Brief contents of this article:
The main question is:
What kind of distribution channel opportunities there are?
How, when, and where to make goods and services available to customers?
Learning objectives:
1)Levels of marketing channels
2)Functions of marketing channels
3)Conflicts in marketing channels
4)Channel design decision
1. Levels of marketing channels.
A channel level is a layer of intermediaries that performs some work in bringing the product and its ownership to the final buyer and according to "Principles of marketing" they could be Direct or Inderect, depending on the amount of intermediary levels involved, where Direct( sometimes called Zero-level channel) has no such levels, and Inderect has one or more. Channels divide in groups on product purpose basis: for instance, if aproduct or service supposed to be sold to Customer (B2C, business to customer, e.g.supermarket) or to Business (B2B, business to business, e.g. office supplies). However there are some businesses, that use B2G (Business to Goverment, e.g machinery\ weaponry ) and even C2C (Customers to Customers, e.g. bulletin boards like Ebay ).
The visual presentation of how marketiung channels work:
Case:
In our case we have Indian interior decoration products. And Jamil, business owner could work in two directions, B2B and B2C simultaneously to achieve better sales.
2.Functions of marketing channels
Marketing channels are meant to facilitate the process of delivery, fasten it and make a product or service avaliable to broader auditory. Intermediaries create greater efficiency in presenting products of producer, by including them in wide assortment accessible to target markets, when producer has limited variety of production and intrested in large quantities of his product sales. However, long chain of middlemen increases cost of a product to final consumer and hardens the producer's ability to track and control, how his product is presented to consumers.
Here are some main functions of marketing channels, presented by Kotler & Armstrong in "Principles of Marketing":
-Information- gathering and distributing marketing research and intelligence information about actors and forces in the market environment needed for planning and facilitating exchange.
-Promotion- developing and spreading persuasive communications about an offer
-Contact- finding and communicating with prospective buyers
-Matching- shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging.
-Negotiation- researching an agreement on the price and other terms of the offer, so that ownership or possession can be transferred.
-Physical distribution- transporting and storing goods
-Financing- acquiring and using funds to cover the costs of the channel work
-Risk taking- assuming the risks of carrying out the channel work.
Case:
As a new player on market, Jamil would have great benefits from developing distribution channels.
3.Conflicts in marketing channels
In real world, every company and every person involved in distribution want to benefit from it. When some issues with goals, roles or rewards arise between members of channels and when someone's intrest affect or even confronts with interest of another party the conflict occurs.
Conflicts between members could be Horizontal (for instance, when several distributors have to share same market\area) or Vertical (e.g. producer is not satisfied with retailer offering or a way of promoting his product(s)). To avoid such conflicts many companies try to control as many operations as possible, if it benefits organisation's goals.
Case:
Jamil in this case is represented as a the second intermediary (distributor) of some Indian manufacturer. In our case not stated, if he has an exclusive rights to sell products of this producer or not. Usually, large retailers have a tendency to overpass middleman as Jamil and work with factory directly, and this allows them to control frequency of distribution, prices and support sustainability in that region. Large retailers have their logistic processes and large quantities, which makes shipping for them less expencive. Jamil could not stay compete with them at this level. Also,some day, he may have and idea to widen his assortment and find some other suppliers in India, but now with his current abilities it is better, I suppose, to start with a direct sales and grow amount of contracts with small companies.
4.Channel design decision
Marketing channel design calls for analyzing consumer needs setting channel objectives and choosing between major channel alternatives.
As logical development of unorganised distribution, where each member of chain had independance in their choises and approaches to work, is a VMS, a vertical marketing system, hence all members are binded to some rules or regulations dictated by one particular member (usually, the most powerful one, which impact on overall success of this joint venture is dominating). The coordination could be based on contracts between firms- Contractual VMS, or implied by the size and power of one party- Administred VMS. There is also a corporate VMS, a company with many branches or divisions, which could have their different goals in their specific market, but still obliged to perform tasks assigned by main office in a cooperation with other offices\factories\logistic division and shape local tasks under top priority of the whole organisation benefit.
However, in modern reality, a company choose several distribution channels instead of taking just one and it is called Multichannel Distribution system. But how to make it organised? And which strategy to choose with those channel members?
There are three ways to cooperate with members of your channel: provide them special rights to sell your product and build close relationships with them (Exclusive distribution), choose distributors on some Selective basis (e.g. volume of purchase, number of outlets etc.) to have some control over them and help them by limiting their possible competitors or allow everyone sell your product with some entry barriers, but generally no specific limits ( Intensive distribution).
