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Marketing channelFrom Wikipedia, the free encyclopedia
For the chain of intermediaries, see distribution channel.
A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to
move goods, from the point ofproduction to the point of consumption and, as such, which consists of all
the institutions and all the marketing activities in the marketing process. A marketing channel is a useful tool for
management.[1]
Roles of marketing channel in marketing strategies:
Links producers to buyers.
Performs sales, advertising and promotion.
Influences the firm's pricing strategy.
Affecting product strategy through branding, policies, willingness to stock.
Customizes profits, install, maintain, offer credit, etc.
An example of this is an apple orchard: Apple orchard > Transport > Processing factory > Packaging > Final
product to be sold > Apple pie eaten
An alternative term is distribution channel or 'route-to-market'. It is a 'path' or 'pipeline' through which goods and
services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the
opposite direction (from consumer to the vendor). A marketing channel can be as short as being direct from the
vendor to the consumer or may include several inter-connected (usually independent but mutually dependent)
intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one
pricing point and moves it to the next higher pricing point until it reaches the final buyer.
Marketing Channels can be long term or short term.
Armstrong, G. (2009). Marketing: an introduction ([European ed.). Harlow, England: Financial Times Prentice
Hall.
Short term channels are influenced by market factors such as: business users, geographically concentrated,
extensive technical knowledge and regular servicing required, and large orders. Short term product are
influenced by factors such as: perishable, complex, and expensive. Short term producer factors include
whether the manufacturer has adequate resources to perform channel functions, Broad product line, and
channel control is important. Short Term competitive factors invlove: manufacturing feels satisfied with
marketing intermediaries' performance in promoting products.
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Long term market factors include consumers, geographically dispersed, little technical knowledge and regular
servicing is not required, and small orders. Product factors for long term marketing channels are: durable,
standardized, and inexpensive. Producer factors are manufacturer lacks adequate resources to perform
channel functions, limited product line, and channel control not important. The competitive factors are:
manufacturer feels dissatisfied with marketing intermediaries' performance in promoting products
Armstrong, G. (2009). Marketing: an introduction ([European ed.). Harlow, England: Financial Times Prentice
Hall.
[edit]References
Product distribution (or place) is one of the four elements of the marketing mix. An organization or set
of organizations (go-between) involved in the process of making a product or service available for use or
consumption by a consumer or business user.
The other three parts of the marketing mix are product, pricing, and promotion.
Contents
[hide]
1 Managerial concerns
o 1.1 Type of marketing
channel
o 1.2 Channel motivation
o 1.3 Monitoring and managing
channels
2 See also
3 Links
[edit]Managerial concerns
The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using
intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods
manufacturers could never justify the cost of selling direct to their consumers, except by mail order. Many
suppliers seem to assume that once their product has been sold into the channel, into the beginning of
the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the
supplier's responsibility; and, if they have any aspirations to be market-oriented, their job should really be
extended to managing all the processes involved in that chain, until the product or service arrives with the
end-user. This may involve a number of decisions on the part of the supplier:
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Channel membership
Channel motivation
Monitoring and managing channels
[edit]Type of marketing channel
1. Intensive distribution - Where the majority of resellers stock the 'product' with convenience
products, for example, and particularly the brand leaders in consumer goods markets (price
competition may be evident).
2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where
'suitable' resellers stock the product.In this case retailers can keep the competitors products in
their outlets e.g. furniture etc.
3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one
per geographical area) are allowed to sell the 'product'. In this retailers are restricted to keep only
one manufacturer's products, e.g. exclusive outlets of cars, apparels and jewelry, etc.
[edit]Channel motivation
It is difficult enough to motivate direct employees to provide the necessary sales and service support.
Motivating the owners and employees of the independent organizations in a distribution chain requires
even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is
`incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product
rather than its competitors; or a compensation is offered to the distributors' sales personnel, so that they
are tempted to push the product. Julian Dent defines this incentive as a Channel Value Proposition or
business case, with which the supplier sells the channel member on the commercial merits of doing
business together. He describes this as selling business models not products.
[edit]Monitoring and managing channels
In much the same way that the organization's own sales and distribution activities need to be monitored
and managed, so will those of the distribution chain.
