The document provides an overview of marketing channels and distribution systems. It discusses direct and indirect distribution, as well as different types of vertical marketing systems like corporate, administered, and contractual. It also covers horizontal marketing systems, multi-channel distribution, channel flows, and channel formats that are producer or seller driven. The key topics covered are the functions and roles of intermediaries in distribution channels.
The document provides an overview of marketing channels and distribution systems. It discusses direct and indirect distribution, as well as different types of vertical marketing systems like corporate, administered, and contractual. It also covers horizontal marketing systems, multi-channel distribution, channel flows, and channel formats that are producer or seller driven. The key topics covered are the functions and roles of intermediaries in distribution channels.
The document provides an overview of marketing channels and distribution systems. It discusses direct and indirect distribution, as well as different types of vertical marketing systems like corporate, administered, and contractual. It also covers horizontal marketing systems, multi-channel distribution, channel flows, and channel formats that are producer or seller driven. The key topics covered are the functions and roles of intermediaries in distribution channels.
The document provides an overview of marketing channels and distribution systems. It discusses direct and indirect distribution, as well as different types of vertical marketing systems like corporate, administered, and contractual. It also covers horizontal marketing systems, multi-channel distribution, channel flows, and channel formats that are producer or seller driven. The key topics covered are the functions and roles of intermediaries in distribution channels.
Learning Objectives • Understand channel structure and how channels manage discrepancies • Understand concept of channel flows • Relationship of channel flows to service levels • Understand channel formats and levels • Understand what channel systems are expected to deliver • Prominent marketing and channel systems
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Channel Functions • Information gathering • Consumer motivation • Bargaining with suppliers • Placing orders • Financing • Inventory management • Risk bearing • After sales support SDM- Ch 9 Tata McGraw Hill 3 Role of Intermediaries
Company 1 Company 2 Company 3
Intermediary
Large number of CONSUMERS
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Direct and Direct Distribution • Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers. • Selling on the Internet • If products are technically complex, this system is preferred • Cost is a major consideration to adopt this mode
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Direct Distribution - Examples • Banking services • Credit cards • Petrol / diesel – company own outlets • Land line phone connections • Health services • Utilities – electricity, water • Subsidized ration • Education SDM- Ch 9 Tata McGraw Hill 6 Indirect Distribution • Goods may move through a set of intermediaries – Most FMCG companies follow this route • The intermediary has a far better reach than the company • The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses.
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Indirect Distribution - Examples • All FMCG, consumer durables and pharmaceutical • Petrol / diesel / cooking gas - franchisees • Insurance • Mobile phones • All kinds of passenger transport
Vertical…. SDM- Ch 9 Tata McGraw Hill 9 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 – Sears, Goodyear – Suppliers of food items could be also their own supplying firms - like Nilgiris Administered… SDM- Ch 9 Tata McGraw Hill 11 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, displays, pricing policies and promotion strategies
Contractual… SDM- Ch 9 Tata McGraw Hill 12 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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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… SDM- Ch 9 Tata McGraw Hill 14 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 – Pharma companies may use different channels to reach doctors, chemists and hospitals
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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
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Distribution Channels • Take care of the following ‘discrepancies’ – Spatial – Temporal – Breaking bulk – Assortment and – Financial support
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Spatial Discrepancy • The channel system helps reduce the ‘distance’ between the producer and the consumer of his products. – Consumers are scattered – Have to be reached cost effectively • Example: companies produce products in one location even for global needs
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Temporal Discrepancy • The channel system helps in speeding up in meeting the requirement of the consumers – Time when the product is made and when it is consumed is different – Limited number of production points but hundreds of consumers • Maruti plant in Gurgaon – cars and spares are available when the consumer wants
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Breaking Bulk • The channel system reduces large quantities into consumer acceptable lot sizes – Production has to be in large quantities to benefit from economies of scale – Consumption is necessarily in small lot sizes • India is the ultimate example in breaking bulk – you can buy one cigarette, one Anacin, one toffee etc
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Need for Assortment • The channel system helps aggregate a range of products for the benefit of the consumer – it could be made by one company or several of them. – For the same product, it could be a variety of brands and pack sizes • MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range. SDM- Ch 9 Tata McGraw Hill 21 Financial Support • The channel system provides critical working capital to its customers by extending credit. • Some channel members like stockists and wholesalers finance the business of their customers. – Medical diagnostic equipment to hospitals
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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 FORWARD Goods and Services
BACKWARD Payment for goods / returns
BOTH WAYS Information
Company Customers
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The Five Channel Flows • Physical flow of goods • 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 Who is responsible?
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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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Degree of Involvement Manufacturer C&FA or Distributor, Wholesaler or Distribution dealers retailer Center Physical Physical Physical Physical Title / ownership Title Title / ownership Title / ownership Information Information Information Information Risk sharing Payment Payment Payment Promotions Order Order placement Order placement processing Negotiation Negotiation Risk sharing Risk sharing Promotions Promotions
Channel formats… SDM- Ch 9 Tata McGraw Hill 27 Channel Formats • Is decided by who ‘drives’ the channel system: – Producer driven – Seller driven – Service driven – Others
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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 – Company contracted distributors
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Seller Driven • Use of existing channels to reach the largest number of end users – Existing wholesalers and retailers – Modern retail formats – Specialty stores – Shoppers’ Stop – Discount stores – 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, Modicare, Tupperware, Herbalife • Co-operative societies • Telephone kiosks • TV home shopping • Catalogue marketing • The internet • Exhibitions, fairs and trade shows • Data base marketing
Channel levels…
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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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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 – Consulting or IT firm uses one team for Biz Development and another for execution – Musician or magician may use mass media, events or web sites to reach customers
Key Learnings • Marketing channels are responsible for flows – physical possession, title, payments, information and promotion covered by forward, backward and flows both ways • Each channel partner has a different role in supporting customer service through suitable channel flows • Number of categories operating in a channel system define the channel levels as one, two etc SDM- Ch 9 Tata McGraw Hill 36 Key Learnings • Channel system deliverables are: bulk breaking, place utility, reduced waiting time, providing assortment, financial help, installation and after sales support. • Customer service has to be done at optimum cost • Marketing channel systems are categorised as vertical, horizontal and multi-channel depending on the structure and the functionality SDM- Ch 9 Tata McGraw Hill 37
