Chapter 9

Marketing Channels

Channel Functions

Information gathering
Consumer motivation
Negotiating with suppliers
Placing orders
Financing
Inventory management
Risk bearing
After sales support

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Channel Functions.
A

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.

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

Payment for goods / returns

Information

Company
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FORWARD

BACKWARD

BOTH WAYS

Customers
6

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

C&FA or
Distribution
Center
Physical

Distributor,
dealers

Wholesaler or
retailer

Physical

Physical
Title /
ownership

Title /
ownership

Title
Information

Title /
ownership

Information

Payment

Information

Information

Risk sharing

Order
processing

Payment

Payment

Order
placement

Order
placement

Negotiation

Negotiation

Risk sharing

Risk sharing

Promotions

Channel
formats11
Promotions

Promotions

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Channel Formats
Is decided by who drives the
channel system:

Producer driven
Seller driven
Service driven
Others

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12

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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13

Seller Driven
Use of existing channels to reach the
largest number of end users

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

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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16

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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17

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
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
21

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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23

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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