There are many different factors, which have influence on making channel decision. Some of internal are:
-Direction, goals and objectives
-Resources and competencies
-Marketing mix
-Control (do you want to have everything under your command?)
And some of external factors, which should be considered:
-Customer
-Market
-Environemental factors
-Competitors
-Intermediary availability
(Wood, p. 140)
However, on practice companies could perform SWOT- analysis (Strengths, Weaknesses, Opportunities, Threats) to be able understand their own position and set goals. It is important to understand and clearly describe, how your partners would benefit from collaboration with your company, because it is irresponcible to believe, that they would be intrested in your success. Only when others could make profit on partnership with you and hence you understand their underlies, only then you could utilize and also benefit from them.
Case:
I have been selling franchise for almost a year and supporting all processes connected with a franchise and I have my point of view on it. Jamil idea to start a franchise is optimistic, but, from my point of view, is without a solid ground. The idea of franchising is in spreading idea of efficient way of earning profits and making the company grow very fast, to the mutual benefit (brand, customer loyalty, collective purchase bulk prices, etc) . Then the franchisor could earn some money, have his company growing and save resources, while franchisee could join and start easily earning with some guarantees of success. Jamil does not have neither brand nor some other additional value in his business. He is simply a reseller. Primitive model: buy cheap, sell high, difference cover costs=profit.
There would be no competitive advantage for those, who would decide to buy his franchise. So why should they pay their money to him? I do not think, that indian commodities are such rare or unique, so selling them would make someone stand out and distance from competitors.
Jamil could write all his business process in schemes and if he is profitable, then some enthusiastic heads, which could also be intrested in it, might be found. However I suppose, that the better option for him is to find existing retailers, which could help him with information and promotion and provide selective policy with them, one town- one distributor. Then they would have some motivation to work with his products and share information about it, not being afraid of loosing competitive advantage on their market. As a further development of relations with those distributors, they could help to negotiate the contracts with some large retailers, by providing their brand as a trust factor and also being responcible for physical distribution- transporting and storing goods. Large retailers is a big money and repeating orders, but they are not an easy clients and they won't change their business process to make it easier for Jamal.
Keywords - definitions
Distribution: Also Place. One of the four elements of the Marketing Mix (Product, Price, Promotion, Place/Distribution). Comprises all activities that bring a product from its place of origin to the consumer (Lovelock & Wirtz 2012, 391.)
Intensive distribution - A marketing strategy under which a company sells through as many outlets as possible, so that the consumers encounter the product virtually everywhere they go: supermarkets, drug stores, gas stations, and the like. Soft drinks are generally made available through intensive distribution. (Kotler & Armstrong)
Selective distribution- Type of product distribution that lies between intensive distribution and exclusive distribution, and in which only a few retail outlets cover a specific geographical area. Considered more suitable for high-end items such as 'designer' or prestige goods.(Kotler & Armstrong)
Exclusive Distribution: Number of intermediaries is limited; this offers bigger control, but also less market coverage.
Wholesaling: A major form of channel intermediaries. Selling products to retailers
Retailing: Selling products or services to final consumers via multiple channels of distribution
Franchising: a contractual association between a manufacturer,wholesaler, or service organisation (a franchisor) and independent business people (franchisees) who buy the right to own and operate one or more units in the franchise system. (Kotler & Armstrong, p.693)
Coverage: Number of active retail and/or wholesale outlets (relative to a saturation level) that sell a specific firm's brands in a given market. Required market coverage is achieved by following concentrated marketing, differentiated marketing, or undifferentiated marketing strategy.
Undifferentiated marketing (focus on common need of consumers),
differentiated marketing (promotional offers are specialised for each individual target market), and
concentrated marketing (focuses on a section in market place and seeks to gain the majority market share there) (businessdictionary)
Sources:
- Kotler, P. & Armstrong, G. 2016. Principles of Marketing. Sixteen edition, Global edition. Pearson Education.
- Lovelock, C. Wirtz, J.& Chew, P. 2012. Essentials of Services Marketing. London: Prentice Hall.
- Wood, M. B. 2014. The marketing plan A handbook / Marian Burk Wood/ Fifth Edition. Pearson Prentice Hall, Cop. Upper Saddle River.
