Marketing Channels

Sobia Irum, PhD Management

College of Business Administration
University of Bahrain
 Learning Objectives
• Explain why companies use marketing channels and discuss the
functions these channels perform.
• Discuss how channel members interact and how they organize to
perform the work of the channel.
• Identify the major channel alternatives open to a company.
• Explain how companies select, motivate, and evaluate channel
members.
• Discuss the nature and importance of marketing logistics and
integrated supply chain management.
Definition, nature and functions
of marketing channels
• OBJECTIVE 1

Explain why companies use marketing channels and

discuss the functions these channels perform
 Distribution
• Distribution policy
A set of operations which allow a product to be transported from
the place of production to the provision of the consumer or the
user.
• Distribution channels
The distribution channel: path that ensures the transport of goods
from one point to another.
• Example: Producer - Group of department stores - Consumers
 Distribution channel
• What is distribution?
• Right product
• Right quantity
• Right place
• Right time

CHANNEL ???? “HOW”

• The major functions include• order processing• warehousing•
inventory management• transportation
 Amazon
founded in 1994 as by Jeff Bezos, Amazon is a global leader in e-
commerce

has established a place where customers could buy anything

When it comes to online channels of distribution, Amazon.com, with
over $20 billion in annual sales, has been the overwhelming winner
both in sales revenue and top-of-mind recognition.
Amazon.com has become the ultimate icon for online shopping
 Definitions of Marketing channel
• “A channel of distribution, or marketing channel, is the structure of
intra-company organization units and extra company agents and dealers,
wholesale and retail through which a commodity, product or service is
marketed.”
American Marketing Association

• “Every producer seeks to links together the set of Marketing

intermediaries that best fulfill the firm’s objectives. This set of
marketing intermediaries is called the Marketing Channels. (Also called
Trades channel or Channel of Distribution.)”
Philip kotler
 Definitions of Marketing channels
“A Channel of distribution for product is the rout taken by the title
to the goods as they move from the producer to the ultimate
consumer or industrial user.”
William J Stanton

“Marketing channel are the distribution network through which

producers produce flow to the market.”
Cundiff, Still and Govani
 Definitions of Marketing channel
• The marketing channel is viewed as one of the key marketing
decision areas that marketing management must address.
• It is the external contactual organization that management
operates to achieve its distribution objectives.
 Objectives of the Marketing Channels
• To ensure the availability of products at the point of sale.
• To build the channel members loyalty.
• To stimulate channel members to put greater selling efforts.
• To develop managerial efficiency in the channel organization.
• To identify your organization at buyer level.
• To have an effective and efficient distribution system, to make
your product and services available.
 Channel manager

• Channel manager refers to anyone in a firm or organization who is

involved in marketing channel decision making.
 Channel of distribution
• The major focus of channel of distribution is delivery. It is only
through distribution that public and private goods and services
can be made available for the use of consumptions.
• The emergence and arrangement of wide variety of distribution
oriented institution and agencies, called Intermediaries because
they stand between production on other hand and consumption on
other, can be explained in following terms;
• Intermediaries can improve the efficiency of the process.
• They help in the proper arrangement of the rout of transactions,
in the searching process and in sorting process.
 Channel of distribution
• Products are really meant to be sold to buyers. This is impossible
if the products are unable to reach the customers. While some
producers sell their goods directly to the final user. The gap
between the firm and its customers must be closed by using
intermediaries.
 Why companies use marketing channels?
• In creating customer value, a company can’t go it alone. It must
work within an entire network of partners—a value delivery
network—to accomplish this task.
• Most producers use intermediaries to bring their products to
market. They forge a marketing channel (or distribution channel)—
a set of interdependent organizations involved in the process of
making a product or service available for use or consumption by
the consumer or business user. Through their contacts,
experience, specialization, and scale of operation, intermediaries
usually offer the firm more than it can achieve on its own.
 Why companies use marketing channels?
• Marketing channels perform many key functions. Some help to
complete transactions by gathering and distributing information
needed for planning and aiding exchange, developing and spreading
persuasive communications about an offer, performing contact
work (finding and communicating with buyers), matching (shaping
and fitting the offer to the buyer’s needs), and entering into
negotiation to reach an agreement on price and other terms of the
offer so that ownership can be transferred.
 Why companies use marketing channels?
• Other functions help to fulfill the completed transactions by
offering physical distribution (transporting and storing goods),
financing (acquiring and using funds to cover the costs of the
channel work), and risk taking (assuming the risks of carrying out
the channel work).
The Multi-Channel Challenge
• The expectations of today’s customers both at the business-to-
consumer (B2C) and business-to-business (B2B) levels, for high
channel choice, flexibility, and an excellent buying experience is
less likely to be satisfied by any one channel structure.
• To meet these expanded customer expectations, a variety of
different channels, often both land-based and Internet-based, is
needed.
• These multiple channels must be properly targeted to reach the
appropriate customer segments and coordinated to make sure
they mesh smoothly and complement, rather than undermine, each
other.
 The Multi-Channel Challenge
• Close attention must be given to developing a multi-channel strategy
that results in a set of marketing channels that makes products and
services appropriately available to customers day in and day out, as
well as for the long term
 An Optimal Multi-Channel Mix
• Internet-based online channels have become a mainstream channel in
the channel mixes of a vast number of firms that may also use
several other channels such as:
• Retail store channels
• Mail order channels
• Wholesale distributor channels
• Sales representative channels
• Call center channels
• Company sales force channels
• Vending machine channels
• Company-owned retail store channels…
An Optimal Multi-Channel Mix (Apple)
An Optimal Multi-Channel Mix (Hansen)
An Optimal Multi-Channel Mix