In practice, many organizations use a mix of different channels; in particular, they may complement a
direct sales-force, calling on the larger accounts, with agents, covering the smaller customers and
prospects. These channels show marketing strategies of an organization. Effective management of
distribution channels requires making and implementing decisions in these areas.
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CHAPTER 11
MARKETING-CHANNEL MANAGEMENT
CHAPTER OBJECTIVES
1. To consider the part that supply chains play in delivering value to the
end customer.
2. To identify the factors that determine the structure of a supply chain.
3. To discuss the role of the intermediary within the supply chain and
roles that intermediaries may perform in different supply chains.
4. To examine the management issues associated with a particular type
of intermediary activity (retailing) and with a particular management
structure (franchising).
CHAPTER SUMMARY
The chapter begins by looking at the delivery of value to the end-user in a
given supply chain. It then looks at supply-chain management functions
and the roles that need to be fulfilled in the marketing channel. The
operation of supply chains are then investigated and the recent
development of Efficient Consumer Response (ECR) is discussed. This
is followed by a look at supply chain design and the decisions involved in
choosing a partner from both the retailers’ and manufacturers’ point of
view. Finally, issues in retailing and franchising are discussed and the
chapter ends with a look to the future.
ANNOTATED LECTURE OUTLINE
Page 5
Point 1 - Introduction.
A marketing channel is ‘an organized network of agencies and
institutions which, in combination, perform all the activities required to
link producers with users to accomplish the marketing task’ (Bennett
1988). This channel must be designed such that it delivers a level of
value to the customer that creates a sustainable competitive advantage for
the supply chain. This ‘value’ can take many forms depending upon the
requirements of the customer. The relationship between the value of theproduct and the shopping experience is particularly important and the
skill of the value chain is in the positioning of the total offer in a
profitable way.
Point 2 - Supply-chain management functions.
The supply chain in made up of an array of interdependent functions
which form a flow of activities (see Figure 11.2 pp247).
Point 3 - Roles in the marketing channel.
There are a number of roles in the channel that have to be fulfilled and
each type of channel will fulfil them in different ways. Firstly, there are a
number of specific gaps between production and consumption that need
to filled, specifically, time, space, quantity and variety. Secondly,
intermediaries perform various functions in order to bridge these gaps.
Point 4 - The operation of supply chains.
Supply chains need to operate in an integrated way to form an integrated
system that operates as a team. However, some areas of conflict can arise
that need to be resolved. Conflict cannot be totally eliminated but there
should be a policy of conflict minimization and a move towards
partnership style arrangements. One potential source of conflict is the
Page 6
role played by power which is heavily influenced by the level of
dependency between the channel members. Five different power bases
have been identified. Power should be used in a constructive not
destructive way in order to achieve channel efficiency and effectiveness.
The development of supply-chain partnerships and relationship
management is seen as central to the overall administration of the
channel.
Point 5 - Efficient consumer response (ECR).
ECR is ‘ a total system to eliminate all activities that do not give value to
the end consumers and to encourage all those that do’ (Mitchell 1997). It
focuses on fourteen improvement concepts in three strands: category
management, product replenishment and enabling technologies (Figure
11.6 pp254). ECR is facilitated by electronic data interchange systems(EDI) which is linked to electronic funds transfer (EFT) which generates
payments. Activity-based costing is used to identify what is spent in the
various areas with a view to questioning expenditure and thus a
continuous process of improvement should occur.
Point 6 - Designing supply chains.
In the design of supply channels a key question is not what activities are
to be performed but who is to perform them. Responsibility can shift
from one party to another depending upon the nature of the product
market. A distinction can be made between the actors with ownership or
transaction roles in the channel and the use of third-party logistics
companies.
Point 7 - Choosing partners.
This decision needs to be looked at from both sides and a number of key
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issues need to be examined. From the manufacturer’s point of view three
areas that need addressing specifically are market coverage and
distribution intensity; channel control; and flexibility. In addition, there
are several important issues that can help a manufacturer to assess the
relative merits of potential partners.
Point 8 - Retailing.
The position of the retailer in the supply-chain, being the closest to the
final consumer, gives it some distinctive characteristics that need to be
understood and are directly related to their positioning strategy.
