3. For example, the buying characteristics of the purchaser of a high-end electronics device might be as follows: Knowing the buying specifications of consumers, the channel planner can decide on the type or types of wholesaler and/or retailer through which a product should be sold. 3.1 shows one major source of cost savings affected by using intermediaries/ distributors. While selecting channel members, it is essential for the organisation to first establish the characteristics that it seeks in these members. Goods that have a high unit price and a high margin are delivered directly by the manufac­turers. Channel length can vary from zero to n in case of consumer goods. Privacy Policy 9. Modifications become necessary when the channel is not working as planned or anticipated, when newer channels emerge, or even when the product passes through progressive stages in its life cycle. This strategy of distribution, coupled with the packaging (similar to the twist-wrapped style for hard-boiled sweets) contributed to the success of Halls. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. Here’s how in two sentences. c. Negotiation – The channel members are the ones who negotiate with other channel members and customers to facilitate the transfer of ownership. Marketing activities directed towards the channel as part of ‘push’ strategy are more effective when accompanied by a well-designed and well-executed ‘pull’ strategy that activates consumer demand. 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. Marketing strategy of any organization refers to the broad principals by which its business units expects to achieve the marketing objectives for the target market. like the intermediaries for tangible goods and thus have limited role. Also, what is promised by the cue must be present in the product, or else it will lead to dissatisfaction in the consumer. Retailers: Walmart is one of the largest and most successful retailers in history. Vertical Marketing Systems (VMS) represent a major step towards resolving dysfunctional conflict. The marketing mix can be divided into four groups of variables commonly known as the four Ps: 1. Most producing and manufacturing firms are not in a favorable position to perform all the tasks that would be necessary to distribute their products directly to their final user markets. Understanding how online marketplaces work, and how to build a presence in this new digital age, is a critical skill set for a strategic marketeer looking at channel strategy. Depending on the product being sold and ultimate end user, companies can choose a marketing channel strategy that involves utilizing distribution centers (wholesalers) or moving their products directly to a store, or retailer. To motivate channel members to perform, the organisation must ensure that they help the intermediaries with the training of the personnel, supervision and encouragement. Here, two or more companies join hands to exploit a marketing opportunity. Designing the marketing channels is a task in which the manufacturer has to take into consideration several factors. These developments, and improved transportation facilities, add to the possibility of producing items to suit individual requirements at moderate costs. Generally shorter channels are observed. For example, vacuum cleaner, water cooler, etc. Influential digital storefronts are key strategic partners in the modern economy. 4. They include: Break Even Analysis . 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. Furthermore, chains are able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations. This creates an interesting relationship, similar to the retail relationship in traditional channel marketing, whereas certain digital storefronts are highly valuable strategic partners. In order to do this, these firms must be assured that their products are distributed to their intended markets. For example, a sizeable sale of cars for Tamil Nadu takes place in Pondicherry due to sales tax concessions available there. Many environmental factors such as technol­ogy, economy conditions and government regulations affect the choice of distribution channels. Marketing Channels – What are Marketing Channels? 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. In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. Choice of a channel of distribution involves the selection of the best possible combination of middlemen or intermediaries. In much the same way that buying specifications of ultimate users are determined, the manufacturers must also discover buying specifications of resellers. (a) Exclusive distribution – Here the distributor has an exclusive relation with the producer and is not allowed to keep competitors’ products and brands. For example, industrial supply houses trading fairly standardized industrial goods like lathe machine, grinding machines, electrical supplies, etc. Improved transportation facilities have helped many compa­nies to avoid or reduce a number of intermediaries. A ‘push’ strategy uses the manufacturer’s sales force, trade promotional money, or other means to induce intermediaries to carry, promote, and sell the product to end-users. 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 two important lessons that this model teaches us are as follows: i. Account Disable 12. What role does distribution play in the firm's overall objectives and strategy 2. 