11.3: Channel Structures

11.3.1: B2C Channels

Learning Objective

Define a business-to-consumer market, and the strategies marketers use to target consumers

Key Points

• A business-to-consumer market is the sale of goods and services from individuals or businesses to the end user.
• A brick-and-mortar store allows a consumer to visit the establishment and view the products, while receiving face-to-face customer service.
• E-commerce, or click-and-mortar, is conducting commercial activity via the Internet (online).

Key Terms

brick-and-mortar

Buildings and property for the conduct of business, particularly in the sale of retail goods to the general public. Used to contrast an internet-based sales operation that lacks customer-oriented store fronts and a “traditional” one for which most capital investment might be in the building infrastructure.

wholesale

The sale of products, often in large quantities, to retailers or other merchants.

e-commerce

Commercial activity conducted via the Internet.

A business-to-consumer market, or B2C, is the sale of goods and services from individuals or businesses to the end user. The seller makes its products or purchases them at a wholesale price, then sells them at a higher (or retail) price to the consumer, thus earning a profit. The consumer uses the products for his or her own personal use and is not interested in reselling the product. The types of product features consumers desire include value, convenience, efficiency in operation, dependability in use, and/or improvement in earnings. In B2C marketing situations, the marketer must always:

• successfully match the product or service strengths with the needs of a definable target market
• position and price to align the product or service with its market
• communicate and sell it in the fashion that demonstrates its value effectively to the target market

Business to Consumer Channels

There are two main channels for business-to-consumer selling. The first is the traditional “brick-and-mortar” store – a physical location for consumers to visit. Shopping malls, grocery stores, and restaurants are all examples of brick-and-mortar stores . Usually, a brick-and-mortar establishment offers consumers the chance to see, touch, and/or try the products. It also allows companies to provide face-to-face customer service.

Apple Retail Store

Apple’s retail store in Chicago, Illinois, is an example of a “brick-and-mortar” store.

The other main channel for business-to-consumer selling is e-commerce, or commercial activity conducted via the Internet. Sometimes known as “click-and-mortar,” this channel is rapidly expanding, as more people use the Internet for purchases of both goods and information. Business-to-consumer e-commerce reduces transaction costs by increasing consumer access to information and allowing them to find the most competitive price for a product or service. For companies, developing and maintaining a website is easier and less expensive than building and occupying a brick-and-mortar store. Examples of e-commerce stores are amazon.com, walmart.com, and barnesandnoble.com.

11.3.2: B2B Channels

Learning Objective

Distinguish between business-to-business (B2B) and business-to-consumer (B2C)  transactions

Key Points

• Business-to-Business (B2B) marketing describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
• B2B transactions often involve a large sum of money, and so are often a longer process than a simple business-to-consumer transaction.
• Trade shows are popular ways for companies to engage each other in doing business and are an important part of B2B selling.

Key Terms

trade show

An exhibition organized so that companies in a specific industry can showcase and demonstrate their latest products and services, study activities of rivals and examine recent market trends and opportunities.

logistics

The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from their point of origin to the point of consumption for the purpose of satisfying customer requirements.

e-commerce

Commercial activity conducted via the Internet.

Business to Business (B2B) marketing refers to a market where other businesses, not end consumers, are the purchasers of the goods and services.

B2B describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Usually B2B transactions involve purchasing items that will make up the final product. For example, a chair manufacturer may buy steel for the frame from one company, wood from another, and the fabric from another. All these are considered business to business transactions. B2B marketing is usually quite different from other forms of marketing, particularly business to consumer (B2C)

Business-to-Business Channels

Like Business-to-consumer marketing, business to business also employs different channels, such as e-commerce or physical stores. However, due to the substantial differences in how B2B marketing works compared to B2C, there are additional channels. Many business-to-business transactions involve large sums of money, because generally the business will buy in large quantities. Therefore, it often makes sense to involve a representative from the selling company in developing, cultivating, and maintaining relationships that lead to sales. This person can help the purchaser plan for, set up, and use the B2B product.

Another channel, not as commonly used in business-to-consumer transactions, is that of trade shows . A trade show provides a platform for many different companies in the same general industry to display their products for other businesses to buy. A business will often purchase products at a trade show for use in their own products, making trade shows an important component of Business-to-Business transactions.

