The document discusses marketing channels and channel systems. It defines key channel concepts like channel flows, formats, levels and functions. Channel flows include physical goods, title, payment, information and promotion flowing between companies and customers. Common channel formats are producer-driven, seller-driven and service-driven. Channel levels refer to the number of intermediaries between manufacturer and end user, such as zero-level, one-level or two-level channels. Effective channel systems aim to reduce discrepancies around space, time, bulk-breaking and financing to deliver optimal customer service.
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The document discusses marketing channels and channel systems. It defines key channel concepts like channel flows, formats, levels and functions. Channel flows include physical goods, title, payment, information and promotion flowing between companies and customers. Common channel formats are producer-driven, seller-driven and service-driven. Channel levels refer to the number of intermediaries between manufacturer and end user, such as zero-level, one-level or two-level channels. Effective channel systems aim to reduce discrepancies around space, time, bulk-breaking and financing to deliver optimal customer service.
The document discusses marketing channels and channel systems. It defines key channel concepts like channel flows, formats, levels and functions. Channel flows include physical goods, title, payment, information and promotion flowing between companies and customers. Common channel formats are producer-driven, seller-driven and service-driven. Channel levels refer to the number of intermediaries between manufacturer and end user, such as zero-level, one-level or two-level channels. Effective channel systems aim to reduce discrepancies around space, time, bulk-breaking and financing to deliver optimal customer service.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
The document discusses marketing channels and channel systems. It defines key channel concepts like channel flows, formats, levels and functions. Channel flows include physical goods, title, payment, information and promotion flowing between companies and customers. Common channel formats are producer-driven, seller-driven and service-driven. Channel levels refer to the number of intermediaries between manufacturer and end user, such as zero-level, one-level or two-level channels. Effective channel systems aim to reduce discrepancies around space, time, bulk-breaking and financing to deliver optimal customer service.
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Marketing 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 1
Channel Functions Information gathering Consumer motivation Bargaining with suppliers Placing orders Financing Inventory management Risk bearing After sales support 2
Role of Intermediaries Company 1 Company 2 Company 3
Intermediary
Large number of CONSUMERS
Direct and Indirect. 3
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 4
Direct Distribution - Examples
Banking services Credit cards Petrol / diesel company own outlets Land line phone connections Health services Utilities electricity, water Subsidized ration Education 5
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. 6
Indirect Distribution Examples
All FMCG, consumer durables and pharmaceutical Petrol / diesel / cooking gas franchisees Insurance Mobile phones All kinds of passenger transport 7
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 9
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 10
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 11
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 12
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 stations Coffee Day outlets at airports
Multi-channel 13
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 14
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 15
Distribution Channels Take care of the following discrepancies Spatial Temporal Breaking bulk Assortment and Financial support 16
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 17
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
18
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 19
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
Companies might produce different products in different plants but its dealer may sell the entire range. 20
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 21
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
22
Three Flows Recognized
Goods and Services FORWARD
BACKWARD Payment for goods / returns
Information
BOTH WAYS
Company
Customers 23
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? 24
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. 25
Degree of Involvement Manufacturer C&FA or Distribution Center Physical Title Information Payment Order processing Distributor, dealers Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions Wholesaler or retailer Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions
Physical Title / ownership Information Risk sharing Promotions
Channel formats
26
Channel Formats Is decided by who drives the channel system: Producer driven Seller driven Service driven Others
27
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 Consignment selling agents Franchisees Brokers Vending machines Company contracted distributors 28
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
29
Service Driven These are the people who facilitate the distribution Transporters and freight forwarders Providers of warehouse space C&F agents Logistics service providers Couriers 30
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 31
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 32
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 33
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 35
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 carried out at optimum cost Marketing channel systems are categorised as vertical, horizontal and multi-channel depending on the structure and the functionality 36
