To meet the ever-changing conditions in the marketplace, the channel arrangements would require modifications over a period of time. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. d. Financing – The marketing channels work towards the acquisition and allocation of funds required to finance inventories at different levels of the marketing channels. Start by identifying the channel that best supports the targeted business objectives — and then take these four steps to optimize your channel strategy: Add and use different channels more frequently as they become more popular and as necessary to reach specific audiences. Example- Pepsi and Coke. Of particular importance is the question, “from whom do my retail outlets prefer to buy? Channel choice begins with two questions: to whom shall we sell this merchandise immediately? These may include all or some combination of the following: By providing this linkage, wholesalers assist both the producer and the buyer. The choice and design of a marketing channel have to take into account such service requirements. Given this, there is also a greater possibility of channel competition and conflict. All goods go through channels of distribution, and marketing depends on the way goods are distributed. Factors Influencing Design and Selection 9. Conflicts can be functional or dysfunctional. Push promotes a product to the middlemen who ‘push’ the offering to the consumers, and pull promotion strategy promotes the product to the end user directly. 1. What role does distribution play in the firm's overall objectives and strategy 2. Finally, some manufacturers find it feasible to use different channels in different parts of the country. 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. 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. f. Physical possession – The channel members also take the responsibility of storage of goods during the successive stages to the final consumers. 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. The functions of the distribution channels are: a. Next we want to very much focus with our channel partners on our roles and responsibilities at different stages of a customer's life cycle. Marketing is how you get potential customers to consider buying what you sell. Such intermediaries, through their experience, specialization, contacts and scale of operation, offer other channel members more than they can achieve on their own. Channel selection refers to selecting individual channel members. 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. However, most companies prefer distribution through middle­men as against direct distribution, to economize on costs. 4. Successful marketing happens when you send the right message and reach the right market using their marketing communication channel (medium) of choice. Non-store Retailing – Non-store retailing describes sales made to ultimate consumers outside of a traditional retail store setting. Market Segment Sizing There is no need for currency notes and coins in this method. 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. Also, there is a mutual benefit to both organisations, which they are otherwise not likely to achieve. The producer/manufacturer and the final consumer form a part of the channel and are at both ends of the channel. For example, automobiles. It is short and simple. A product like Bul-worker, which is distributed through mail-order, comes closer to being a yellow good. Answer: False Page: 61 Level of difficulty: Medium 100. Considering nature of industrial goods and the purchase procedure, generally shorter channels (upto length 1) are used. Chapter 4: Digital marketing strategy: Multiple choice questions: Multiple choice questions Try the multiple choice questions below to test your knowledge of this chapter. Vertical Marketing Systems (VMS) represent a major step towards resolving dysfunctional conflict. The channel manager must be very specific in describing channel tasks, and must define how these tasks will change depending upon the situation. As organizations develop their marketing channel strategies, an important question arises regarding distribution intensity. b) Manufacturers – Wholesalers – Retailers – Consumers: Here, two intermediaries exist. Earlier, fast food chains had emerged to suit the changing life-styles of certain sections of people in society. 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. 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. It involves a careful study and consideration of many factors stated below. 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. Written By Nathan Ellering @njellering. Various channel patterns are discussed below: For example, cosmetics, farm products like fresh fruits, vegetables, encyclopaedia, many innovative products through home shopping, etc. Influential digital storefronts are key strategic partners in the modern economy. The chosen channel will significantly affect and be affected by the rest of the marketing mix. B2B brands typically use a “direct” or “indirect” sales channel strategy to build revenue. Although it provides full control, this comes with a huge investment. ii. This works well for institutional consumers such as colleges, hospitals, schools clubs, government agencies, business houses, religious institutions etc. 3.1 shows one major source of cost savings affected by using intermediaries/ distributors. ” The answer to this question determines the type of wholesaler – if any – that the manufacturer should use. Prohibited Content 3. Franchising has come about in response to this trend. There are many different types of channel strategy to consider depending on the kind of business that you run, and the customers you need to serve. These are the situational cues and are very effective for products bought on an impulse rather than as well-thought out choices. c) Manufacturers – Agent – Wholesaler – Retailer – Consumer: This is the longest indirect channel available to a firm. Vending machines are another type of non-store retailing. Rationale behind Using Marketing Channels 3. Account Disable 12. Growth in sales – by reaching new markets and/or increasing sales in existing markets. 