• While a firm may use numerous channels in its multi-channel

strategy, it is the quality of the channel mix rather than the
quantity that is key in satisfying the firm’s customer base.
• The well-designed channel portfolio would attempt to provide
access to a range of customer segments while achieving channel
diversification.
 Multi-Channel Synergies
• Synergy means using one channel to enhance the effectiveness and
efficiency of other channels in the mix
• Most customers buying new cars use online channels to learn about
product features, make comparisons to other brands, check on
pricing, and find dealers before going to the auto-dealer channel
to actually buy a car.
• Different channels in the mix can also “help each other out,” and
create synergies that result in better customer service: When a
customer is confronted with a stockout from, a retail store
channel is conveniently served by another channel from the mix.
 Multi-Channel Synergies
• Johnston and Murphy, a well-known manufacturer of men’s shoes.
sells its products through its own retail stores, independent
retailers, a catalog mail order channel, and via its online channel.
• If a store does not have the particular shoe style or size when a
customer comes in, the online channel delivers the product
directly to the customer’s home at no charge to the customer and
no effort on the customer’s part.
 Avoiding Multi-Channel Conflict
• A major challenge to developing successful multi-channel
strategies is the emergence of conflict between different
channels used for reaching the same customers.
• If a manufacturer sells directly via its online channel to the same
customers served by independent distributors, the distributors
may very well view the online channel as taking business away from
their (independent distributor) channel.
• The multiple channel strategy aims to provide more choice and
flexibility to customers but if one channel gains customers, then
another channel must have lost customers.
Sustainable Competitive Advantage and Multi-Channel
Strategy
• A sustainable competitive advantage is a competitive edge that
cannot be quickly or easily copied by competitors.
• Channel strategy and particularly multi-channel strategy have
attracted increased attention as a means for gaining a sustainable
competitive advantage. Well-formulated channel strategies are
more difficult for competitors to quickly copy.
• Developing effective channel strategies requires a long-term
commitment and significant amounts of investment in
infrastructure and in the development of human skills.
Marketing Channels and Marketing Management Strategy

• The marketing mix model portrays the marketing management

process as a strategic blending of four controllable marketing
variables (the marketing mix: Four Ps: Product, price, promotion
and distribution) to meet the demands of customers to which the
firm wishes to appeal (the target markets) in light of internal and
external uncontrollable variables.
• The major tasks of marketing management are to seek out
potential target markets and to develop appropriate and
coordinated product, price promotion, and distribution strategies
to serve those markets in a competitive and dynamic environment
Marketing Channels and Marketing Management Strategy

• Marketing channel strategy, one of the major strategic areas of

marketing management, fits under the distribution variable in the
marketing mix. Management must develop and operate its
marketing channels in such a way as to support and enhance the
other strategic variables of the marketing mix in order to meet
the demands of the firm’s target markets
Types of distribution
• An intensive distribution strategy involves selling a product in
as many shops/outlets as possible. It a ims to provide saturation
coverage of the market by using all available outlets. For many
products, total sales are directly linked to the number of outlets used.
is usually required where customers have a range of acceptable
brands to choose from. In other words, if one brand is not available, a
customer will simply choose another (soft drink).
Types of distribution
• Selective distribution involves selling a product
at select outlets/shops in specific locations. It involves a
producer using a limited number of outlets in a geographical area to
sell products. An advantage of this approach is that the producer can
choose the most appropriate or best-performing outlets and focus
effort on them (cars). 
Types of distribution
• Exclusive distribution involves selling a product through one or
very few outlets. Exclusive distribution is an extreme form of
selective distribution in which only one wholesaler, retailer or
distributor is used in a specific geographical area. This is a common
form of distribution in products and brands that seek a high
prestigious image (Ralph Lauren).
 Nature & Importance of Marketing
Channels