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. And, who are our ultimate users and buyers? Big companies like Brooke Bond and Bata have direct distribution facilities. Economic Criteria – Each alternative channel design will result in different levels of sales and cost as shown in Figure 10.3. Once a company has committed to a distribution model, it may be hard to change. What makes your product/service different from everyone else's? It’s essential to employ a digital marketing strategy to work in concert with your other promotions (such as brochures and live events). Each firm usually confronts a number of alternate ways to reach the market. Sometimes, it may be worthwhile to deviate from what compet­itors do. In short, many channels and high volume. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. Trade channels are classified as conventional and non-conventional with further divisions. The choice between push or pull strategy depends on the marketing communications budget inasmuch as push promotion strategies tend to be cheaper than pull promotion strategies. A distribution channel, also known as placement, is part of a company's marketing strategy, which also includes the product, promotion, and price. The services ex­pected can be home delivery, availability of all products under one roof, credit facilities, short lead-time, i.e. In carrying out their specialised roles and functions, channel members may cooperate, conflict and compete with one another. Channel Co-Operation, Conflict and Competition: Marketing channels involve a number of channel intermediaries, and this is always likely to result in a conflict of interests. e. More than three levels – In some cases, one can observe longer marketing channels, that is, channels that have more than three intermediaries. Intermediaries of a channel specialize in more than one function. For example, food products, garments, clothing, etc. However, they are not concerned about transportation, warehousing, inventory, etc. Once the customer places an order with a store, his bank account gets debited and the same amount gets credited to the stores’ account. Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. It is best that we first identify the traits of the ultimate user, since the results of this evaluation might determine the other channel institutions we would use to meet these needs. Chapter 4: Digital marketing strategy: Multiple choice questions: Multiple choice questions Try the multiple choice questions below to test your knowledge of this chapter. For example, when automobile manufacturers try to enforce policies on their dealers, it leads to a conflict. Most companies now use a mix of channels where each channel reaches a different segment of buyers and delivers the right products to each at the least cost. Make every employee a brand ambassador. Direct channels of distribution can take the following forms: a. Conflict. Marketing distribution channel | TikZ example. A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. Considering nature of industrial goods and the purchase procedure, generally shorter channels (upto length 1) are used. For products such as groceries, ready to eat and ready to cook food products, etc. Corporate VMS looks at having the successive stages of manufacturing and distribution under a single ownership. For level of sales below X1 (as shown in the figure above) provider’s sales agency will have economic advantage over their own sales force. And unless a specific and stronger incentive is offered by a com­petitor, she remains loyal. The chosen channel will significantly affect and be affected by the rest of the marketing mix. (c) Manufacturer – Manufacturers’ Agents – Consumers – 1 Level, (d) Manufacturer – Large retailer/consumer cooperatives – Consumer – 1 Level. This is also known as a direct marketing channel. 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. Tasks must be identified fully, and costs must be assigned to these tasks. Hence, zero level or direct channel is more preferred. For example, complex technical products, large capital equipments, etc. 3.1 (b) three producers contacting three consumers through one distributor. Manufacturer – Wholesaler — Consumer – 1 Level. Uploader Agreement. They keep changing with regards to their structures, functions, and their business arenas. e. Risk taking – The channel members assume the risk for carrying out the channel work. On the other hand, without at least some consumer interest, it can be very difficult to gain much channel acceptance and support. The channels also often help in the design of these communication messages. A channel’s horizontal dimension (width) is determined by the number of participants of any one type on the same level in the channel. Factors Determining the Length of the Channel 5. The functions of the distribution channels are: a. This activity contains 16 questions. There is no need for currency notes and coins in this method. Producers of services also need to think about distributing, i.e., making their services available to their customers. In addition channel decisions include relatively long-term commitments with other firms as well as a set of policies and procedures. Marketing Strategy: Key Concepts 4. Copying the competitor’s game plan may be the easiest thing to do. (b) Manufacturers – Wholesaler – Retailer – Consumer – 2 Levels. Channel choices themselves depend on the company’s marketing strategy with respect to segmentation, targeting, and positioning. High fashion and other luxury goods focus on being hard to find through limited channels and low volume of production. Here, channel components are owned and operated by the same organisation. Before uploading and sharing your knowledge on this site, please read the following pages: 