What are Marketing Channels?Sets of

What are Marketing Channels?
Sets of interdependent organizations involved in the process of making a product or service available for use or consumption.
Why are They Used?
• Because producers lack resources to carry out direct marketing.
• Because direct marketing is not feasible.
• Because rate of return on manufacturing > rate of return on retailing.
• Because they reduce the amount of work that must be done.
Channel Functions & Flows
Info-Promotion-Negotiation-Ordering-Financing-Risk taking-Physical possession-Payment-Title
All of the functions have 3 things in common:
1. They use up scarce resources.
2. Can be performed better through specialization.
3. They are shiftable among channel members.
Channel Levels
Each intermediary that performs work in bringing the product & its title closer is a channel level.
• Zero-channel level (direct-marketing channel) consists of a manufacturer selling directly to the final customer (i.e. door-to-door sales, mail order. Telemarketing, TV selling)
• One level channel contains one selling intermediary (i.e. retailer)
• Two level…(wholesalers, retailers)
• Three level…(wholesalers, jobbers, retailers)
The longer the channel, the more difficult it is to exercise control.
Channel-Design Decisions
Designing a channel system calls for analyzing customer needs, establishing channel objectives, & identifying & evaluating the major channel alternatives.
Analyzing Customers’ Desired Service Output Levels
Channels produce 5 service output levels:
1. Lot size: # of units that the marketing channel permits a typical customer to purchase on a purchase occasion
2. Waiting time: Average time that customers of that channel wait for receipt of the goods.
3. Spatial convenience: Degree to which the marketing channel makes it easy for customers to purchase the product.
4. Product variety: assortment breadth.
5. Service backup: add-on services provided by the channel (installation, repairs, credit).
Establishing the Channel Objectives & Constraints
• Channels objectives vary with product characteristics.
• Channel design must take into account the strengths & weaknesses of different types of intermediaries.
• Channel design is also influenced by the competitors’ channels.
• Channel design must also adapt to the larger environment.
• Legal regulations & restrictions also affect channel design.
Identifying the Major Channel Alternatives
A channel alternative is described by three elements:
1. Types of intermediaries.
Depends on the service outputs desired by the target market & the channel’s transactions costs. The company must search for the channel alternative that promises the most long-run profitability.
2. Number of intermediaries.
Exclusive distribution
Selective distribution
Intensive distribution
3. Terms & responsibilities of channel members
The producer must determine the rights & responsibilities of the participating channel members, making sure that each channel member is treated respectfully & given the opportunity to be profitable.
Evaluating the Major Channel Alternatives
Each alternative needs to be evaluated against three criteria.
1. Economic Criteria
o The first step is to determine whether a company sales force or a sales agency will produce more sales.
o The next step is to estimate the costs of selling different volumes through each channel.
o The final step is comparing sales & costs.
Each channel will produce a different level of sales & costs.
2. Control Criteria
The agents may concentrate on other customers’ products or they may lack the skills to handle our products.
3. Adaptive Criteria
The channel members must make some degree of commitment to each other for a specified period of time.
Channel-Management Decisions
After a company has chosen a channel alternative, individual intermediaries must be selected, motivated & evaluated.
Selecting Channel Members
For some producers this is easy; for others it’s a pain in the ass.
Anyway, in order to select them, producers should determine what characteristics distinguish the better intermediaries (years in business, other lines carried, solvency, reputation, etc.)
Motivating Channel Members
Channel Power
Constant training, supervision & encouragement. Producers vary greatly in their skill in managing distributors. Channel power is the ability to alter channel members’ behavior so they take actions they would not have taken otherwise. Producers can draw on the following types of power to elicit cooperation:
• Coercive power. Manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate. Produces resentment.
• Reward power. Manufacturer offers intermediaries extra benefits for performing specific acts.
• Legitimate power. Manufacturer requests a behavior that is warranted by the contract.
• Expert power. Manufacturer has special knowledge that the intermediaries value.
• Referent power. Intermediaries are proud to be identified with the manufacturer.

CHANNEL PARTNERSHIPS

More sophisticated companies try to forge a long-term partnership with distributors. The manufacturer clearly communicates what it wants from its distributors in the way of market coverage, inventory levels, marketing development, account solicitation, technical advice and services, and marketing information and may introduce a compensation plan for adhering to the policies.


To streamline the supply chain and cut costs, many manufacturers and retailers have adopted efficient consumer response (ECR) practices to organize their relationships in three areas:
a. demand side management or collaborative practices to stimulate consumer demand by promoting joint marketing and sales activities,
b. supply side management or collaborative practices to optimize supply (with a focus on joint logistics and supply chain activities), and
c. enablers and integrators, or collaborative information technology and process improvement tools to support joint activities that reduce operational problems, allow greater standardization, and so on.
Evaluating Channel Members
Underperformers need to be counseled, retrained or re-motivated. If they do no shape up, it might be best to terminate their services.
Modifying Channel Arrangements
Periodic modification to meet new conditions in the marketplace. Modification is necessary when:
• Distribution channel is not working as planned.
• Consumer buying patterns change.
• Market expands.
• New competition arises.
• Innovative channels emerge.
• Product moves into later stages in the product life cycle.

3 levels of channel adaptation can be distinguished:
1. Adding or dropping individual channel members.
2. Adding or dropping particular market channels.
3. Developing a totally new way to sell goods in all markets.