Channels,
Intermediaries and
Physical Distribution
By
Muhammad Danial Bin Zainuddin
IOC000234
6.1 What is marketing
channel?
Classifications of
Marketing Channel
Facilitators
MERCHANT
Zero-level One-level
channel channel
Two-level Three-level
channel channel
a) Zero Level Channel
Establishing
Analysing Channel
Customer Objectives
Needs and
Constraints
Identifying Evaluating
Major Major
Channel Channel
Alternatives Alternatives
1) Analysing Customer Needs
v) Service Backup
) Service backup refers to add-on services like installation,
repairs,
credit and delivery.
2) Establishing Channel Objectives and
Constraints
Channel objectives differ based on the characteristics
of the products.
i) Type of intermediaries
A firm needs to identify the types of intermediaries
that are suitable to be appointed to carry on its
channel work.
Company Agent
The firm appoints or hires manufacturer agents in different regions or
end-user industries to sell its products.
Industrial Distributors
The firm finds distributors in different regions or end user industries
who will buy and carry products to end users. The firm has to offer a
few benefits for the purpose of motivating its distributors.
ii) Number of Intermediaries
Selective Distribution
Exclusive distribution means limiting the number of intermediaries
significantly.
It is used when the seller wants to maintain control of the service level
and products offered.
Intensive Distribution
Intensive distribution involves the manufacturer placing the goods or
services in as many outlets as possible
Responsibilities and rules for channel members refer to the pricing policy,
sales rules, territory rights and certain services that have to be carried
out by elected channel members.
Selective Distribution
Selective distribution involves the use of more than a few but less than
all of the intermediaries willing to carry a particular product.
4) Evaluating Major Channel
Alternatives
Each channel alternative needs to be evaluated against:
(i) Economy
The manufacturing firm has to take into account the sales
level that can be achieved by the channel members and the
different cost of sales estimation for every channel member.
(ii) Control
This refers to a form of control that has to be implemented by
the firm on its elected intermediaries. Control is important if
the intermediary is an independent unit, like an agent.
(iii) Adaptive Criteria
Channel members must have some degree of commitment to
each other for a specified period. The producer needs
channel structures and policies that provide high adaptability.
6.3 CHANNEL MANAGEMENT
DECISIONS
Selecting Evaluating Training
Channel Channel Channel
Members Members Members
CHANNEL
MANAGEMEN
T DECISIONS
Modifying
Motivating
Channel
Channel
Arrangeme
Members
nt
A) Selecting Channel
Members
The selection of channel members must be done
based on qualifications.
Type of
conflict
Multi-channel
conflict exists when
the manufacturer
Multi-channel Conflict has established two
or more channels
that sell to the
same market
MANAGING CONFLICT
The manufacturing firm normally manages all these conflicts
through:
(c) Co-optation
MANAGING CONFLICT
e) Mediator
f) Arbitrator
6.6 LEGAL AND ETHICAL ISSUES IN
CHANNEL RELATIONS
LEGAL AND ETHICAL ISSUES IN
CHANNEL RELATIONS
There are a few legal and ethical issues that have
to be considered in the marketing channel
arrangements. These issues are:
i) Exclusive Dealing
ii) Exclusive Territories
iii) Tying Agreement
iv) Dealers Right
Exclusive Dealing
Agents or brokers,
wholesalers
retailers
AGENTS OR BROKERS
Do not take on the risk of business dealings as compared to
wholesalers and retailers
b) Product Promotion
c) Transportation
d) Risk Bearing
Risk Bearing The wholesaler or retailer
purchases the product from the
manufacturer. This means that the
intermediary transfers the financial risk
e)from the manufacturer
Market Information onto itself
f) Warehousing Services
there are a few intermediaries
especially wholesalers who provide
warehousing services for the
manufacturers in the physical
g)distribution
Consultation
market
of theirServices
products to the
Limited-
Merchant Full-Service
Service
Wholesalers Wholesalers
Wholesalers
Manufacturer
s and
Miscellaneous
Retailers
Wholesalers
Branches and
Offices
These are independently
owned businesses that
Merchant take title to the
Wholesalers merchandise they handle
This type of wholesaling
provides all the functions
of intermediaries such as
transportation, sales force
supports, credit facilities,
management support
assistance, promotion and
others.
Full-Service
Wholesalers
Full-service wholesalers
are known as wholesale
merchants and industrial
distributors
This type of wholesaling
provides some
intermediary functions
such as transportation,
sales force support and
credit facilities or a
combination of other
intermediary functions.
Limited-
Service
Wholesalers
The wholesalers from this
category are known as
cash-and-carry
wholesalers, truck
wholesalers, rack jobbers
and producers
cooperatives.
Are organisation units
that are established by
the manufacturer to
market goods straight to
the consumers
Manufacturer
s and
Retailers
Branches and
Offices Normally, the branch or
sales office is managed by
the companys sales
personnel or the
appointed sales personnel
A miscellaneous
wholesaler refers to
wholesalers who
specialises in one type of
Miscellaneous business only like
Wholesalers agricultural wholesalers,
rice wholesalers, auction
wholesalers and others
6.8.3 Trend in Wholesaling
Although the number of wholesalers is decreasing due to
changes in consumers taste and preference as well as the
influence of technology, the volume of business through
wholesaling is increasing steadily.
Warehousin Order
g Processing
Component
Physical
Distribution
System
Inventory
Managemen Transportati
t on