1. iii. It is worthwhile to see what the competitors do before designing a distribution system. Price:The amount of money paid by customers to purchase the product. These are professionally managed and centrally programmed networks that are established to achieve operating economies and maximum market impact. Recent advancements in the field of electronics is bring­ing a lot of changes in the way business is conducted. For example, if the channel member is an exclusive dealer, he may have to comply with all the manufacturer’s terms, even if he does not want to. Control and Adaptive Criteria – The channel alternatives are evaluated in terms of companies having better control and more adaptable channels. Companies have to decide on the number of intermediaries to use at each channel level. ‘Pull’ strategy is appropriate when there is high brand loyalty and high involvement in the category, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store. Plagiarism Prevention 5. This gives producers greater control over their products distribution. Types 6. 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. b. Hence, they are bound to be capital intensive; they are designed to achieve technical, managerial and promotional economies through integration, coordination and synchronization of marketing flows from the point of production to the point of final consumption. i. Once the task of selecting dealers/firms to work with is over, it has to motivate channel members through trade commissions, incentives and supervision. Marketing channels are the ways that goods and services are made available for use by the consumers. 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. 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. 1. Rationale behind Using Marketing Channels, Factors Determining the Length of the Channel: Size of the Market, Order Lot Size, Service Requirements, Product Variety and Type of Product, or Consumer Goods, Industrial Goods and Services (With Examples). Maintenance or improvement of market share – educate or assist channel components in their efforts to increase the amount of product they handle. Selling – personal contact with buyers to sell products and service. Information – supplying information about markets to producers and information about products and suppliers to buyers. As a result, they can set retail prices that are lower than those of their small competitors, and thereby increase their share of the market. He’s got a knack for writing actionable content (no fluff here) and knows the secrets to growing your traffic. Intensive distribution focuses on delivering a firm’s goods to as many storefronts as possible and maximizing the amount of sales to pursue scale economies. Discount Houses – Discount houses are characterized by an emphasis on price as their main sales appeal. Nathan is the mastermind behind CoSchedule’s content marketing blog. An example of a large retailer would be Wal-Mart shown here. This is another marketing System emerging in which two or more unrelated organisations come together and pool their resources to exploit a marketing opportunity. The Fig. What are Marketing Channels? Picking the right marketing communication channel for your message will contribute significantly to the success of … The classification of channels are described below: Manufacturers Customers- This is the shortest and simplest choice as goods move directly from the source of manufacture to the ultimate user. c. Franchise Organisations – Franchisers might also link the successive stages in the manufacturing and distribution process. These are the situational cues and are very effective for products bought on an impulse rather than as well-thought out choices. If satisfied, the consumer starts behaving like the proverbial Povlov’s dog and reaches the stage of automatic response behavior. Such retailers would rather buy from local distributors who have lenient credit terms and offer a wide assortment of merchandise. An intensive distribution approach will take advantage of as many sales outlets, distributors, and direct selling opportunities the organization can identify and justify (at a given volume). Fast Moving Consumer Goods (FMCG), consumer durables, convenient goods, etc. Conflicts might arise if the channel member is highly dependent on the manufacturer. Though people are not going to consume it on a regular basis like a cigarette, (i.e., the replacement rate is low), the search time will have to be low as also the time of consumption. During a period of inflation, cost reduction becomes a paramount task and a company may have to phase out C-class markets (i.e., markets having a very low sales volume). Channel strategy is relevant to all six of the basic distribution decisions faced by firms: 1) the role of distribution in the firm’s overall objectives and strategies, 2) the role of distribution in the marketing mix, 3) the design of marketing channels, 4) the selection of channel members, 5) management of the channel, and 6) evaluation of channel member performances. Various constituents of the marketing mix like promotion etc., are closely related to the channels of distribution. 3.1 (a) depicts three producers, each using direct marketing to reach three consumers. The discounts substantially lower their cost compared to costs of single unit retailers. As such, the use of intermediaries is mainly to make the goods available and accessible to target markets. The channel is instrumental in overcoming the gaps between the producers and consumers in terms of time, place and possession or ownership. 