Channels of Distribution Lec: 1

Marketing Channels Structure and Functions

 Marketing channels are the routes to market used to sell every product and service that consumers and business buyers purchase everywhere in the world. Why should u be excited about learning what marketing channels are There are several reasons:

 1- The Channel is a gatekeeper (someone who controls the access to something) between the manufacturer and the end user. This means that failing to understand and proactively manage the actions of ones channel partners can lessen the effective reach and attractiveness of the manufactures products and services.

 2- The channel is an important asset (advantage) in the company's overall marketing and positioning strategy, serving as the main differentiator of the company's marketing offering from those of its competitors. Basic marketing courses teach that differentiation is fundamental in building and maintaining a competitive advantage. Effective differentiation need not to be defined through product features but can also occur through innovative channel offerings.

 3- The channel experience strongly affects the end-users overall perception of brands image and end-user satisfaction.  4- Finally even when aware of the value of careful channel design and management, companies find it hard to create and maintain a well working channel design.. So its useful to develop a framework for thinking about the problem that will help companies at every level of channel to operate more profitably and do better job of meeting end-users demands and preferences.

A strong channel system is a competitive asset that isn't easily replicated by other firms and is therefore a strong source of sustainable competitive advantage.

What is a marketing channel ? Marketing channel is “a set of interdependent organizations involved in the process of making a product or service available for use or consumption”. The definition carries some explanation:  - It first points out that marketing channel is a set of interdependent organizations each channel member depends on the others to do their jobs. (mutually responsible)

 What are the channel members jobs? The definition makes clear that running a marketing channel is a process its not an event.. Distribution frequently takes time to accomplish, and even when a sale is finally made, the relationship with the end users usually isn't over.

 What is the purpose of this process? Definition claims that it is making a product or service available for use or consumption … that is, the purpose of channel marketing is to satisfy the end- users in the market, might be consumers or final business buyers.

What is the work of the marketing channel ?  The work of channels includes the performance of several marketing flows. We use term flow rather than functions or activities to ensure that these processes flow through the channel been done at different points in time by different channel members.

There are 8 universal channel flows as they might work in a channel containing producers, wholesalers,retailers & consumers.  Some flows moves up the channel (1- Physical Possession,2- Ownership & 3- Promotion)  Some flows move up the channel from the end user ( 4- Ordering & 5- Payment)  Some other flows can move either direction (6- Negotiation, 7- Financing, 8- Risking)

 An important flow that spread all the value added activities of the channel : is the flow of information, information can and does flow between every possible pair of channel members in both routine and specialized ways. Ex: manufacturers share product information with their distributors to improve intermediaries performance of the promotion flow.. Consumers give preference information (when asked!) to improve the channels ability to supply valued services.

Marketing flows in channels  Producers wholesalersretailers Consumers Industrial And household physical possession ownership promotion negotiation Financing Risking Ordering Payment

Who belongs to a marketing channel?  The key members of a marketing channel are Manufactures, Intermediaries ( wholesalers, retail, specialized), and End-users ( who can be business customers or consumers) There is one channel member that can be considered the “ the channel captain ”.. The channel captain is an organization that acts as a prime mover in establishing and maintaining channel links.The channel captain is usually the manufacturer of the product or services.

Manufacturer  We mean the producer or originator of the product or service being sold there is a difference between branded & private-label manufacturing: - Some manufacturers brand their products and thus are known by name to the end users even if they use intermediaries to reach those end- users (ex: coca-cola). - Other manufacturers make products but do not invest in branded name for them instead they produce private label products, either a manufacturer or retailer puts its own brand name on the products.

 All of the physical product manufacturers are involved in physical possession and ownership flow until the products leaves their manufacturing sites and travels to the next channel member s site. Manufacturers also engage in negotiation with the buyers of their products to set terms of also participate in the promotion flow of its product.

Intermediaries  The term intermediaries refers to any channel member other than the manufacturer or the end-user (individual consumer or business buyer). We differentiate among three types of intermediaries: Wholesale – Retail – and Specialized

 Wholesale intermediaries : include merchant wholesaler or distributor, manufactures representatives, agents & brokers. Wholesaler sells to other channel intermediaries such as retailers, or to business end-users. They make their profit by buying at a wholesale price and selling at the marked-up price to their downstream customers, pocketing the difference between the two prices.

 Manufactures representatives, agents and brokers do not own goods they sell, the major flows in which they take part are promotion and negotiation in that they work on selling the products of the manufacturers they represent and negotiating in terms of trade.

 Retail Intermediaries : includes department stores, hypermarkets, stores.. They sell directly to individual consumer end users. They may contract for private label goods, they focus on collecting an assortment ( collection of various kinds) of goods that is appealing to their consumers end-users.

 Specialized Intermediaries are brought into a channel to perform a specific flow and typically not heavily involved in the core business represented by the product sold. These intermediaries include :  Finance Companies ( involved in financing flow)

 Advertising agencies ( participating in the promotion flow)  Logistics and shipping firms ( participating in the physical possession flow)  Information technology firms (who may participate in ordering or payment flows)  Marketing research firms ( generating marketing intelligence that can be useful for the performance of any of the flows.

End users  Finally end users ( either business or individual consumers) are themselves channel members. consumers are classified as marketing channel members cause they can perform channels flow just as other channel members. ex: Consumers who shop at hypermarkets stock up on paper towels are performing physical possession,  they are buying a larger volume of product than they will use in the near future, they are paying for paper towels before using them thus injecting cash and performing financing flow.

 They store it their house lessening the need for warehouse space at the retailer and thus taking on part in physical ownership. Consumers expect a price cut when they shop at such a store to compensate for the channel flow costs they bear when buying through this channel relative to buying a single package of single paper towel at the local grocer.

Typical Channels in Business-to- Consumer (B2C) Markets

Typical Channels in Business-to-Business (B2B) Markets