-http://www.businessdictionary.com/definition/market-coverage.html
The main question is:
What kind of distribution channel opportunities there are?
How, when, and where to make goods and services available to customers?
Learning objectives:
1)Levels of marketing channels
2)Functions of marketing channels
3)Conflicts in marketing channels
4)Channel design decision
1. Levels of marketing channels.
A channel level is a layer of intermediaries that performs some work in bringing the product and its ownership to the final buyer and according to "Principles of marketing" they could be Direct or Inderect, depending on the amount of intermediary levels involved, where Direct( sometimes called Zero-level channel) has no such levels, and Inderect has one or more. Channels divide in groups on product purpose basis: for instance, if aproduct or service supposed to be sold to Customer (B2C, business to customer, e.g.supermarket) or to Business (B2B, business to business, e.g. office supplies). However there are some businesses, that use B2G (Business to Goverment, e.g machinery\ weaponry ) and even C2C (Customers to Customers, e.g. bulletin boards like Ebay ).
The visual presentation of how marketiung channels work:
 |
| Kotler, P. & Armstrong, G, page 379 |
In our case we have Indian interior decoration products. And Jamil, business owner could work in two directions, B2B and B2C simultaneously to achieve better sales.
2.Functions of marketing channels
Marketing channels are meant to facilitate the process of delivery, fasten it and make a product or service avaliable to broader auditory. Intermediaries create greater efficiency in presenting products of producer, by including them in wide assortment accessible to target markets, when producer has limited variety of production and intrested in large quantities of his product sales. However, long chain of middlemen increases cost of a product to final consumer and hardens the producer's ability to track and control, how his product is presented to consumers.
Here are some main functions of marketing channels, presented by Kotler & Armstrong in "Principles of Marketing":
-Information- gathering and distributing marketing research and intelligence information about actors and forces in the market environment needed for planning and facilitating exchange.
-Contact- finding and communicating with prospective buyers
-Matching- shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging.
-Negotiation- researching an agreement on the price and other terms of the offer, so that ownership or possession can be transferred.
-Physical distribution- transporting and storing goods
-Financing- acquiring and using funds to cover the costs of the channel work
-Risk taking- assuming the risks of carrying out the channel work.
Case:
As a new player on market, Jamil would have great benefits from developing distribution channels.
3.Conflicts in marketing channels
In real world, every company and every person involved in distribution want to benefit from it. When some issues with goals, roles or rewards arise between members of channels and when someone's intrest affect or even confronts with interest of another party the conflict occurs.
Conflicts between members could be Horizontal (for instance, when several distributors have to share same market\area) or Vertical (e.g. producer is not satisfied with retailer offering or a way of promoting his product(s)). To avoid such conflicts many companies try to control as many operations as possible, if it benefits organisation's goals.
Case:
Jamil in this case is represented as a the second intermediary (distributor) of some Indian manufacturer. In our case not stated, if he has an exclusive rights to sell products of this producer or not. Usually, large retailers have a tendency to overpass middleman as Jamil and work with factory directly, and this allows them to control frequency of distribution, prices and support sustainability in that region. Large retailers have their logistic processes and large quantities, which makes shipping for them less expencive. Jamil could not stay compete with them at this level. Also,some day, he may have and idea to widen his assortment and find some other suppliers in India, but now with his current abilities it is better, I suppose, to start with a direct sales and grow amount of contracts with small companies.
4.Channel design decision
Marketing channel design calls for analyzing consumer needs setting channel objectives and choosing between major channel alternatives.
As logical development of unorganised distribution, where each member of chain had independance in their choises and approaches to work, is a VMS, a vertical marketing system, hence all members are binded to some rules or regulations dictated by one particular member (usually, the most powerful one, which impact on overall success of this joint venture is dominating). The coordination could be based on contracts between firms- Contractual VMS, or implied by the size and power of one party- Administred VMS. There is also a corporate VMS, a company with many branches or divisions, which could have their different goals in their specific market, but still obliged to perform tasks assigned by main office in a cooperation with other offices\factories\logistic division and shape local tasks under top priority of the whole organisation benefit.
However, in modern reality, a company choose several distribution channels instead of taking just one and it is called Multichannel Distribution system. But how to make it organised? And which strategy to choose with those channel members?
There are three ways to cooperate with members of your channel: provide them special rights to sell your product and build close relationships with them (Exclusive distribution), choose distributors on some Selective basis (e.g. volume of purchase, number of outlets etc.) to have some control over them and help them by limiting their possible competitors or allow everyone sell your product with some entry barriers, but generally no specific limits ( Intensive distribution).