B2B Transactions

Trade shows are a common way to conduct B2B transactions.

Two men have a conversation at a trade show.

Business-to-Business E-Commerce

One of the major differences between business-to-business (B2B) transactions and business-to-consumer (B2C) transactions is the type of online (e-commerce) interaction. Typically, a B2C customer will purchase a product or service and, once the transaction has been complete, will have limited continued interaction with the company with regards to that product.

However, in a B2B transaction, the purchaser often expects an ongoing relationship with the seller. This is also reflective of the types of products and services offered in a B2B e-commerce setting, which includes logistics, outsourcing, solutions software, and content management software.

11.3.3: Alternative Arrangements

Learning Objective

Outline the characteristics of business-to-government, consumer-to-consumer, and institutional marketing channels

Key Points

• Business-to-government marketing encompasses marketing products and services to various levels of the government, such as federal, state, and local.
• Consumer-to-consumer commerce is the completion of transactions between private individuals or consumers.
• Institutional market consumers are often nonprofit organizations and are not motivated primarily by profits or market share.

Key Terms

Request for Proposal

A formal publicly released document outlining a need and inviting businesses to submit plans to fulfill that need.

nonprofit

An organization that exists for reasons other than to make a profit, such as a charitable, educational, or service organization.

The most common marketing channels are business-to-consumer (B2C) and business-to-business (B2B). However, there are also alternative channels that should be discussed. These include business-to-government, consumer-to-consumer, and institutional markets.

Business-to-government (B2G)

Business-to-government marketing encompasses marketing products and services to various levels of the government, such as federal, state, and local . This is also known as “public sector marketing” and is somewhat similar to business-to-business transactions. However, there usually many more restrictions and strict processes in order to gain government contracts. Usually, government organizations post a request for proposal, and businesses respond to them. Most often, the bid with the lowest cost is accepted.

United States Capitol

B2G transactions involve working with government entities such as federal, state, and local.

Consumer-to-consumer

Consumer-to-consumer commerce is the completion of transactions between private individuals or consumers. The increased use of consumer-to-consumer transactions can be directly related to the growth of electronic, online marketplaces. Craigslist and eBay usually involve consumer-to-consumer transactions. There are also older forms of consumer-to-consumer transactions, such as classified ads and garage sales . Often, these types of transactions are for a lower cost than if they were conducted through a business, as there is some added risk that the product will be defective or otherwise be not as expected.

Garage Sale 

Garage sales are one type of consumer-to-consumer business.

Institutional Markets

Institutional markets are very similar to typical business-to-business markets. However, many institutional markets are considered nonprofits, such as churches . Institutional markets differ from typical businesses in that they are not motivated primarily by profits or market share. Rather, institutions tend to satisfy somewhat esoteric, often intangible, needs. Also, whatever profits exist after all expenses are paid are normally put back into the institution. Marketers must be aware that these institutions have different goals and restrictions than normal businesses.

Institutional Market Consumers

Churches, schools, and hospitals are some examples of institutional market consumers.

11.3.4: Customer Expectations

Learning Objective

Name the three product categories, and the types of marketing channels where these products are sold

Key Points

• Retail products are usually classified into three broad categories: food products, hard or durable goods, and soft goods or consumables.
• A customer can generally expect relatively lower customer service and a wide range of products and prices at large consumer markets.
• While a customer may get more personalized service, the range of products is generally lower at smaller retail outlets.

Key Terms

outlet

A shop that sells the products of the manufacturers or suppliers that it does business with.

durable goods

A good that yields services or utility over time rather than being used up when used once.

consumable

A good that is consumed or depleted upon use.

Customer Expectations

Customers expect different things from different types of marketing channels. A department store is, after all, very different from a mom-and-pop store. Retail products are usually classified into three broad categories: food products, hard or durable goods, and soft goods or consumables. Members of a channel of a distribution are also customers of those elsewhere in the channel, and their expectations must also be met.

Durable goods are those that yield services or utility over time rather than being used up when used once. Cars and washing machines are examples of durable goods. Consumable goods are those that are used up when used or otherwise have a limited life, such as clothing .

