Designing and Managing

Integrated Marketing Channels

 Objectives
 To Describe the Nature and Functions of Marketing Channels
 To Identify the Types of Marketing Channels
 To Examine the Major Levels of Marketing Coverage
 To Explore the Concepts of Leadership, Cooperation, and
Conflict in Channel Relationships
 To Specify How Channel Integration Can Improve Channel
Efficiency
 To Examine the Legal Issues Affecting Channel Management
….Marketers realize that if they were to make
the brands available in the right size, at the
right time and at the right price, the Indian
consumer can be motivated to buy it and
consume it…..
 Definitions
 Value Delivery Network
 The network made up of the company, suppliers,
distributors, and ultimately customers who “partner” with
each other to improve the performance of the entire system.
 Marketing channel
 Set of interdependent organizations involved in the process
of making a product or service available for use or
consumption by the consumer or business user

Goal 1: Know why companies use channels and understand their functions
What is a Marketing Channel?

 Marketing channel (a.k.a. distribution

channel) - network of organizations that
create time, place, and possession
utilities for consumers
 The Nature of
Marketing Channels
 Marketing Channels Create Utility

PLACE
TIME

POSSESSION
 The Role of Marketing
Channel
•Channel Functions and Flows
•Channel Levels
•Service Sector Channels
Marketing Channel Functions
a) Provide information about the market to the
manufacturer

b) Maintain price stability in the market

c) Promotion of the products in his territory

d) Financing by providing the necessary working capital in

the form of advance payments for goods and services

e) Middlemen also take the title of the goods and services

and trade in their own name
Marketing Channel Flows
 Product Flow
 The movement of the product from
manufacturer through all parties who
take physical possession
 Negotiation Flow
 Interplay of buying/selling tasks
associated with title transfer
Marketing Channel Flows
 Ownership Flow
 Movement of title of the product
 Information Flow
 Information to and from the
manufacturer
 Promotion Flow
 Flow of persuasive communication
(advertising, personal selling, etc.)
Marketing Channel Flows
 Channel Levels
Length of marketing channel
1 level 2 level 3 level 4 level
Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

 Channel Level

Decisions that a firm must take regarding the number of

channel levels appropriate to serve a given market
From zero-directly from the manufacturer to the
customer- to as high as 4 to 5 levels involved in
distribution.

Zero level in industrial product marketing, project

marketing
Channel level:

Firm adopts a one channel level when:

a) Number of customers is high
b) Customers in specific geographical area
c) Order lot size not uniform
d) Firm sells goods to wholesaler or a large dealer

2, 3 or even 4 levels in case of:

a) Consumer products
b) Customers spread across the country
c) Market is large
Factors determining the length of the Channel

a) Size of the market-larger it is more economical it is

to serve it directly

b) Order lot size-if it is small, better to have longer

channel

c) Service requirements-if higher level of service is required,

then it is better to have a shorter level

d) Product variety-if customers shop for product assortment,

a wider channel of distribution is required
 (a) (b)
Zero Level One Level

Manufacturer Manufacturer

Wholesaler/
Dealer
Customer

Customer

Length of channel distribution

 (c) (d)

Two Level Three Level

Manufacturer Manufacturer

Wholesaler/ Distributor
Dealer

Wholesaler
Retailer

Retailer
Customer

Customer

Length of channel distribution

 Width of channel of distribution

Manufacturer

Market 1

Dealer Dealer Dealer Dealer Dealer Dealer Dealer

A B C D E F G

Retailers

Customers Customers Customers

 Market Market Retail spokes-restaurants,
soft drink kiosks, panwalsa,
sweetmarts
Market Market Market
Market
Market
Market
Market Market Market
Market
Market Market Market
Market Market
Market Dealer/wholesaler
Dealer Hub

Market Market Market

Market
Market Market
Market Market
Market Market Franchise
Market Major Hub of
Parent Company
Market
Market
Market
Market Market Market
Market

Hub and spoke pattern of distribution of a soft drink firm

 Types of Marketing Channels
Channels for Consumer Products

Producer Consumers

Producer Retailers Consumers

Producer Wholesalers Retailers Consumers

Agents or
Producer Wholesalers Retailers Consumers
Brokers
 Types of Marketing Channels
Channels for Industrial Products

Business/
Producer Organizational
Buyer

Business/
Industrial
Producer Organizational
Distributor
Buyer

Business/
Producer Agents Organizational
Buyer

Business/
Industrial
Producer Agents Organizational
Distributor
Buyer
 Channel design Decisions
 Analyzing Customers Desired Service Output
levels
 Establishing Objectives and Constraints
 Identifying and Evaluating major Channel
Alternatives
 Evaluating the Major Alternatives
Analyzing Customers Desired Service
Output levels

 Cost and feasibility of meeting needs must be

considered
 Lot Size

 Waiting & Delivery Time

 Spatial Convenience

 Product Variety

 Service Backup
Establishing Objectives and Constraints

 Set channel objectives in terms of targeted level of

customer service
 Product Characteristics

 Strength & weakness of intermediaries

 Adaptability to larger environment

 Identifying and Evaluating major
Channel Alternatives

 Types of intermediaries
 Company sales force, manufacturer’s agency, industrial
distributors
 Number of marketing intermediaries
 Intensive, selective, and exclusive distribution
 Responsibilities of channel members
 Types of intermediaries

Merchant Functional
Functional
Merchant
Middlemen
Middlemen Middlemen
Middlemen
 Types of intermediaries

Do not take title to products;

they simply facilitate the
exchange process by performing
buying and/or selling functions.

