Download Channels of Distribution lec1

Channels of
Distribution
Lec: 1
Marketing Channels
Structure and Functions
Marketing
channels are the routes to
market used to sell every product and
service that consumers and business
buyers purchase everywhere in the
world .
Why should u be excited about
learning what marketing channels are
There are several reasons:
1-
The Channel is a gatekeeper (someone
who controls the access to something)
between the manufacturer and the end
user .
This means that failing to understand and
proactively manage the actions of ones
channel partners can lessen the effective
reach and attractiveness of the
manufactures products and services.
2-
The channel is an important asset
(advantage) in the company's overall
marketing and positioning strategy, serving as
the main differentiator of the company's
marketing offering from those of its
competitors .
Basic marketing courses teach that
differentiation is fundamental in building and
maintaining a competitive advantage.
Effective differentiation need not to be
defined through product features but can also
occur through innovative channel offerings.
3-
The channel experience strongly affects the
end-users overall perception of brands image
and end-user satisfaction.
4-
Finally even when aware of the value of careful
channel design and management , companies find
it hard to create and maintain a well working
channel design ..
So its useful to develop a framework for
thinking about the problem that will help
companies at every level of channel to operate
more profitably and do better job of meeting
end-users demands and preferences.
A strong channel system is a
competitive asset that isn't easily
replicated by other firms and is
therefore a strong source of
sustainable competitive
advantage.
What is a marketing channel ?
Marketing channel is “a set of
interdependent organizations involved in
the process of making a product or service
available for use or consumption”.
The definition carries some explanation:
- It first points out that marketing channel is
a set of interdependent organizations each
channel member depends on the others to
do their jobs. (mutually responsible)
What are the channel members
jobs?

The definition makes clear that running a
marketing channel is a process its not an
event ..
Distribution frequently takes time to
accomplish , and even when a sale is
finally made , the relationship with the
end users usually isn't over.
What
is the purpose of this
process?
Definition claims that it is making a
product or service available for use or
consumption …
that is , the purpose of channel
marketing is to satisfy the end- users
in the market , might be consumers or
final business buyers.
What is the work of the marketing
channel ?
The
work of channels includes the
performance of several marketing flows.
We use term flow rather than functions or
activities to ensure that these processes
flow through the channel been done at
different points in time by different
channel members.
There are 8 universal channel flows as they
might work in a channel containing producers,
wholesalers ,retailers & consumers.
Some
flows moves up the channel
(1- Physical Possession,2- Ownership & 3Promotion)
flows move up the channel from the
end user ( 4- Ordering & 5- Payment)
Some other flows can move either direction
Some
(6- Negotiation , 7- Financing , 8- Risking)
An important flow that spread all the
value added activities of the channel :
is the flow of information ,
information can and does flow between
every possible pair of channel members
in both routine and specialized ways.

Ex: manufacturers share product information with their
distributors to improve intermediaries performance of the
promotion flow..
Consumers give preference information (when asked!)
to improve the channels ability to supply valued services.
Marketing flows in channels
physical
possession

ownership
promotion
negotiation
wholesalers
Producers
Financing
Risking
Ordering
Payment
retailers
Consumers
Industrial
And
household
Who belongs to a marketing channel?
The
key members of a marketing channel are
Manufactures, Intermediaries
( wholesalers, retail, specialized) , and End-users (
who can be business customers or consumers)
There is one channel member that can be
considered the “ the channel captain” ..
The channel captain is an organization that acts
as a prime mover in establishing and
maintaining channel links .The channel captain is
usually the manufacturer of the product or
services .
• Manufacturer
We mean the producer or originator of the
product or service being sold there is a
difference between branded & private-label
manufacturing:

- Some manufacturers brand their products
and thus are known by name to the end users
even if they use intermediaries to reach those endusers (ex: coca-cola).
- Other manufacturers make products but do
not invest in branded name for them instead
they produce private label products , either a
manufacturer or retailer puts its own brand name
on the products.
All of the physical product
manufacturers are involved in physical
possession and ownership flow until the
products leaves their manufacturing sites
and travels to the next channel member
s site.
Manufacturers also engage in
negotiation with the buyers of their
products to set terms of also participate
in the promotion flow of its product.

•Intermediaries
The
term intermediaries refers to any
channel member other than the
manufacturer or the end-user (individual
consumer or business buyer).
We differentiate among three types of
intermediaries:
Wholesale – Retail – and Specialized
Wholesale
intermediaries :
include merchant wholesaler or distributor ,
manufactures representatives , agents &
brokers.
Wholesaler sells to other channel
intermediaries such as retailers , or to business
end-users .
They make their profit by buying at a
wholesale price and selling at the marked-up
price to their downstream customers , pocketing
the difference between the two prices.

Manufactures representatives
, agents and brokers do not own
goods they sell , the major flows in
which they take part are promotion
and negotiation in that they work on
selling the products of the
manufacturers they represent and
negotiating in terms of trade.
Retail
Intermediaries :
includes department stores,
hypermarkets , stores ..
They sell directly to individual consumer
end users. They may contract for private
label goods , they focus on collecting an
assortment ( collection of various kinds) of
goods that is appealing to their
consumers end-users.
Specialized
Intermediaries
are brought into a channel to perform
a specific flow and typically not heavily
involved in the core business
represented by the product sold.
These intermediaries include :
Finance Companies ( involved in
financing flow)
 Advertising
agencies ( participating in
the promotion flow)
 Logistics and shipping firms
( participating in the physical possession
flow)
 Information technology firms (who may
participate in ordering or payment flows)
 Marketing research firms ( generating
marketing intelligence that can be useful
for the performance of any of the flows.
End users
Finally
end users ( either business or individual
consumers) are themselves channel members.
consumers are classified as marketing channel
members cause they can perform channels flow
just as other channel members.
ex: Consumers who shop at hypermarkets stock
up on paper towels are performing physical
possession ,
they are buying a larger volume of product than
they will use in the near future , they are paying
for paper towels before using them thus injecting
cash and performing financing flow.
They
store it their house lessening the
need for warehouse space at the retailer
and thus taking on part in physical
ownership.
Consumers expect a price cut when they
shop at such a store to compensate for
the channel flow costs they bear when
buying through this channel relative to
buying a single package of single paper
towel at the local grocer.
Typical Channels in Business-toConsumer (B2C) Markets
Typical Channels in Business-to-Business
(B2B) Markets