Point 9 - Franchising.
Another key management system that has been one of the most popular
mechanisms for expanding the distribution network is franchising. The
nature of the franchise relationship can be viewed from two extremeseither as a managed outlet of a larger business or as an independent
business in its own right.
Point 10 - The future.
The biggest development in channel management in the future lies in the
use of electronic commerce and traditional intermediaries will either
disappear or reinvent themselves and a number of anticipated impacts
will arise from the new channels.
Point 11 - Conclusion.
The aim of the supply chain is to provide the consumer with an offer that
they will value above any other. This value is created by the offering and
the gaps that are bridged in delivering it. These functions are performed
by various combinations of actors including third-party logistics
companies. Many changes have occurred recently mainly as a result of
Page 8
developments in IT and marketing channels will continue to be dynamic
and rapidly changing.
Answers to the discussion questions:-
1. Students should be able to identify a number of other retail formats to
those given in Box 11.3, e.g. hypermarkets, town centre supermarkets,
and even market stalls! These can be looked at in terms of the
products offered and the price and what the consumer is looking for.
2. It means that this area of specialization can be bought under the
control of the manufacturer rather than given to an intermediary. One
of the main reasons for the emergence of shorter channels are the
developments in technology.
3. The role is likely to be different as the issues linked to the distribution
of a manufacturer’s brand are different to that of the retail brand
although, in some cases, the two brands may be manufactured by the
same company.
4. Here the focus should be on the benefits of relationship management
and partnership building and the value added benefits of EDI and EFT
both to the channel and consumers.5. This question revolves around the shopping experience and customer
requirements. Students should be able to suggest a number of
products that do not lend themselves to being bought electronically
and the reasons behind this, including any cultural shifts that may be
required.
MINI CASE
ARTHUR AND COMPANY
KEY ISSUES FOR DISCUSSION:-
Page 9
1. By selling only direct to wholesalers, the market is already fairly
saturated with the two competitors’ products. In addition, they have a
limited range but their product is superior to the competition
2. Selling direct is a very good alternative providing they have the
expertize to fulfil all the channel functions themselves. However the
limited range may go against them but they will be in direct contact
with the customer which will help future product development.
Page 19
CHAPTER 11
MARKETING-CHANNEL MANAGEMENT
CHAPTER OBJECTIVES
1. To consider the part that supply chains play in delivering value to the
end customer.
2. To identify the factors that determine the structure of a supply chain.
3. To discuss the role of the intermediary within the supply chain and
roles that intermediaries may perform in different supply chains.
4. To examine the management issues associated with a particular type
of intermediary activity (retailing) and with a particular management
structure (franchising).
CHAPTER SUMMARY
The chapter begins by looking at the delivery of value to the end-user in a
given supply chain. It then looks at supply-chain management functions
and the roles that need to be fulfilled in the marketing channel. The
operation of supply chains are then investigated and the recent
development of Efficient Consumer Response (ECR) is discussed. This
is followed by a look at supply chain design and the decisions involved in
choosing a partner from both the retailers’ and manufacturers’ point of
view. Finally, issues in retailing and franchising are discussed and the
chapter ends with a look to the future.
ANNOTATED LECTURE OUTLINE
Page 20
Point 1 - Introduction.
A marketing channel is ‘an organized network of agencies and
institutions which, in combination, perform all the activities required to
link producers with users to accomplish the marketing task’ (Bennett
1988). This channel must be designed such that it delivers a level of
value to the customer that creates a sustainable competitive advantage for
the supply chain. This ‘value’ can take many forms depending upon the
requirements of the customer. The relationship between the value of theproduct and the shopping experience is particularly important and the
skill of the value chain is in the positioning of the total offer in a
profitable way.
Point 2 - Supply-chain management functions.
The supply chain in made up of an array of interdependent functions
which form a flow of activities (see Figure 11.2 pp247).
Point 3 - Roles in the marketing channel.
There are a number of roles in the channel that have to be fulfilled and
each type of channel will fulfil them in different ways. Firstly, there are a
number of specific gaps between production and consumption that need
to filled, specifically, time, space, quantity and variety. Secondly,
intermediaries perform various functions in order to bridge these gaps.