• Channel choices affect other decisions in the marketing mix

• A strong distribution system can be a competitive advantage
 Channel Strategy versus Logistics
Management
• Channel strategy and logistics management are closely related.
• Channel strategy is concerned with the entire process of setting
up and operating the contactual organization that is responsible
for meeting the firm’s distribution objectives.
• Logistics management is more narrowly focused on providing
product availability at the appropriate times and places in the
marketing channel.
• Usually, channel strategy must already be formulated before
logistics management can even be considered.
Channel Strategy versus Logistics Management
 Channel Strategy versus Logistics
Management
• The importance of building strategic relationships among channel
members to enhance and facilitate the logistical process has been
captured in the term “supply chain management” which recognizes
that effective physical distribution involves more than ‘mechanical’
issues associated with transportation, storage, order processing,
and inventory management
 Value Delivery Network

The network made up of the company, suppliers, distributors, and

ultimately customers who “partner” with each other to improve
the performance of the entire system.
 How Channel Members add Value:
Efficiency in Exchanges Provided by an
Intermediary 
Contactual Efficiency
• The use of additional intermediaries will often increase the level
of contactual efficiency.
Nature and importance of marketing channels

• How Channel Members Add Value ?

• Transform the assortment of products into assortments wanted
by consumers.
• Bridge the major time, place, and possession gaps that separate
goods and services from users.
 Channel structure
• The channel structure is the group of channel members to which a
set of distribution tasks has been allocated. The structure of the
channel will reflect the manner in which the channel manager has
allocated these tasks among the members of the channel.
• It reflects the number of levels of intermediaries in the channel.
Consumer Marketing Channels
 The nature and importance of marketing channels
• Number of Channel Levels
Channel level is a layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer.
- Direct marketing channel is a marketing channel that has no
intermediary levels.
- Indirect marketing channel is a marketing channel containing one or
more intermediary levels.

The number of intermediary levels indicates the length of a marketing

channel. Producers lose more control and face greater channel complexity
as additional channel levels are added.
The multi-channel structure used for Polo by Ralph Lauren
Sony Music Distribution Channels
 Direct marketing channel
• The producer can sell directly to his customers without the help
of middlemen, such as wholesalers of retailers:
- By selling at manufacturer’s plant
- By opening retails own shop;
- Through travelling salesmen or door-to door sales
- Through mail order business.
- Through personal website
 Direct marketing channel
• Sales by Opening Own Shops:
- The producers of perishable and non-perishable goods sell their
products to customers, by opening their own retail shops.
Manufacturers can push the goods quickly through retail shops and
can offer satisfactory service to customers, thereby building
goodwill. It also helps the producers to study the market trends,
fashion preferred by buyers and style trend of people. This system
offers a two way communication and the price is regulated.
 Direct marketing channel
• Selling at Manufacturer’s Plant:
- It is one of the earliest, easiest and cheapest methods of
distribution of goods and known as direct selling
- It is usually preferred in case of perishable products like bread,
milk, ice-cream, fish, meat, egg, vegetables and agricultural
products, etc.
 Direct marketing channel
• Sales by Mail Order Method:
• Here the post office plays a significant role and it is known as
shopping by post or mail order business or selling by post. It is an
impersonal selling, branding, grading, standardizing, packaging etc.,
facilitating the growth of this system.
• By Post, customers are approached by sending catalogues, price
lists, pamphlets, etc. Advertising adds further speed in the
selling; e.g., books, copies, Magazines, Medicines, watches, toys,
small appliances, clothes, seeds, etc.
 Direct marketing channel
• Through travelling salesmen or door-to door sales
- Manufacturer employed salesmen for a door-to-door marketing.
They move door-to-door to introduce the new product at the door
of a customer. Dealers may not have knowledge of the goods or
they require a good margin of profit or they do not want to stock
unknown products; for them this system is good.
- Selling under this system may be costly but when the market is
known, it can be reduced. But, at the first stage, when the market
is unaware of the product, even at higher cost, this system is
better.
 Direct marketing channel
• These channels take the shortest route to the consumer. Certain
goods, like the industrial machinery, are directly sold to the
consumers. Costly goods like computers and luxury automobiles,
are also directly sold. Some manufacturers open their own retail
shops in many localities and sell goods directly to consumers. The
manufacturers also sell through their own mail order departments.
• Producers are taking steps to approach the consumers directly.
Though this is possible for some types of goods, the fact remains
that the services of intermediaries are often essential in the
distribution of goods to consumers.
 Direct marketing channel
• Perhaps, there are few drawbacks of adopting Direct Marketing
Channels are given as under:
(i) When customers are innumerable and spiral over a large area, it
may be difficult to have direct contact with them economically.
(ii) When customers are multi-millions in number, it may be difficult
to establish a direct contact with them.
(iii) When the producers do not prove to be good salesman, the
process suffers.
 Indirect channel
• Producer-Retailer-Consumer (via large department ‘ stores)

