Written By Nathan Ellering @njellering. Gone are the days when organisations sold to a single target market through a single channel. In Japan, food distribution may involve as many as six levels. are included in this category. Wholesaler sponsored voluntary chains – Here, wholesalers organise voluntary chains of independent retailers who help them compete with the larger chains. Information – supplying information about markets to producers and information about products and suppliers to buyers. They should also establish channel objectives and constraints based on: b. A Horizontal Marketing System (HMS) involves cooperation between two or more organisations on the same level of distribution to accomplish a common goal. It is short and simple. Intermediaries, because of their specialisation, experience, and scale of operations, are able to achieve more than what the organisation can in terms of reaching to the target markets. A few are extremely large, having sales of $500,000 or more on a single day. Example- Eureka Forbes, Zenith computers. Earlier, fast food chains had emerged to suit the changing life-styles of certain sections of people in society. b. A channel’s horizontal dimension (width) is determined by the number of participants of any one type on the same level in the channel. Consumer goods channels take many forms. 5. This does not mean that perishables can be sold only in areas close to the place of production. These companies also spend heavily on advertising and use the ‘market pull’ strategy. The services expected can be home delivery, availability of all products under one roof, credit facilities, short lead-time, i.e. It involves a careful study and consideration of many factors stated below. However, some service providers may take help of agents who can provide the information to the customers, book the orders, and collect the payment on behalf of the service providers. Multi-channel conflict exists when the manufacturer establishes two or more channels that are competing with each other in selling to the same market. Discuss the various factors that affect channel choice. Consider your unique selling points. Marketing Channel Choice and Marketing Efficiency Assessment in Agribusiness RAJEEV KUMAR PANDA National Institute of Technology, Rourkela, India This is ideal for differentiated organizations with a strong brand and a desire for scarcity. The route that the product takes on its way from production to the consumer is important because a marketer must decide which route or channel is best for his particular product. The sign-board of a soft drink may be a cue for the person driven by thirst. 3. Marketing distribution channel | TikZ example. The industry’s output which is sold for OEM is distributed direct from tyre factories to manufacturers. Marketing channels must not just see markets but they must also make markets as one of the chief roles of marketing channels is to convert potential buyers into profitable customers. c. Franchise Organisations – Franchisers might also link the successive stages in the manufacturing and distribution process. It has to further periodically evaluate the performance of individual channel members against their own past sales, the sales of other channel members, and, possibly, sales targets. What role does distribution play in the firm's overall objectives and strategy 2. Non-store Retailing – Non-store retailing describes sales made to ultimate consumers outside of a traditional retail store setting. Describe the different functions performed by wholesalers in channel distributions. This coming together may be on a temporary or permanent basis. 4. When Vicks cough drops were distributed through chemists’ shops, Warner Hindustan launched another form of lozenges called Halls, and distributed it through all categories of retail outlets, down to cigarette vendors on railway platforms. They try to forge a marketing channel (or distribution channel)—a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user. Franchises – Over the years, large chain store retailers have posed a serious competitive threat to small storeowners. Deciding a proper channel of distribution is not an easy task. Finally, some firms opt for a low volume approach with very few channels selected. Intermediaries stand between the producers and final buyers in indirect channels. Tyres for replacement for cars on the road are sold mainly through retailers. An example of a large retailer would be Wal-Mart shown here. During the marketing strategy section of the marketing plan, goals and budgets are spelled out for each month or quarter so management can review each period’s results and take corrective action as needed. All goods go through channels of distribution, and marketing depends on the way goods are distributed. The title may be transferred directly, as and when the commodity is bought or sold outright, or indirectly, as and when the transaction is negotiated through a functional middleman such as an agent or broker who does not take credit to it. What makes your product/service different from everyone else's? Whether a firm be a one person operation or one that employs thousands of people and generates billions in sales, all are in business to serve the needs of markets. "We consider this to be one level above trusted adviser level." The firm must also understand the buying specifications of the retailers themselves. Long-term success depends on marketing across these channels. 