Week 10.1 Marketing Channels
We start this lesson with the definition of marketing channels and the various intermediaries involved in marketing channels.
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.
In a marketing channel, finished goods are moved from the producer, through intermediaries, to the buyers. There are many intermediaries involved in marketing channels such as the middleman, agent, broker, wholesaler, retailer, distributor, and dealer. Their functions are summarized in the table below.
Intermediaries and their Functions
||Any intermediary between the manufacturer and end-user markets
|Agent or broker
||Any intermediary with legal authority to act on behalf of the manufacturer
||An intermediary who sells to other intermediaries, usually to retailers; term usually applies to consumer markets
||An intermediary who sells to consumers
||An imprecise term, usually used to describe intermediaries who perform a variety of distribution functions, including selling, maintaining inventories, extending credit, and so on; a more common term in business markets but may also be used to refer to wholesalers
||A more imprecise term than distributor that can mean the same as distributor, retailer, wholesaler, and so forth
Intermediaries perform three types of functions in a marketing channel:
- transactional functions
- logistical functions, and
- facilitating functions.
The activities related to each function are presented in the table below.
Functions of Intermediaries
Buying: purchasing products for resale or as an agent for supply of a product
Selling: contacting potential customers, promoting products, and seeking orders
Risk taking: assuming business risks in the ownership of inventory that can deteriorate or become obsolete
Assorting: creating product assortments from several sources to serve customers
Storing: assembling and protecting products at a convenient location to offer better customer service
Sorting: purchasing in large quantities and breaking into smaller amounts desired by customers
Transporting: physically moving a product to customers
Financing: extending credit to customers
Grading: inspecting, testing, or judging products; and assigning them quality grades
Marketing information and research: providing information to customers and suppliers, including competitive conditions and trends
We will consider marketing channels for consumer goods/services and business goods/services separately due to their distinct characteristics.
Marketing Channels for Consumer Goods and Services
Let us start with marketing channels for consumer goods/services. The figure below shows the four most common marketing channels for consumer goods and services.
The length of the channel is defined based on the number of intermediaries between a producer and buyer. As the number of intermediaries increases, the channel is viewed as increasing in length. Channel A represents a direct channel. In a direct channel, there is no intermediary between the producer and ultimate consumers. The producer sells directly to the end user.
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Example: Schwan's markets a full line of frozen foods. The company uses its own door-to-door salespeople who sell to customers from refrigerated trucks. There is no retailer or any other intermediary involved. That is why it is a direct marketing channel.
The remaining three channels B, C, and D are considered indirect channels. There are intermediaries between the producer and consumers in these channels.
In channel B, which is an indirect channel, there is one intermediary. A dealer in the marketing channel is most common when the cost of inventory makes it too expensive to use a wholesaler.
Retrieved from https://www.gmc.com/
Example: General Motors uses dealers in its marketing channel. There is no wholesaler involved.
Stop and Think Question: Why is there no wholesaler in channel B? Think about the product GM produces in channel B before clicking reveal.
Click to reveal answer
GM produces a variety of vehicles. It it would be impossible for a wholesaler to stock all the models. There is very high cost involved in maintaining such large inventory for a wholesaler. That is why there is no wholesaler in channel B.
In channel C, there is a retailer and a wholesaler. Adding a wholesaler, as in channel C, is most common for low-cost, low-unit-value items that are frequently purchased by consumers, such as candy and magazines.
Retrieved from https://www.mars.com
Mars sells its line of candies to wholesalers in cases containing large quantities. Wholesalers break down the cases into smaller quantities so that retailers can order in boxes. Customers can then buy them from retailers as individual bars.
Channel D is the most indirect channel since D has the most intermediaries. Such a channel is employed when there are many small manufacturers and many small retailers. An agent is needed to help coordinate the large supply of the product.
Retrieved from https://www.manserjewellery.co.za/
Manser is a specialty jewellery producer. It uses agents to sell to wholesalers, which then sell to many small retailers.
Marketing Channels for Business Goods and Services
There are four types of marketing channels common for business goods and services.
Note the difference in length of the marketing channels. The marketing channels for business goods/services are shorter than the channels for consumer goods/services. They typically rely on one intermediary or none at all. There are marketing channels for business buyers with two intermediaries as well (as in channel D), but those are not very common. Marketing channels are shorter because business users are fewer in number than household consumers, and they tend to be more concentrated geographically, which makes it easier to distribute to them. Moreover, business buyers typically order in larger quantities, which means fewer shipments.
Electronic Marketing Channels
Electronic marketing channels employ the internet to make goods and services available for consumption. They enable consumers to order directly and track their order 24/7.
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Amazon.ca, Travelocity.ca, and autotrader.ca.
Electronic intermediaries use available technology in their favour. Since consumers place their own orders, it helps save time and labour. Therefore they perform at a relatively lower cost than traditional intermediaries due to the efficiencies create by connectivity and technology. However, electronic intermediaries are not able to perform all of the logistical functions such as storing, which is necessary for large products like automobiles.
Direct Marketing Channels
Direct marketing channels are referred to as direct-to-customer, or DTC, or D2C. Consumers order products/services by interacting with various media without a face-to-face meeting with a salesperson.
Mail-order selling, direct-mail sales, catalogue sales, telemarketing, interactive media, social media, and televised home shopping.
Multiple Channels and Strategic Alliances
Multichannel distribution is the blending of different delivery and distribution channels. It makes it convenient for the consumers who can order online using electronic channels or shop at the stores from traditional intermediaries.
Retrieved from http://www.eddiebauer.com/
Eddie Bauer makes its apparel available through their catalogue, retail stores, and website channels.
Sellers might use hybrid marketing channels or dual distribution as multiple channels. It is an arrangement whereby a firm reaches buyers by employing two or more different types of marketing channels.
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Apple Inc. sells its products in its own retail stores, through its own website, and through other retailers such as Best Buy.
In some cases producers use strategic channel alliances. In this case, one firm's marketing channel is used to sell another firm's products.
Retrieved from http://www.kraftcanada.com/brands;
Example: An alliance between Kraft Foods and Starbucks. Kraft distributes Starbucks coffee in supermarkets.
A variety of intermediaries exist. Some engage in wholesale activities, which involves selling products and services to those who are buying for the purposes of resale or business use. Let us consider a few different types of intermediaries.
Merchant wholesalers are independently owned firms that take title to the merchandise they handle. They make profit from the sale of the merchandise they own.
Agents and brokers do not take title to merchandise. They provide fewer channel functions than merchant wholesalers. They make their profit from commissions or fees paid for their services, whereas merchant wholesalers make their profit from the sale of the merchandise they own.
- Manufacturer’s agents work for several producers and carry non-competitive, complementary merchandise in an exclusive territory. They perform transactional channel functions and selling.
- Selling agents represent a single producer and are responsible for the entire marketing function of that producer. They design promotional plans, set prices, determine distribution policies, and make recommendations on product strategy.
- Brokers are independent firms or individuals who connect buyers and sellers to make sales. Brokers, unlike selling agents, have no continuous relationship with the buyer or seller. They negotiate a contract between two parties and then move on to another task. It is common to use brokers for seasonal products (such as fruits and vegetables) and in the real estate industry.