Functional
Functional
Middlemen
Middlemen
 Types of intermediaries

Take title to products and

resell them.

Merchant
Merchant
Middlemen
Middlemen
Number
Number of
of marketing
marketing intermediaries
intermediaries

Intensity at various levels

Exclusive
Distribution

Selective
Distribution

Intensive
Distribution
Number
Number of
of marketing
marketing intermediaries
intermediaries

Intensity at various levels

Exclusive Distribution

 Practiced when a manufacturer restricts product distribution to

a single retailer in a particular market or just a relatively few
retailers
 Products that are expensive, infrequently purchased, are sought
after by consumers (i.e. specialty goods), or which require
considerable after-sale servicing are the most likely candidates
for exclusive distribution
Number
Number of
of marketing
marketing intermediaries
intermediaries

Intensity at various levels

Selective Distribution

 Selectively distributed bands are available in multiple

retail outlets in a particular market
 Shopping products, or those that consumers seek out,
are sold through selective distribution
Number
Number of
of marketing
marketing intermediaries
intermediaries

Intensity at various levels

Intensive Distribution

 Used when convenience products are sold through

virtually every available retail outlet in a particular
market, e.g. soft drinks, candy, gum, cigarettes
 Terms and Responsibilities of
Intermediaries
Price policy-the middlemen have to ensure that everyone
involved gets a fair and equitable deal
Payment terms-the manufacturing firm stipulates the mode and
terms of payment
Returns policy-this indicates the warranty that the manufacturer
extends to the intermediary
Territorial rights-the territorial jurisdiction should be spelt
spelt out to avoid territory jumping
Mutual services and responsibilities-should be spelt
out,particularly in case of franchised and exclusive agency
channels
Evaluating the Major Alternatives

 Economic criteria
 Control issues

 Adaptive criteria
 Criteria for Evaluating Channel Alternatives

Evolution of Channels

High
Growth Mature
Dedicated stores: Department Stores like
Computer point Akbarallys
Market Shopper’s stop
Growth
Rate
Introductory Decline
Specialist Channels like Discount Store
boutiques in fashion/ Low cost alternatives like
designer wear ‘Discount Sales’
Low

Value Added by Channel Members

Marketing channels across product life cycle

 Eight Steps in Designing the Market Driven
Distribution are:

1. Know what the customers want

2. Decide on the outlet
3. Determine the costs
4. Bound the ‘ideal’
5. Compare the alternatives
6. Review assumptions in the list of research
7. Confront the gap between the ideal and the actual
distribution system
8. Implement changes in the system, if required
 Channel Behavior and
Organization
 Channel Conflict
 Occurs when channel members disagree on roles,
activities, or rewards.
 Types of Conflict:
 Horizontal conflict: occurs among firms at the same
channel level
 Vertical conflict: occurs among firms at different
channel levels

Goal 1: Know why companies use channels and understand their functions
 Channel Behavior and
Organization
 Conventional Distribution Channels
 Consists of one or more independent channel members
 Lack leadership and power
 Often result in poor performance
 Vertical Marketing Systems
 Consists of members acting as a unified system
 Use contracts, ownership or power

Goal 1: Know why companies use channels and understand their functions
 Channel Behavior and
Organization
 Corporation owns
Vertical Marketing production and
Systems distribution
 Coordination and
 Corporate VMS
conflict through regular
 Contractual VMS
organizational channels
 Administered VMS

Goal 2: Learn how channel members interact and how they organize
 Channel Behavior and
Organization
Vertical Marketing
Systems
 Corporate VMS
 Contractual VMS
 Administered VMS
Goal 2: Learn how channel members interact and how they organize
 Individual firms who join
through contracts
 Franchise organizations
 Manufacturer-sponsored
retailer franchise system
 Manufacturer-sponsored
wholesaler franchise system
 Service-firm-sponsored
retailer franchise system
 Channel Behavior and
Organization
Vertical Marketing
Systems
 Corporate VMS
 Contractual VMS
 Administered VMS
 Leadership through the
size and power of
dominant channel
members
 Leadership could be
manufacturer or retailer

Goal 2: Learn how channel members interact and how they organize
THANK YOU