Clothing

Clothing is generally considered to be a consumable good.

Channel Member Expectations

Channel partners are also customers after all, and their expectations must also be taken into account, to develop and maintain successful relationships with them.

A common issue in channel management is leadership: the role of a channel leader should be understood by all members of the channel so that expectations are managed appropriately. The leader coordinates the goals and efforts of channel members. Some leaders may be positive and open to feedback, while others may be negative and lead based on a system of punishment and strict rules.

It is important to remember that a channel of distribution may be made up of organizations, but those organizations are made up of people. Thus, tending to the “human element” is important. Ideally, a channel member should coordinate their efforts with other members in such a way that the performance of the total distribution system is enhanced. The lack of cooperation that is often apparent is due to the organization structure of many channels, which encourages a channel member to be primarily concerned with channel members immediately adjacent to them, from whom they buy and to whom they sell. Four human dimensions have been incorporated into the study of channel behavior: roles, communication, conflict, and power. It is assumed that an understanding of these behavioral characteristics will increase the effectiveness of the channel.

Warehouse

A distributor, like a warehouse, is part of a channel of distribution. The distributor has to meet customers’ expectations as well as its own.

By ensuring there are no leadership issues and by tackling the human element of the channel of distribution, expectations of the channel members can be effectively met.

Large Retail Outlets

There are many large retail outlets, and most offer a wide variety of products at average prices. Department stores, supermarkets, and warehouse stores are all large retail outlets. Each will have its own feel and come with its own customer expectations. A shopper at a warehouse store, for example, will expect to find low-cost, high-quantity goods, while a customer at a supermarket expects to find groceries and limited non-food items. Large retail outlets have some things in common, however. A customer can generally expect relatively lower customer service and a wide range of products and prices. Products at these stores often require a more involved decision process and post-purchase evaluation. Depending on the type of store, these outlets generally focus on one or two categories. A department store, for example, will sell both durable and consumable goods.

Supermarket

Supermarkets usually offer a wide range of products at average prices.

Smaller Retail Outlets

Mom-and-pop stores, specialty stores, and general stores are all smaller retail outlets. While a customer may get more personalized service, the range of products is generally lower. These stores often focus on a few key categories of products. Conversely, these smaller outlets may offer a wider array of products at low margins, such as a discount store.

11.3.5: Channel Member Characteristics

Learning Objective

Explain the importance of pairing a brand’s products with the appropriate distribution channel

Key Points

• Distribution channels are how a company will get its products to consumers.
• The selected distribution channel is reflexive of the overall marketing strategy for the product, and answers the place question of the marketing mix (4 P’s).
• There are three basic types of distribution for a marketer to consider: Intensive (the producer’s products are stocked in the majority of outlets), selective (the producer relies on a few intermediaries to carry their product), and exclusive (the producer selects only very few intermediaries).

Key Terms

Intermediary

An intermediary (or go-between) is a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit for goods or services offered by a supplier to a consumer.

competitive advantage

Something that places a company or a person above the competition.

Just as with the other elements of a firm’s marketing program, distribution activities are undertaken to facilitate the exchange between marketers and consumers. Every company must decide on the correct distribution method for its products. That is, a company must figure out how to get its products to the user. There are many things to consider in this decision, as distribution channels ultimately say a lot about the product itself. Even the best product will fail if it is not sold in the right place. Thus, the channel chosen by a marketer becomes an integral part of the marketing plan.

Marketing Strategy

Marketers must carefully evaluate how their products fit into different distribution channels. There are many types of channels, and the selected channel becomes a function of the overall marketing strategy. A marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. This strategy is reflexive of the 4 P’s of marketing:

• What the product is and how it meets a customer need
• What the price of the product will be
• What promotions will be used to sell the product
• And what place the product will be sold.

The distribution channel is primarily concerned with this last item.