7. Considering nature of industrial goods and the purchase procedure, generally shorter channels (upto length 1) are used. Online vendors, such as Amazon, or a good example of non-store retailers. B2B Marketing Roles: This diagram shows marketing channel strategies within a B2B organization. Here, there are two intermediaries in between the manufacturer and the final consumers; typically a wholesaler and a retailer. Once the task of selecting dealers/firms to work with is over, it has to motivate channel members through trade commissions, incentives and supervision. Selling – personal contact with buyers to sell products and service. In cases when a company is just getting started, or an older company is trying to carve out a new market niche, the channel objectives may be the dominant force on channel choice. Channel choice is also greatly influenced by channel objectives. The title may be transferred directly, as and when the commodity is bought or sold outright, or indirectly, as and when the transaction is negotiated through a functional middleman such as an agent or broker who does not take credit to it. Marketing channels can make the services “available” and “accessible” to the target customers. Administered VMS looks at the co-ordination of the successive stages of manufacturing and distribution through the power of one of the channel members who exercises control over the others. Example- Bata, Titan, Reebok. What are Marketing Channels? The choice of an appropriate channel of distribution, as an important marketing decision, depends on a variety of considerations like nature and type of products, nature of services to be rendered, stability of production, costs involved, and the type of promotional efforts … Promotion:The activities that communicate the product’s features and benefits and persuade customers to purchase the product. The factors motivating horizontal integration are rapidly changing markets, racing competition, swift pace of technology, excess capacity, seasonal and cyclical changes in consumer demand and the risks involved in accepting financial risks single-handedly. CC licensed content, Specific attribution, https://archive.org/details/ost-business-core-concepts-of-marketing, http://www.texample.net/tikz/examples/marketing-distribution-channel/, https://en.wikipedia.org/wiki/Distribution_(business), https://en.wikipedia.org/wiki/Marketing_channel, https://en.wikipedia.org/wiki/Digital_distribution, https://en.wikipedia.org/wiki/Marketing_mix, https://upload.wikimedia.org/wikipedia/en/c/c7/B2B_Marketing_Roles_v2.png, http://en.wiktionary.org/wiki/department_store, http://www.boundless.com//marketing/definition/marketing-channel, http://www.flickr.com/photos/59574125@N05/5487448787/sizes/n/in/photostream/. Again, both models can work, but clarity in that is very, very important. Cues to reach the goal may be situational (available at that point of time and place) or in memory (residing in memory). The producer/manufacturer and the final consumer form a part of the channel and are at both ends of the channel. Industrial market is made up of a smaller number of relatively large buyers compared to consumer market and the buyers are not scattered over a wide area rather they are concentrated. Designing the marketing channels is a task in which the manufacturer has to take into consideration several factors. However, the choice of location for retail outlets, point of purchase displays and advertisements can make the cues stronger. The purpose of a channel strategy In the business-to-business (B2B) world, a channel strategy aims to provide the best way to expose a company's products or services to potential customers. Channel length can vary from zero to n in case of consumer goods. Here, channel components are owned and operated by the same organisation. It is used when the producer wants to severely limit the number of intermediaries and wants to maintain control over the service levels and outputs offered by the resellers. Vertical channel conflicts exist when there is conflict between different levels within the same channel. A small organization may not be able to afford direct distribution, and it may be better to give that job to some other big company or sole-selling agent. Sometimes, it may be worthwhile to deviate from what competitors do. Retailers: Walmart is one of the largest and most successful retailers in history. Marketers in the present dynamic market should adopt the holistic perspective and ensure that marketing decisions in all these different areas are made to collectively maximize value. The government has restrictions on the distribution of a number of products, like coal, paper, fertilizer and sugar. All goods go through channels of distribution, and marketing depends on the way goods are distributed. This system requires eight different contacts. They include: Break Even Analysis . They bring suppliers and buyers together. If everyone had the same high fashion item, it would no longer be a high fashion item. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. The requirements of institutional buyers are very different from individual buyers. Purchased only after considerable shopping to compare prices and merchandise characteristics. Thus, it is a red good which needs a very extensive distribution network. Inventory Control and Order Processing – keeping track of the physical inventory, managing its composition and level, and processing transactions to insure a smooth flow of merchandise from producers to buyers and payment back to the producers. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. Hence manufacturers send their sales personnel who can also clarify customers’ technical queries and freeze the product specifications. What kind of channel members should be selected 5. All sizes | Walmart | Flickr - Photo Sharing!. Transportation – arranging the physical movement of merchandise. Marketing channels from the soul of the marketing function. Examples of this type of channel include door-to-door sales, mail order, telemarketing, TV selling, and manufacturer-owned stores. There are three types of Contractual VMS: a. This is another marketing System emerging in which two or more unrelated organisations come together and pool their resources to exploit a marketing opportunity. While selecting channel members, it is essential for the organisation to first establish the characteristics that it seeks in these members. d. Financing – The marketing channels work towards the acquisition and allocation of funds required to finance inventories at different levels of the marketing channels. Everything you need to know about marketing channels. Wholesale volume is greater than that of retail because it includes sales to industrial users as well as merchandise sold to retailers for resale. Create an efficient channel – improve channel performance by modifying various flow mechanisms. Department Stores – Department stores are characterized by their very wide product mixes. Some of the major reasons for conflict are: When there is a goal incompatibility issue between the manufacturer and the channel member, it can give rise to a channel conflict. Technology has disrupted some of the logic behind these channel decisions, as digital storefronts have grown to be highly influential, easily accessible to global markets, and substantially cheaper than retail space. Purchased only after extended conversations involving all interested parties – including dealer, users, and purchasers. Disclaimer 8. There are advantages and disadvantages to both and several different types of each. Improved transportation facilities have helped many companies to avoid or reduce a number of intermediaries. Manufacturer – Agents – Consumer – 1 Level. the time between placing the order and receipt of the product, help during installation of the product, and after-sales service. This activity contains 16 questions. 