This channel is preferable where the purchasers of goods are big

retailers like department stores, chain stores, supermarkets or
consumer co-operative stores. Goods like electrical appliances, fans,
radios, ready-made garments and a host of other articles fall in this
category.
This channel is also suitable when the goods are of a perishable
nature, and quick distribution is essential. However, the manufacturer
will have to undertake such functions as transportation, warehousing
and financing.
 Indirect channel
• Producer—Wholesaler—Consumer (most industrial products)

This channel can be successfully used in distributing industrial

goods. Under industrial goods are included goods which are used for
further production and not for resale. This is a shorter channel, and
the producer eliminates the retailer in this channel link. In this
case, the buyers are business houses, government agencies,
consumer co-operative stores, etc.
Indirect channel
• Producer-Wholesaler-Retailer-Consumer (most consumer goods)

This channel is the longest route in the distribution link but is very
popular. It is used for the marketing of a variety of consumer goods
of daily use, particularly where the demand is elastic and a large
number of similar products are available. This channel is preferable
when the market for the goods is highly competitive.
It is also suitable when the producer operates under the following
conditions: The producer has a limited line of products, The finance
available to the producer is limited, the wholesalers handle specialized
goods, products are not subject to change due to changes in fashion,
wholesalers and retailers can provide good promotional support.
 Indirect channel
• Producer-Sole Agent -Wholesaler-Retailer-Consumer (usually for a
prescribed geographical area).
• This channel is used by some producers. The entire production of
goods is delivered to the sole agent for further distribution. The
sole agent, in turn, may distribute to wholesalers who, in their
turn, distribute to retailers.
• The manufacturer may appoint a single sole selling agent or he may
appoint sole agents area-wise. He wants to pass on the risk of
marketing the goods to the selling agents. He avoids the risk
involved in selling and, wants to concentrate on production. He cuts
down on his marketing expenditure and the expenditure incurred
on maintaining a sales organisation and a sales force.
 Indirect channel
• Producer-Sole Agent -Wholesaler-Retailer-Consumer (usually for a
prescribed geographical area).

But, in doing so, he takes a big risk of relying only on the sole selling
agents, he places himself at the mercy of his selling agent. If the
relations between the producer and the selling agent become
strained, or if the selling agent fails to distribute the goods, the
producer will be put to a great loss. In the marketing of agricultural
goods, however, it is a common practice to sell through selling
agents.
Hybrid distribution channel or multi-channel distribution
system
• Many companies used a single channel to sell to a single market or
market segment. With the proliferation of customer segments and
channel possibilities, several companies have adopted multi-channel
distribution systems, it is often called hybrid marketing channels.
Multi-channel marketing like these occurs when a single firm sets
up two or more marketing channels to reach one or more customer
segments. The use of hybrid channel systems has increased
greatly in recent years.
Hybrid distribution channel or multi-channel distribution
system
• The producer sells directly to consumer segment 1 using direct
mail catalogues and telemarketing, and reaches consumer segment
2 through retailers. It sells indirectly to business segment 1
through distributors and dealers, and to business segment 2
through its own salesforce.
• Hybrid channels have advantages to offer to companies facing
large and complex markets. With each new channel, the company
expands its sales and market coverage and gains opportunities to
tailor its products and services to the specific needs of diverse
customer segments.
Hybrid distribution channel or multi-channel distribution
system
• But such hybrid channel systems are harder to control, and they
generate conflict as more channels compete for customers and
sales. For instance, when IBM began selling directly to customers
at low prices through catalogues and telemarketing, many of its
retail dealers cried “unfair competition” and threatened to drop
the IBM line or to give it less emphasis.
Distribution channels functions

• Transactional functions:
The channel partners offer firms important transactional functions.
They buy products from firms and sell them to their own
customers, increasing the total revenue from your product range.
At the same time, they minimize the firms’ transaction costs. Firms
only deal with a channel partner. The channel partners deal with a
large number of customers, take the risk of holding inventory on
firms’ behalf, reducing firms’ stockholding costs and their risk of
holding unwanted inventory.
 Distribution channels functions

• Added Value
In certain markets, channel partners add value to a transaction.
They may increase the value of a product, for example, by
customizing it for customers in specific industries -- a process that
could prove expensive for firms. Channel partners can also add value
by grouping related products and services into packaged solutions
that enable customers to obtain all their needs from a single
source. Distributors that add value enhance firms’ reputation by
meeting customers’ needs effectively.