1. For many smaller products, direct marketing may not be feasible considering that exclusive retail outlets for small products may not work, and having to stock other products might end up in having just another grocery or food outlet which would not serve the purpose. A few are extremely large, having sales of $500,000 or more on a single day. 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. For this purpose, marketing channels are used to take the products from the manufacturing organisations to the final consumers. Each channel system has a different potential for creating sales and producing costs. For instance, bulky industrial goods are moved directly by the manufacturers. 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. c. Two level channel – This type of channel is mostly seen in the consumer goods markets. An organisation needs to take into consideration what is desirable while not losing focus on what is feasible, affordable and available. The attitudes, perceptions, lifestyles and shopping patterns of the target consumer are critical. If companies want better control, they can go for direct distribution. Be strategic about how you start marketing through the channels that you use. 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. This is common for goods such as soda, snacks, household items, and other common low cost goods. They also need to be incentivised and rewarded from time to time for performances that exceed set targets. In Japan, food distribution may involve as many as six levels. And, who are our ultimate users and buyers? Aspinwall has given a color classification to products, based on their rating on five factors, which greatly helps us in deciding on the length of the channel for different product categories. 2. Thus, it is a red good which needs a very extensive distribution network. If everyone had the same high fashion item, it would no longer be a high fashion item. B2B Marketing Roles: This diagram shows marketing channel strategies within a B2B organization. Optimum Sleep (C) Optimum Sleep :: Geograph Britain and Ireland. The choice of marketing channel is one of the most critical an organization can make, and affects all other forms of the marketing mix. 3. An example of differences in perception is when the manufacturer is hoping for higher sales and expects the channel member to carry higher inventory, while the channel member perceives the market conditions to be otherwise. 5. Channels create utility, improve exchange efficiency and help match supply and demand. The firm must also understand the buying specifications of the retailers themselves. ii. The silos that exist in your sales and marketing departments need to be merged. A product like Bul-worker, which is distributed through mail-order, comes closer to being a yellow good. Finally, some manufacturers find it feasible to use different channels in different parts of the country. He will try that brand of soft drink, and, if he is satisfied, he will use the same brand of soft drink every time he gets thirsty. Consumer goods category includes huge array of products. 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. Image Guidelines 4. Type of the product – Depending upon the nature of the product, the length of the channel needs to be decided. 1. Vending machines. Sales tax variations from state to state may have been taken into consideration while deciding on retail out­lets or showrooms for certain products for which the tax variation is large. The requirements of institu­tional buyers are very different from individual buyers. (a) Manufacturer – C&F Agent – Redistribution Stockist – Retailer – Consumer – 4 Levels. Consumer goods channels take many forms. This requires that a manufacturer contemplating distribution through particular types of retailers become intimately familiar with the precise location and performance characteristics of those being considered. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. Marketing Mathematics. Good distribution strategies can contribute a strongly to customer value and to create a competitive advantage for a firm. There is some freedom in most industries for a firm to determine which channels they will use, and how much volume each channel will receive. 3. Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions. f. Channels used in consumer and industrial products – The producer and the consumer are a part of every channel. Content Filtration 6. For example, a company that manufactures high-quality shoes made with premium leather would probably not want to distribute its product through a discount retailer. The immediate and ultimate customers may be identical or quite separate, depending on the type of product, functions performed in the channel, and location in the channel. Companies can choose from a wide variety of channels for reaching customers – from sales forces to agents, distributors, dealers, direct mail, etc. g. Ordering – This function is with regards to the communication of channel members regarding the intention to purchase. This method of retailing is an efficient way to provide continuous service. How does channel strategy complement/enhance the other elements of the marketing mix 3. Given this, there is also a greater possibility of channel competition and conflict. Common channels in these circumstances are channels where the firm can maintain strategic control of how the products are sold, at what price, and in which regions. A wrong choice of distribution channel ultimately increases the price of the product. 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