Point 4 - The operation of supply chains.
Supply chains need to operate in an integrated way to form an integrated
system that operates as a team. However, some areas of conflict can arise
that need to be resolved. Conflict cannot be totally eliminated but there
should be a policy of conflict minimization and a move towards
partnership style arrangements. One potential source of conflict is the
Page 21
role played by power which is heavily influenced by the level of
dependency between the channel members. Five different power bases
have been identified. Power should be used in a constructive not
destructive way in order to achieve channel efficiency and effectiveness.
The development of supply-chain partnerships and relationship
management is seen as central to the overall administration of the
channel.
Point 5 - Efficient consumer response (ECR).
ECR is ‘ a total system to eliminate all activities that do not give value to
the end consumers and to encourage all those that do’ (Mitchell 1997). It
focuses on fourteen improvement concepts in three strands: category
management, product replenishment and enabling technologies (Figure
11.6 pp254). ECR is facilitated by electronic data interchange systems(EDI) which is linked to electronic funds transfer (EFT) which generates
payments. Activity-based costing is used to identify what is spent in the
various areas with a view to questioning expenditure and thus a
continuous process of improvement should occur.
Point 6 - Designing supply chains.
In the design of supply channels a key question is not what activities are
to be performed but who is to perform them. Responsibility can shift
from one party to another depending upon the nature of the product
market. A distinction can be made between the actors with ownership or
transaction roles in the channel and the use of third-party logistics
companies.
Point 7 - Choosing partners.
This decision needs to be looked at from both sides and a number of key
Page 22
issues need to be examined. From the manufacturer’s point of view three
areas that need addressing specifically are market coverage and
distribution intensity; channel control; and flexibility. In addition, there
are several important issues that can help a manufacturer to assess the
relative merits of potential partners.
Point 8 - Retailing.
The position of the retailer in the supply-chain, being the closest to the
final consumer, gives it some distinctive characteristics that need to be
understood and are directly related to their positioning strategy.
Point 9 - Franchising.
Another key management system that has been one of the most popular
mechanisms for expanding the distribution network is franchising. The
nature of the franchise relationship can be viewed from two extremeseither as a managed outlet of a larger business or as an independent
business in its own right.
Point 10 - The future.
The biggest development in channel management in the future lies in the
use of electronic commerce and traditional intermediaries will either
disappear or reinvent themselves and a number of anticipated impacts
will arise from the new channels.
Point 11 - Conclusion.
The aim of the supply chain is to provide the consumer with an offer that
they will value above any other. This value is created by the offering and
the gaps that are bridged in delivering it. These functions are performed
by various combinations of actors including third-party logistics
companies. Many changes have occurred recently mainly as a result of
Page 23
developments in IT and marketing channels will continue to be dynamic
and rapidly changing.
Answers to the discussion questions:-
1. Students should be able to identify a number of other retail formats to
those given in Box 11.3, e.g. hypermarkets, town centre supermarkets,
and even market stalls! These can be looked at in terms of the
products offered and the price and what the consumer is looking for.
2. It means that this area of specialization can be bought under the
control of the manufacturer rather than given to an intermediary. One
of the main reasons for the emergence of shorter channels are the
developments in technology.
3. The role is likely to be different as the issues linked to the distribution
of a manufacturer’s brand are different to that of the retail brand
although, in some cases, the two brands may be manufactured by the
same company.
4. Here the focus should be on the benefits of relationship management
and partnership building and the value added benefits of EDI and EFT
both to the channel and consumers.5. This question revolves around the shopping experience and customer
requirements. Students should be able to suggest a number of
products that do not lend themselves to being bought electronically
and the reasons behind this, including any cultural shifts that may be
required.
MINI CASE
ARTHUR AND COMPANY
KEY ISSUES FOR DISCUSSION:-
Page 24
1. By selling only direct to wholesalers, the market is already fairly
saturated with the two competitors’ products. In addition, they have a
limited range but their product is superior to the competition
2. Selling direct is a very good alternative providing they have the
expertize to fulfil all the channel functions themselves. However the
limited range may go against them but they will be in direct contact
with the customer which will help future product development.