2. Types 6. Channel Strategy refers to the activities carried out by organization so as to pass the product or service from production stage to end users hands. e. Risk taking – The channel members assume the risk for carrying out the channel work. To motivate channel members to perform, the organisation must ensure that they help the intermediaries with the training of the personnel, supervision and encouragement. We will look at the changing channel dynamics with regards to the recent channel developments like the Vertical, Horizontal and Multi-channel Marketing Systems. Recent advancements in the field of electronics is bringing a lot of changes in the way business is conducted. Channels create utility, improve exchange efficiency and help match supply and demand. The following factors influence the design and selection of marketing channels: Usually, perishable products have a short channel. Manufacturer – Wholesaler — Consumer – 1 Level. They also need to be incentivised and rewarded from time to time for performances that exceed set targets. Place (or distribution):The activities that make the product available to consumers. Setting up exclusive retail stores for marketing of small products like chocolates would not be a feasible idea. However, most companies prefer distribution through middlemen as against direct distribution, to economize on costs. The marketing mix can be divided into four groups of variables commonly known as the four Ps: 1. After having selected the channel alternative, it is time for the organisation to select individual channel members and motivate and evaluate them, and modify the channel arrangements over a period of time to provide better service to the end users. The chosen channel will significantly affect and be affected by the rest of the marketing mix. Some manufacturers have different products that require separate distribution channels. On the other hand, frequently used and ‘low margin’ items like cigarettes have a long chain of middlemen before they reach the ultimate consumers. Distribution intensity plays a significant role in marketing channel strategy. Growth in sales – by reaching new markets and/or increasing sales in existing markets. Intermediaries need to have technically sound sales force to explain and sell these complex products effectively. Organizations must understand the competitive environment of the industry, particularly how to use a variety of marketing channels to get their products in front of their core target market at the right time and place. ii. A marketing channel is the series of interdependent marketing institutions that facilitate transfer of title to a product as it moves from producer to ultimate consumer or industrial user. A channel of distribution is an organized network or system of institutions or agencies, which, in combination, perform all the activities required to link the producers and final users. The factors responsible for the success of mail-order distribution, or remote selling as it is sometimes called, are – (i) minimized perceived risk, and (ii) a smooth transit. Consumer goods category includes huge array of products. Prohibited Content 3. For example, Grahak Peth, Apana Bazar, etc. Depending on customer needs, marketing channel strategies can utilize distribution centers or move products directly to a store. For example, if an organisation sells to customers that are within the territory of the agents, this can lead to a conflict. Hence intermediaries are not much useful. Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions. This is ideal for consumer non-durables. Achieve a pattern of distribution – structure the channel in order to achieve certain time, place, and form utilities. For instance, bulky industrial goods are moved directly by the manufacturers. 1. b. Hence, zero level or direct channel is more preferred. An example of this type of system could include a large retailer such as Wal-Mart dictating conditions to smaller product makers, such as producers of a generic type of laundry detergent. Furthermore, chains are able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations. Product:The goods and/or services offered by a company to its customers. Before a firm can design an effective channel marketing strategy, it needs to consider who it is trying to reach. Channels are distribution are different than channel marketing. Answer: False Page: 61 Level of difficulty: Medium 100. Control and Adaptive Criteria – The channel alternatives are evaluated in terms of companies having better control and more adaptable channels. This may be achieved by themselves or by creating an independent unit, for example, Sugar Syndicate of India, Associated Cement Company, etc. Factors Determining the Length of the Channel 5. Other channel members can be useful to the producer in designing the product, packaging it, pricing it, promoting it, and distributing it through the most effective channels. How do you design the firms marketing channels 4. In many instances, it is the expertise and availability of other channel institutions that make it possible for a producer/manufacturer to even participate in a particular market. (a) Manufacturer – C&F Agent – Stockist – Retailer-Consumers – 3 Levels, 5. And, who are our ultimate users and buyers? This works well for institutional consumers such as colleges, hospitals, schools clubs, government agencies, business houses, religious institutions etc. Intermediaries of a channel specialize in more than one function. Because of the features like intangibility, perishability, inseparability, distribution of services becomes critical. Retailer Co-operatives – In this case, the retailers come together to take up the task of wholesaling or even manufacturing in some cases. Direct channels of distribution can take the following forms: a. 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