2. Designing the marketing channels is a task in which the manufacturer has to take into consideration several factors. Deciding on the marketing channel is among the most complex and challenging tasks facing a firm. If everyone on the road had a beautiful, unique sports car, much of the allure and justification for a high price point would be gone. In the case of a very small operator, e.g., someone making and selling pickles, the person concerned will distribute the product herself in order to avoid extra cost, and also do the job of the smart-talking saleswoman. Economic Criteria – Each alternative channel design will result in different levels of sales and cost as shown in Figure 10.3. An example of this type of conflict is if an organisation appoints two agents for the same territory. Here, two or more companies join hands to exploit a marketing opportunity. 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). The firm must also understand the buying specifications of the retailers themselves. (b) Selective distribution – Here the distributors can keep products of very few limited producers and generally of one category of products such as home appliances. Big companies like Brooke Bond and Bata have direct distribution facilities. This strategy of distribution, coupled with the packaging (similar to the twist-wrapped style for hard-boiled sweets) contributed to the success of Halls. 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. Some manufacturers have different products that require separate distribution channels. Channels create utility, improve exchange efficiency and help match supply and demand. Many organisations lack the resources (financial as well as other resources), to carry out direct marketing and reach out to their many customers without the help of any intermediary. Retailers are found only in consumer goods channels. Conflict. This strategy is appropriate where there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood. What kind of channel members should be selected 5. Promotion:The activities that communicate the product’s features and benefits and persuade customers to purchase the product. All sizes | Walmart | Flickr - Photo Sharing!. Channels are distribution are different than channel marketing. The general economic condition of a country also affects distri­bution. 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. Each firm usually confronts a number of alternate ways to reach the market. Marketing distribution channel | TikZ example. Differences in perception about the market requirements and their responses may lead to conflict. There are three types of Contractual VMS: a. Purchased only from a dealer equipped to render prompt and reasonable product service. Thus the concept of marketing channels is not restricted to the physical goods only. Consumer goods channels take many forms. The vast majority of all goods produced in an advanced economy have wholesaling involved in their marketing. Finally, some firms opt for a low volume approach with very few channels selected. Also, what is promised by the cue must be present in the product, or else it will lead to dissatisfaction in the consumer. Marketing Strategy: Key Concepts 4. This method of retailing is an efficient way to provide continuous service. Channel choices themselves depend on the company’s marketing strategy with respect to segmentation, targeting, and positioning. b. Marketing Mathematics. The Fig. Because of the features like intangibility, perishability, inseparability, distribution of services becomes critical. Picking the right marketing communication channel for your message will contribute significantly to the success of … Here, the manufacturer sells directly to the customer. Everything you need to know about marketing channels. This requires six contacts. iii. All goods go through channels of distribution, and marketing depends on the way goods are distributed. In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. Channel objectives are based on the requirements of the purchasers and users, the overall marketing strategy, and the long-run goals of the corporation. If companies want better control, they can go for direct distribution. Size of the market – For a market that is large, use of indirect channels proves to be more economical. Here’s how in two sentences. 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. Most firms fol­low a multi-channel approach to meet the requirements of the different segments of the market. d) Manufacturers – Wholesaler – Consumer: Here, retailers do not exist. Channels for Consumer Goods, Industrial Goods and Services 10. 