Distribution Channels

It is important for a company to match its products with the characteristics of the distribution channel. The company must decide whether to sell its products through an intermediary (such as a chain store) or attempt to sell its products directly to the customer. Using an intermediary may sometimes lower transaction costs, as much of the burden is shifted from the producer to the intermediary. There are three basic types of distribution for a marketer to consider: Intensive, selective, and exclusive. Intensive distribution means the producer’s products are stocked in the majority of outlets. This strategy is common for basic supplies, snack foods , magazines, and soft drink beverages. Selective distribution means that the producer relies on a few intermediaries to carry their product. Exclusive distribution means that the producer selects only very few intermediaries, such as is often the case with luxury goods.

Candy

Candy uses an intensive distribution channel. It is widely available at a low cost.

A marketer will consider the three types of distribution and select the one that most closely fits the overall marketing strategy. Generally, as one moves from intensive to selective to exclusive distribution channels, the more that company can charge for its products. However, the trade-off is in how widely available the company wants its product. Carefully considering the possible distribution channels will help maximize the potential of a product.

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11.4: Channel Strategy Decisions

11.4.1: Factors Affecting Channel Choice

Learning Objective

Discuss the various factors that affect channel choice

Key Points

• Channel choice begins with two questions: to whom shall we sell this merchandise immediately? And, who are our ultimate users and buyers?
• There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy.
• Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers.
• Channel objectives are based on the requirements of the purchasers and users, the overall marketing strategy, and the long-run goals of the corporation.
• The channel manager must be very specific in describing channel tasks, and must define how these tasks will change depending upon the situation.

Key Term

wholesaler

a person or company that sells goods wholesale is a middleman that buys its merchandise from a third party supplier and resells the merchandise to retail businesses or the end consumer. A wholesaler normally does not sell to other wholesalers.

Factors Affecting Channel Choice

Whether a firm be a one person operation or one that employs thousands of people and generates billions in sales, all are in business to serve the needs of markets. In order to do this, these firms must be assured that their products are distributed to their intended markets. Most producing and manufacturing firms are not in a favorable position to perform all the tasks that would be necessary to distribute their products directly to their final user markets. In many instances, it is the expertise and availability of other channel institutions that make it possible for a producer/manufacturer to even participate in a particular market. Other channel members can be useful to the producer in designing the product, packaging it, pricing it, promoting it, and distributing it through the most effective channels.

Channel Choice

Managers have many factors to consider when choosing a product distribution channel.

Channel choice begins with two questions: to whom shall we sell this merchandise immediately? And, who are our ultimate users and buyers? The immediate and ultimate customers may be identical or quite separate, depending on the type of product, functions performed in the channel, and location in the channel. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. It is best that we first identify the traits of the ultimate user, since the results of this evaluation might determine the other channel institutions we would use to meet these needs. For example, the buying characteristics of the purchaser of a high-end electronics device might be as follows:

1. Purchased only from a well-established, reputable dealer.
2. Purchased only after considerable shopping to compare prices and merchandise characteristics.
3. Purchaser willing to go to some inconvenience (time and distance) to locate the most acceptable brand.
4. Purchased only after extended conversations involving all interested parties – including dealer, users, and purchasers.
5. Purchase may be postponed.
6. Purchased only from a dealer equipped to render prompt and reasonable product service.

Knowing the buying specifications of consumers, the channel planner can decide on the type or types of wholesaler and/or retailer through which a product should be sold. This requires that a manufacturer contemplating distribution through particular types of retailers become intimately familiar with the precise location and performance characteristics of those being considered.

In much the same way that buying specifications of ultimate users are determined, the manufacturers must also discover buying specifications of resellers. Of particular importance is the question, “from whom do my retail outlets prefer to buy? ” The answer to this question determines the type of wholesaler – if any – that the manufacturer should use. Although many retailers prefer to buy directly from the manufacturers, this is not always the case. Often, the exchange requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent credit terms – are the opposite of those desired by retailers. Such retailers would rather buy from local distributors who have lenient credit terms and offer a wide assortment of merchandise.

Channel choice is also greatly influenced by channel objectives. Channel objectives are based on the requirements of the purchasers and users, the overall marketing strategy, and the long-run goals of the corporation. In cases when a company is just getting started, or an older company is trying to carve out a new market niche, the channel objectives may be the dominant force on channel choice. The following areas encompass the major categories of channel objectives:

1. Growth in sales – by reaching new markets and/or increasing sales in existing markets.
2. Maintenance or improvement of market share – educate or assist channel components in their efforts to increase the amount of product they handle.
3. Achieve a pattern of distribution – structure the channel in order to achieve certain time, place, and form utilities.
4. Create an efficient channel – improve channel performance by modifying various flow mechanisms.

