Marketing channels are intermediaries between producers and final users that perform a variety of functions. They make the product or service available for use or consumption. A marketing channel system is a set of marketing channels a firm employs and affects all other marketing decisions. The firm must decide whether to use push or pull marketing. A push strategy uses the manufacturer’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users. A pull strategy is where the manufacturer uses advertising and other communications to persuade consumers to demand the product from intermediaries, which induces the intermediaries to order it. Hybrid channels or multichannel marketing occurs when a single firm uses two or more marketing channels to reach customer segments. A value network is a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings. It includes a firm’s suppliers and its suppliers’ suppliers, and its immediate customers and their end customers. Demand chain planning is when a company thinks of the target market and then designs the supply chain backward from that point.
Members of marketing channels perform several key functions. Functions such as storage and movement, title, and communications create a forward flow of activity from the company to the customer; ordering and payment functions create a backward flow from customers to the company; information, negotiation, finance, and risk taking functions occur in both directions. The producer and consumer are part of every channel, however there are sometimes a number of intermediary levels that designate the length of the channel. A zero-level channel (or direct marketing channel) is where the manufacturer sells directly to the final customer. A two-level channel consists of two intermediaries; and so on. Most channels are forward moving, however reverse-flow channels are also important in some situations.
To design a marketing channel system, marketers must analyze customer needs and wants, establish objectives and constraints, and identify and evaluate major channel alterations. Customers choose channels based on price, product assortment, convenience, and their own shopping goals. Marketers must be aware that different consumers have different needs during their purchase process. Five service outputs produced by channels include lot size, waiting and delivery time, spatial convenience, product variety, and service backup. Marketers should state their channel objectives in terms of service output levels and associated cost and support levels, adapting objectives to the larger environment. Channel objectives vary with product characteristics. Each channel has unique strengths and weaknesses, and channel alternates differ in three ways: the types of intermediaries, the number needed, and the terms and responsibilities of each. Types of intermediaries include merchants, agents, and facilitators. The number of intermediaries depends on whether a firm uses exclusive distribution (limits the number of intermediaries), selective distribution (relies on only some of the intermediaries willing to carry a particular product), and intensive distribution (places offerings in as many outlets as possible). The main elements in the “trade-relations mix” are price policies (the producer establishes a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient), conditions of sale (payment terms and producer guarantees), territorial rights (define the distributors’ territories and the terms under which the producer will add other distributors), and specific services to be performed by each party. In addition, each channel needs to be evaluated against economic, control, and adaptive criteria.
Once a channel system is chosen, a firm must select, train, motivate, and evaluate individual intermediaries for each channel. Producers should determine what characteristics distinguish the better intermediaries. A company should also view its intermediaries the same way it views its end users. Carefully implemented training, market research, and other capability-building programs can motivate and improve intermediaries’ performance. Producers must also periodically evaluate intermediaries’ performance against others. Producers must periodically review and modify its channel design and arrangements.
Distribution channels are constantly growing. A conventional market channel consists of an independent producer, wholesaler(s), and retailer(s) with each being a separate business seeking to maximize its own profits. A vertical marketing system (VMS) includes the producer, wholesaler(s), and retailer(s) acting as a unified system. It is the dominant mode of distribution in the US consumer marketplace. Three types of VMS are corporate (combines successive stages of production and distribution under one owner), administered (coordinates successive stages of production and distribution through one member’s size and power), and contractual (consists of independent firms at different levels of production and distribution). Horizontal market systems are where two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. Integrated marketing channel systems are where the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. Benefits of adding more channels are increased market coverage, lower channel costs, and more customized selling. However, new channels typically introduce conflict and problems with control and cooperation. These marketers need to decide how much of their product to offer in each channel.
Conflict always arises no matter how well channels are designed and managed. Channel conflict is generated when one channel member’s action prevent another channel member from achieving its goal. Channel coordination occurs when channel members are brought together to advance the channel’s goals. Types of conflict and competition include horizontal channel conflict (occurs between channel members at the same level), vertical channel conflict (occurs between different levels of the channel), and multichannel conflict (exists when the manufacturer has two or more channels that sell to the same market). Causes of channel conflict include goal incompatibility, unclear roles and rights, territory boundaries, credit for sales, and differences in perception intermediaries’ dependence on the manufacturer. Some channel conflicts can be constructive and lead to better adaptation to a changing environment. The challenge is to manage conflict well. This can be done through mechanisms such as strategic justification; dual compensation; superordinate goals; employee exchange; joint memberships; co-optation; diplomacy, mediation, or arbitration; and legal resource. Marketers must be careful not to dilute their brands through inappropriate channels. Legal and ethical issues arise in channel relations. This includes exclusive distribution, exclusive territories, tying agreements, and dealers’ rights.
E-commerce uses a Web site to transact or facilitate the sale of goods and services online. Pure-click companies are those that have launched a Web site without any previous existence as a firm. These include Internet service providers, commerce sites, transaction sites, content sites, and enabler sites. Customer service is critical for these companies. Brick-and-click companies are existing companies that have added an online site for information or e-commerce. M-commerce marketing will see a big future because of the widespread saturation of cell phones and smart phones.
Example: Push strategies create customer demand for a product. Mobile phone manufacturers use this strategy. Manufacturers such as Nokia place their phones in retail stores, such as Wal-Mart, Best Buy, and Sam’s. Once customers purchase the mobile phone they will have to purchase their required service. Pull strategies spend on advertising to build up customer demand for a product. Television advertisements for children’s toys use this strategy. Manufacturers such as Playskool will advertise toys on channels where children are watching television and especially close to Christmas to build up their desire to want the toys.
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