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. In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers and the retailers themselves. c. Franchise Organisations – Franchisers might also link the successive stages in the manufacturing and distribution process. The type of customer you’re selling to will have an impact on the channel you select. Place (or distribution):The activities that make the product available to consumers. On the other hand, if he does not get the desired result on the first trial itself, he will look for alterna­tive cues and try some other brand of drink or some other method of quenching thirst. Direct selling or salesmanship. And, who are our ultimate users and buyers? Differentiate between different distribution intensity strategies, incorporating the modern digital storefronts into this consideration. To achieve those broad goals, a sales channel managementstrategy should align the efforts of in-house and external teams. ii. Discuss the various factors that affect channel choice. Selling – personal contact with buyers to sell products and service. c. Manufacturers retail shop. Each intermediary moves the product one step further towards the final consumer, and as such, each intermediary forms a level of the channel. However, they are not concerned about transportation, warehousing, inventory, etc. Examples of this type of channel include door-to-door sales, mail order, telemarketing, TV selling, and manufacturer-owned stores. Basic Push Promotional Strategies in Marketing Channels Promotional strategies emphasizing the push approach initiated by the manufacturer but requiring channel member support and follow-through can take many forms. 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. In short, many channels and high volume. While selecting channel members, it is essential for the organisation to first establish the characteristics that it seeks in these members. Once the customer places an order with a store, his bank account gets debited and the same amount gets credited to the stores’ account. Just making enquiries about the product, getting it, etc. You could not and no-one else going considering book addition or library or borrowing from your connections to right to use them. 3. Wholesaling includes all activities required to market goods and services to businesses, institutions, or industrial users. A consumer sitting in front of his computer terminal can connect himself to a specialty store and place orders. In order to be heard inside a factory, one will have to shout louder than the noise-level of the ma­chines. 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 channels can make the services “available” and “accessible” to the target customers. This is another marketing System emerging in which two or more unrelated organisations come together and pool their resources to exploit a marketing opportunity. (c) Intensive distribution – This consists of the manufacturer placing the goods or services in as many outlets as possible while the distributors are also handling many competitors’ products and brands. This strategy is used by established companies and by new companies seeking distribution. Be strategic about how you start marketing through the channels that you use. There are no intermediaries in the most direct channel (a zero-level channel). Channel length can vary from zero to n in case of consumer goods. Image Guidelines 4. Marketing channels represent one avenue among many in the field of marketing and sales. Here, one channel member either owns the others, or franchises them, or exercises enough control over the other members to ensure the functioning as one unified system. This creates an interesting relationship, similar to the retail relationship in traditional channel marketing, whereas certain digital storefronts are highly valuable strategic partners. Each channel system has a different potential for creating sales and producing costs. One has to take into account government regulations while deciding on the marketing channels. 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. For example, FMCG, hardware parts, drugs, etc. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. (a) Manufacturer – Dealer – Consumer – 1 Level, (b) Manufacturer – Franchisee – Consumer – 1 Level. As the rise of digital purchasing continues, and the cost of shipping decreases, globalization will drive organizations more and more towards channel strategies that optimize online exposure. Mostly direct channel, i.e. Drive is a basic instinct. A marketing channel mainly performs the task of moving goods from the producers or manufacturers to the final users. The Japanese have the ‘just in time’ inventory system by which they have cut down tremendously on inventory holding. Generally shorter channels are observed. Retailer Co-operatives – In this case, the retailers come together to take up the task of wholesaling or even manufacturing in some cases. An effective strategy identifies the best use of marketing and sales resources to increase collaboration and minimize conflict. Good distribution strategies can contribute a strongly to customer value and to create a competitive advantage for a firm. 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. 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 the intermediaries, the firm must also decide on the emphasis given to the ‘push’ versus ‘pull’ marketing strategy. (c) Manufacturer – Manufacturers’ Agents – Consumers – 1 Level, (d) Manufacturer – Large retailer/consumer cooperatives – Consumer – 1 Level. 2. Create an efficient channel – improve channel performance by modifying various flow mechanisms. Distribution channels are also constantly evolving with time. The agent middlemen may be commission agents, export merchants who manage trade on behalf of the manufacturer. Copyright 10. 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. A company’s channel decisions directly affect every other marketing decision. 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 … Each channel alternative can be evaluated against the following criteria: i. 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. 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. Horizontal channel conflicts exist when there is conflict between the members at the same level within the channel. Deciding a proper channel of distribution is not an easy task. Before a firm can design an effective channel marketing strategy, it needs to consider who it is trying to reach. 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