There are many different factors, which have influence on making channel decision. Some of internal are:
-Direction, goals and objectives
-Resources and competencies
-Marketing mix
-Control (do you want to have everything under your command?)
And some of external factors, which should be considered:
-Customer
-Market
-Environemental factors
-Competitors
-Intermediary availability
(Wood, p. 140)
However, on practice companies could perform SWOT- analysis (Strengths, Weaknesses, Opportunities, Threats) to be able understand their own position and set goals. It is important to understand and clearly describe, how your partners would benefit from collaboration with your company, because it is irresponcible to believe, that they would be intrested in your success. Only when others could make profit on partnership with you and hence you understand their underlies, only then you could utilize and also benefit from them.
Case:
I have been selling franchise for almost a year and supporting all processes connected with a franchise and I have my point of view on it. Jamil idea to start a franchise is optimistic, but, from my point of view, is without a solid ground. The idea of franchising is in spreading idea of efficient way of earning profits and making the company grow very fast, to the mutual benefit (brand, customer loyalty, collective purchase bulk prices, etc) . Then the franchisor could earn some money, have his company growing and save resources, while franchisee could join and start easily earning with some guarantees of success. Jamil does not have neither brand nor some other additional value in his business. He is simply a reseller. Primitive model: buy cheap, sell high, difference cover costs=profit.
There would be no competitive advantage for those, who would decide to buy his franchise. So why should they pay their money to him? I do not think, that indian commodities are such rare or unique, so selling them would make someone stand out and distance from competitors.
Jamil could write all his business process in schemes and if he is profitable, then some enthusiastic heads, which could also be intrested in it, might be found. However I suppose, that the better option for him is to find existing retailers, which could help him with information and promotion and provide selective policy with them, one town- one distributor. Then they would have some motivation to work with his products and share information about it, not being afraid of loosing competitive advantage on their market. As a further development of relations with those distributors, they could help to negotiate the contracts with some large retailers, by providing their brand as a trust factor and also being responcible for physical distribution- transporting and storing goods. Large retailers is a big money and repeating orders, but they are not an easy clients and they won't change their business process to make it easier for Jamal.
Keywords - definitions
Distribution: Also Place. One of the four elements of the Marketing Mix (Product, Price, Promotion, Place/Distribution). Comprises all activities that bring a product from its place of origin to the consumer (Lovelock & Wirtz 2012, 391.)
Intensive distribution - A marketing strategy under which a company sells through as many outlets as possible, so that the consumers encounter the product virtually everywhere they go: supermarkets, drug stores, gas stations, and the like. Soft drinks are generally made available through intensive distribution. (Kotler & Armstrong)
Selective distribution- Type of product distribution that lies between intensive distribution and exclusive distribution, and in which only a few retail outlets cover a specific geographical area. Considered more suitable for high-end items such as 'designer' or prestige goods.(Kotler & Armstrong)
Exclusive Distribution: Number of intermediaries is limited; this offers bigger control, but also less market coverage.
Wholesaling: A major form of channel intermediaries. Selling products to retailers
Retailing: Selling products or services to final consumers via multiple channels of distribution
Franchising: a contractual association between a manufacturer,wholesaler, or service organisation (a franchisor) and independent business people (franchisees) who buy the right to own and operate one or more units in the franchise system. (Kotler & Armstrong, p.693)
Coverage: Number of active retail and/or wholesale outlets (relative to a saturation level) that sell a specific firm's brands in a given market. Required market coverage is achieved by following concentrated marketing, differentiated marketing, or undifferentiated marketing strategy.
Undifferentiated marketing (focus on common need of consumers),
differentiated marketing (promotional offers are specialised for each individual target market), and
concentrated marketing (focuses on a section in market place and seeks to gain the majority market share there) (businessdictionary)
Sources:
- Kotler, P. & Armstrong, G. 2016. Principles of Marketing. Sixteen edition, Global edition. Pearson Education.
- Lovelock, C. Wirtz, J.& Chew, P. 2012. Essentials of Services Marketing. London: Prentice Hall.
- Wood, M. B. 2014. The marketing plan A handbook / Marian Burk Wood/ Fifth Edition. Pearson Prentice Hall, Cop. Upper Saddle River.
-http://www.businessdictionary.com/definition/market-coverage.html
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