After the distribution objectives are set, it is appropriate to determine the specific distribution tasks or functions to be performed in that channel system. The channel manager must be very specific in describing the tasks, and must define how these tasks will change depending upon the situation. An ability to do this requires the channel manager to evaluate all phases of the distribution network. Tasks must be identified fully, and costs must be assigned to these tasks.

11.4.2: Distribution Intensity

Learning Objective

Differentiate between different distribution intensity strategies, incorporating the modern digital storefronts into this consideration

Key Points

• Organizations must understand the competitive environment of the industry, particularly how to use a variety of marketing channels to get their products in front of their core target market at the right time and place.
• Distribution intensity plays a significant role in marketing channel strategy. Firms can opt for intensive, selective, and exclusive strategies.
• Intensive distribution focuses on delivering a firm’s goods to as many storefronts as possible and maximizing the amount of sales to pursue scale economies.
• Selective distribution focuses on utilizing fewer channels to maintain a higher level of strategic control, but still pursues high volume within those select channels.
• Exclusive distribution works off the idea that scarcity can add value. High fashion and other luxury goods focus on being hard to find through limited channels and low volume of production.
• Technology has had a significant impact on marketing channel strategy. Influential digital storefronts are key strategic partners in the modern economy.

Key Term

marketing channel

The way in which a firm sells goods and services to a potential consumer, either directly or through a strategic partner.

Channel Distribution Intensity

As organizations develop their marketing channel strategies, an important question arises regarding distribution intensity. There is some freedom in most industries for a firm to determine which channels they will use, and how much volume each channel will receive. Weighing the pros and cons of various channels, both in terms of the number of channels and the volume within each channel, can have a significant strategic impact on a firm’s position in a market.

Generally speaking, there are three ways to frame the distribution intensity decision:

Intensive

This is the highest in both number of channels and volume within each channel. An intensive distribution approach will take advantage of as many sales outlets, distributors, and direct selling opportunities the organization can identify and justify (at a given volume). This is common for goods such as soda, snacks, household items, and other common low cost goods. In short, many channels and high volume.

Selective 

Selective distribution focuses on narrowing down the number of channels within the distribution strategy, but not the overall volume of goods sold through those channels. This strategy focuses on fewer channels yet retains a desire for higher volumes to capture scale economies in production. Common channels in these circumstances are channels where the firm can maintain strategic control of how the products are sold, at what price, and in which regions.

Exclusive

Finally, some firms opt for a low volume approach with very few channels selected. This is ideal for differentiated organizations with a strong brand and a desire for scarcity. If everyone had the same high fashion item, it would no longer be a high fashion item. If everyone on the road had a beautiful, unique sports car, much of the allure and justification for a high price point would be gone. Exclusive distribution strategies work best for firms that focus on low volume, high margin sales.

Technology and Channels

Technology has disrupted some of the logic behind these channel decisions, as digital storefronts have grown to be highly influential, easily accessible to global markets, and substantially cheaper than retail space. As the rise of digital purchasing continues, and the cost of shipping decreases, globalization will drive organizations more and more towards channel strategies that optimize online exposure.

Considering the vastness of the internet, however, being found by consumers who are not yet aware of your product becomes difficult. This creates an interesting relationship, similar to the retail relationship in traditional channel marketing, whereas certain digital storefronts are highly valuable strategic partners. Amazon, for example, sells a huge number of brands on their website. Being highly rated and promoted on Amazon will greatly increase the efficacy of that particular channel. Understanding how online marketplaces work, and how to build a presence in this new digital age, is a critical skill set for a strategic marketeer looking at channel strategy.

B2B Marketing Roles

This diagram shows marketing channel strategies within a B2B organization. Marketing channels represent one avenue among many in the field of marketing and sales.

