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MARKETING
CHANNELS
An Introduction
Distribution
 Products
must be available to consumers
who want to purchase them conveniently,
quickly, and with a minimum of effort.
 The distribution system determines a
product's marketing presence and the
buyers' accessibility to the product.
Utilities offered by Distribution
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Distribution (also known as place) provides
utility.
Time utility is offering the product when the
customers want to purchase it.
Place utility is offering the product where the
customers want to purchase it.
Possession utility facilitates customer ownership
of the product.
Form utility might be needed if changes have
been made to the product in the distribution
channel (Coca-Cola concentrate sold to
bottlers).
Definition of a Marketing
Channel
 A distribution
channel (also known as a
marketing channel) is a set of
interdependent organizations or
intermediaries involved in the process of
making a product available for
consumption.
 A channel
directs the flow of products from
producers to customers. Intermediaries
are organizations operating in the middle
or between the producer and the final
buyer. They link producers to other
intermediaries or to the ultimate users of
the product. Traditionally, intermediaries
have been referred to as middlemen.
Channel interactions
How a marketing intermediary reduces the number of channel transactions
and raises economy of effort
Functions of Intermediaries
 Costs
are associated with an exchange
and can be reduced by reducing the
number of transactions (exchanges).
Marketing intermediaries increase
efficiency in making products available to
target markets. Through contacts,
experience, specialization, and scale of
operation, intermediaries usually offer the
organization more than it can achieve on
its own.
Functions of Intermediaries
 Intermediaries
smoothen the flows of
products to buyers by performing the key
functions of informing, promoting, and
physical possession (including negotiation,
title, payment, risk taking and financing). A
producer will use an intermediary when it
believes that the intermediary can perform
the function(s) more economically and
efficiently than it can.
Functions of Intermediaries

The information function involves gathering and
distributing marketing research and intelligence
about the environment for planning purposes.
 The promotion function involves developing and
spreading persuasive communications about an
offer.
 The physical possession function consists of the
transporting and storing of products.
Functions of Intermediaries

This activity involves the negotiations for
reaching an agreement on price and other
terms.
 The title is the actual transfer of ownership from
one organization or person to another. The
payment involves buyers paying their bills.
 The risk taking function assumes the risk of
carrying the product and receiving payment.
 The financing function involves acquiring and
using funds to cover costs
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Manufactures typically produce a large quantity
of a limited variety of goods.
 Consumers usually desire a small quantity of a
wide variety of goods.
 Intermediaries reduce this quantity discrepancy
by matching supply and demand. They buy in
large quantities and sell in smaller quantities.
 They help to smooth the distribution path for
goods by creating utility, performing marketing
functions, and cutting costs.
Channel Members
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Channels of distribution include consumer
channels and business to business channels.
Marketers can choose either a direct
distribution channel, which moves goods
directly from the producer to the consumer, or an
indirect distribution channel, which involves
using one, two, three or more intermediary
channel levels. The number of levels in a
channel defines the length of a channel.
Channel Members Channel
Members
 The
choice of a distribution channel should
support the organization’s marketing
strategy. Organizations must consider their
target market, the type of product being
distributed, their own internal systems and
concerns, and competitive factors. A
competitive advantage can be gained by
strategically managing channels of
distribution.
Channel Members Channel
Members
 Once
the decision is made, the company
needs to identify the types of marketing
intermediaries, if any, that it will use to
distribute its goods and services. A
channel may include manufacturer,
wholesaler, retailer, and consumer. The
functions of the manufacturer are to
design, produce, brand, price, promote,
and sell the product.
Channel Members Channel
Members
 Marketing
intermediaries include
wholesalers and retailers. Wholesale
transactions are all transactions except the
transaction with the ultimate consumer.
The functions of the wholesaler are to buy,
stock, promote, display, sell, deliver, and
finance. The functions of the retailer are to
buy, stock, promote, display, sell, deliver,
and finance.
Channel Members Channel
Members
 The
purchaser, not the price, determines
the classification of the intermediary as a
wholesaler or retailer. If over 50% of sales
are with other intermediaries, then the
intermediary is a wholesaler. If over 50%
of sales are with the consumer, then the
intermediary is a retailer.
Channel Members Channel
Members
 Channels
are depicted as chains with
vertical dimensions (number of channel
members at different levels). Horizontal
dimensions are the numbers of channel
members at the same level.
Market Intensity
 The
organization must decide on the
amount of market coverage--intensive,
selective, or exclusive--needed to achieve
its marketing strategies. In terms of
number of intermediaries to use, an
organization has three basic strategies it
can follow.
Market Intensity
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For convenience products, where widespread
availability is key, the company may opt for
intensive distribution. This is stocking the
product in as many outlets as possible. An
example would be soft drinks, gum, candy, and
potato chips. They are sold at grocery stores,
gas stations, and neighborhood stores.
Companies that frequently use this method are
Proctor & Gamble, Coca-Cola, and Campbell
Soup.
Market Intensity
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For shopping products, where consumers spend
some time in the decision process and have
some brand preferences, selective distribution
may be the best option. Under selective
distribution, the organization tries to use more
than one, but fewer than all the intermediaries
who are willing to carry the product. Most
television, furniture, and small appliance brands
are distributed in this manner. Maytag,
Whirlpool, and General Electric use this method
to distribute their products.
Market Intensity

For specialty products where consumers have
strong brand preferences and are willing to go
out of their way to obtain the product, an
organization may opt to use exclusive
distribution, where a limited number of dealers
have the exclusive right to distribute an
organization’s products in their territories. This
form is often used in the distribution of new
automobiles and prestige women’s clothing.
Rolls Royce dealerships, for example, are
limited to only large metropolitan areas where
significant portions of their customers reside.