaries who do not take title to a product
but facilitate its sale from producer to end user by representing retailers,
wholesalers, or manufacturers.
Industrial distributor: An independent business organization that takes title to
industrial products and carries inventories.
Logistics: The efficient and cost-effective forward and reverse flow as well as
storage of goods, services, and related information, into, through, and out of
channel member companies. Logistics functions typically include transportation
and storage of assets, as well as their sorting, accumulation, consolidation
and/or allocation for the purpose of meeting customer requirements.
Direct channel: A distribution channel in which producers sell directly to
consumers.
Dual distribution: The use of two or more marketing channels to distribute the same
products to the same target market.
Strategic channel alliance: An agreement whereby the products of one organization
are distributed through the marketing channels of another.
Efficiency in Exchanges Provided by an Intermediary
Marketing intermediaries can reduce the costs of exchanges by performing certain
services or functions efficiently. Even if producers and buyers are located in the
same city there are costs associated with exchanges. As the above figure shows,
when four buyers seek products from four producers, there are 16 transactions (4
producers x 4 buyers). If one intermediary severs both producers and buyers, the
number of transactions can be reduced to 8 (4 producers + 4 buyers).
Intermediaries are specialists in facilitating exchanges.
Typical Marketing Channels for Consumer Products
Because marketing channels that are appropriate for one product may be less
suitable for others, many different distribution paths have been developed.
Channel A depicts the direct movement of products from producer to consumers.
Producers that sell products directly from their factories to end users use direct
marketing channels, as do companies that sell their own products via the Internet.
Channel B, which moves goods from the producer to a retailer and then to
customers, is a frequent choice of large retailers because it allows them to buy in
large quantity from manufacturers.
Channel C takes goods from the producer to a wholesaler, then to a retailer, and
finally to a consumers. It is a practical option for producers that sell to hundreds of
thousands of customers through thousands of retailers.
Channel D, through which goods pass from producer to agents to wholesalers to
retails and then to consumers, is used frequently for products intended for mass
distribution, such as processed foods.
Typical Marketing Channels for Business Products
Because marketing channels that are appropriate for one product may be less
suitable for others, many different distribution paths have been developed.
Channel E illustrates the direct channel for business products. In contract to
consumer goods, more than half of all business products, especially expensive
equipment, are sold through direct channels.
In Channel F, an industrial distributor facilitates exchanges between the producer
and the customer.
Channel G, employs a manufacturers’ agent, an independent business person who
sells complementary products of several producers in assigned territories and is
compensated through commissions. Unlike an industrial distributor, a
manufacturer’s agent does not acquire title to the products, and usually does not
take possession.
Channel H includes both a manufacturers’ agent and an industrial distributor. The
channel may be appropriate when the producer wishes to cover large geographic
area but maintains no sales force due to highly seasonal demand or because it
cannot afford a sales force.