A diagram that shows marketing channel strategies in a B2B organization. 1.) design product experience, functionality, packaging, and price; 2.) create awareness, position product, design customer engagement and decision-making experience; 3.) sell the product, design small format and face-to-face engagement experience; and 4.) keep customer engaged, seed repeat business, and make the customer a reference.

11.4.3: Distribution Centers vs. Direct Store Delivery

Learning Objective

Describe the different functions performed by wholesalers in channel distributions

Key Points

• Types of retailers include department stores, chain stores, discount houses, franchises, and non-store retailers. Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects.
• In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers and the retailers themselves.
• Wholesaling includes all activities required to market goods and services to businesses, institutions, or industrial users. Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions.
• Wholesalers can provide warehousing, inventory control and order processing, transportation, information, and selling functions.

Key Terms

franchise

The authorization granted by a company to sell or distribute its goods or services in a certain area.

department store

a large shop containing many different areas, each of which deals in different goods or services

marketing channel

Sets of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider.

Distribution Centers Versus Direct Store Delivery

Depending on the product being sold and ultimate end user, companies can choose a marketing channel strategy that involves utilizing distribution centers (wholesalers) or moving their products directly to a store, or retailer. There are advantages and disadvantages to both and several different types of each.

Retailers

Stores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. Most stores are small and have weekly sales of only a few hundred dollars. A few are extremely large, having sales of $500,000 or more on a single day. An example of a large retailer would be Wal-Mart shown here

Retailers

Walmart is one of the largest and most successful retailers in history.

There are many different kinds of retailers, including:

• Department Stores – Department stores are characterized by their very wide product mixes. That is, they carry many different types of merchandise that may include hardware, clothing, and appliances.
• Chain Stores – Chain stores are able to buy a wide variety of merchandise in large quantity discounts. The discounts substantially lower their cost compared to costs of single unit retailers. As a result, they can set retail prices that are lower than those of their small competitors, and thereby increase their share of the market. Furthermore, chains are able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations.
• Discount Houses – Discount houses are characterized by an emphasis on price as their main sales appeal. Merchandise assortments are generally broad, including both hard and soft goods, but assortments are typically limited to the most popular items, colors, and sizes.
• Franchises – Over the years, large chain store retailers have posed a serious competitive threat to small storeowners. Franchising has come about in response to this trend.
• Non-store Retailing – Non-store retailing describes sales made to ultimate consumers outside of a traditional retail store setting. In total, non-store retailing accounts for a relatively small percentage of total retail sales, but it is growing and very important with certain types of merchandise, such as life insurance, cigarettes, magazines, books, CDs, and clothing. Online vendors, such as Amazon, or a good example of non-store retailers. Vending machines are another type of non-store retailing. This method of retailing is an efficient way to provide continuous service. It is particularly useful with convenience goods.

In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers. The firm must also understand the buying specifications of the retailers themselves. Although some retailers prefer to buy directly from the manufacturer, others would rather buy from local distributors who have lenient credit terms and offer a wide array of merchandise.

Wholesalers

Wholesaling includes all activities required to market goods and services to businesses, institutions, or industrial users who are motivated to buy for resale or to produce and market other products and services. The vast majority of all goods produced in an advanced economy have wholesaling involved in their marketing. This includes manufacturers who operate sales offices to perform wholesale functions and retailers who operate warehouses or otherwise engage in wholesale activities. Wholesale volume is greater than that of retail because it includes sales to industrial users as well as merchandise sold to retailers for resale. 

Wholesalers

An example of a wholesaler is Optimum Sleep, which sells furniture wholesale.

Wholesalers perform a number of useful functions within the channel of distributions. These may include all or some combination of the following:

1. Warehousing – the receiving, storage, packaging, and the like necessary to maintain a stock of goods for the customers they service.
2. Inventory Control and Order Processing – keeping track of the physical inven­tory, managing its composition and level, and processing transactions to insure a smooth flow of merchandise from producers to buyers and payment back to the producers.
3. Transportation – arranging the physical movement of merchandise.
4. Information – supplying information about markets to producers and information about products and suppliers to buyers.
5. Selling – personal contact with buyers to sell products and service.

By providing this linkage, wholesalers assist both the producer and the buyer. From the buyer’s perspective, the wholesaler typically brings together a wide assortment of products and lessens the need to deal directly with a large number or producers. The wholesaler assists the producer by making products more accessible to buyers. It provides the producer with wide market coverage information about local market trends in an efficient manner.

11.5: Marketing Channel Relationships

11.5.1: Competitive Priorities in Marketing Channels

A marketing channel is a set of practices necessary to transfer the ownership of goods from producer to consumer.

Learning Objective

Describe the different types of marketing distribution channels

Key Points

• When developing distribution strategies, companies assess how marketing channels link producers to buyers, affect advertising and promotion, and influence pricing.
• Alternative terms for marketing channel include ‘distribution channel’ or ‘route-to-market’.
• A marketing channel can be short, extending directly from the vendor to the consumer; or may include several interconnected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers.
• To sway channel intermediaries to stock their product over other brands, companies engage in promotional tactics including higher profit margins, special deals, premiums and allowances for advertising or display on store shelves.

Key Terms

supply chain

A system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

intermediaries

An intermediary is a third party that offers an intermediation service between two trading parties.

Competitive Priorities In Marketing Channels

One of the ways companies gain a competitive advantage in the market is through successful incorporation and management of marketing channels. A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods from production to consumption. This process typically consists of all the institutions and marketing activities involved in the promotion and distribution of goods. Management teams must evaluate competitive pressures to assess whether their marketing strategies are effective and profitable, or ineffective and costly to the organization. Sales remains the most popular way to measure performance.

Competition

Rebates and higher profit margins are tactics used by brands to gain favor with channel intermediaries and preference on store shelves.

People shopping in a supermarket isle.

When developing, implementing and measuring the effectiveness of marketing channels, businesses should consider:

• The link from producers to buyers
• Sales, advertising and promotion performance
• The company’s pricing strategy
• Product strategy through branding, policies, willingness to stock
• The Impact the attitudes of channel intermediaries have on the product
• Competition from other intermediaries and other product lines

All of these factors influence the positioning of products against their competitors in the marketplace.

Role and Design in the Marketing Mix

Distribution–one of the primary elements in the marketing mix–is key in determining how and when to respond to competitive pressures in the promotion of goods and services. An alternative term is distribution channel or ‘route-to-market’. It is a path or pipeline through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor).

A marketing channel can be short, extending directly from the vendor to the consumer; or may include several interconnected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. For example, merchants are intermediaries that buy and resell products. Agents and brokers are intermediaries that act on behalf of the producer but do not take title to the products. Each intermediary receives the item at one pricing point, and moves it to the next highest pricing point until it reaches the final buyer. This grouping of organizations is often referred to as the supply chain of a company.

Choosing Marketing Channels

Cost, flexibility and quick adaptation to changing markets and demand are usually the top factors sellers consider when assess and choosing distribution channels. The types vary and heavily depend on product category and target market. These distribution types include:

• Intensive distribution – this channel allows the producer’s products to be stocked in major, mainstream outlets. This strategy is common for basic supplies, snack foods, magazines and soft drink beverages.
• Selective distribution – producers rely on a few intermediaries to carry their product. This strategy is commonly observed for more specialized goods that are carried through specialist dealers. For example, brands of craft tools, or large appliances would fall into this marketing channel.
• Exclusive distribution – producers select only very few intermediaries. Exclusive distribution is often characterized by exclusive dealing where the reseller carries only that producer’s products at the exclusion of other products. This strategy is typical of luxury goods retailers.

Managing and Motivating Marketing Channels

During the marketing planning stage, marketers must choose and incorporate the most suitable channels for the firm’s products, as well as select appropriate channel members or intermediaries. Ensuring these intermediaries are trained and motivated to sell the firm’s products is crucial to a brand’s competitive strategy; i.e., its accessibility and availability to buyers. Monitoring the channel’s performance over time and modifying the channel to enhance performance is also imperative for organizations looking to remain competitive in the market. Promotional tactics are often used by companies use to motivate channel intermediaries to stock their brand over other products. These techniques include higher profit margins, special deals, premiums and allowances for advertising or display on store shelves.

11.5.2: Channel Power, Control, and Leadership

Channels perform better if a party is in charge, providing a level of leadership to coordinate goals and efforts.

Learning Objective

Describe why manufacturers, wholesalers and retailers take the lead in channel partnerships

Key Points

• In a type of business cold war, manufacturers and retailers are constantly trying to match each other in size.
• The manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product—merchandising, repair, etc.—is critical.
• The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise.
• The retailer should lead when product development and demand stimulation are relatively unimportant, and when personal attention to the customer is important.

Key Terms

dictatorial

In the manner of a dictator, usually with callous disregard for others.

retailer

one who purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit

Channel Power, Control, and Leadership

Power is our willingness to use force in a relationship. It is often the means by which we are able to control or influence the behavior of another party. In the channel mechanism, power refers to the capacity of a particular channel member to control or influence the behavior of another channel member. For instance, a large retailer may want the manufacturer to modify the design of the product, or perhaps be required to carry less inventory. Both parties may attempt to exert their power in an attempt to influence the other’s behavior. The ability of either of the parties to achieve this outcome will depend upon the amount of power that each can bring to bear.

Channels usually perform better if a party is in charge, providing some level of leadership. Essentially, the purpose of this leadership is to coordinate the goals and efforts of channel institutions. The level of leadership can range from very passive to quite active—verging on dictatorial. The style may range from very negative, based on fear and punishment, to very positive, based on encouragement and reward. In a given situation, any of these leadership styles may prove effective. Given the restrictions inherent in channel leadership, the final question is “who should lead the channel?” Two important trends are worth noting, since they influence the answer.

First, if we look at the early years of marketing, the role of the wholesaler (to bring the producer and consumer together) was most vital. Consequently, during this period, the wholesaler led most channels. This is no longer the case. A second trend is the apparent strategy of both manufacturers and retailers to exert power through size. In a type of business cold war, manufacturers and retailers are constantly trying to match each other in this respect. The result has been some serious warfare to gain channel superiority.

Channel Control

Wholesalers and retailers undertake size competition in order to gain channel control.

Large bundles of products stacked on shelves in a warehouse.

Under which conditions should the manufacturers lead? The wholesaler? The retailer? While the answer is contingent upon many factors, in general, the manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product—merchandising, repair, etc.—is critical. The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise. The retailer should lead when product development and demand stimulation are relatively unimportant and when personal attention to the customer is important.

11.5.3: Channel Partnering

 Channel partners can potentially fulfill needs along an organization’s value chain by enhancing the efficiency of distribution and/or access to new markets.

Learning Objective

Recognize the value channel partners can add via co-branding, distribution and/or efficiency

Key Points

• Channel partnerships are strategic collaborations between organizations that can potentially provide reciprocal value for both organizations.
• Channel partners can add value through fulfilling certain needs along a value-chain, as well as providing unique access to an established market or brand.
• Co-branding is the opportunity for channel partners to represent both of their brands on a given product. In these situations, both organizations can benefit from the brand equity of the other.
• Value-added resellers are another example of a channel partnership. Value-added resellers not only resell the product or service, but also add a unique benefit for potential consumers. This justifies the mark up.
• Overall, the management of channel partnership relationships as well as the acquisition of new partners is critical to success in most industries in the modern economy.

Key Term

co-branding

The combination of two or more well-known brands for marketing purposes, to strengthen one another’s preference or purchase intentions, or to reach a broader audience.

Channel Partners

As organizations build relationships across various channels within the industries in which they operate, the importance of partners within those channels can be a central concern. A channel partner is simply a company that works in collaboration with a organization in a way that assists the sale, distribution, storage, and/or production process. 

As a result of the varying roles a channel partner can play, it’s useful to understand the value chain, co-branding, value-added resellers and the general distribution of marketing channels for a given product or service. 

The Value Chain

Channel partners will fulfill some need along an organization’s value chain. A value chain simply visualizes the process a product or service will go through, from the initial sourcing of raw materials, product design, manufacturing, marketing, selling, paying, distributing and delivering customer support for existing customers. There are a number of critical inputs along the value chain, and most organizations are not equipped to fulfill each role. As a result, channel partners can fulfill a number of key responsibilities in marketing, sales, distribution, storage and customer support.

Value Chain

Porter’s value chain is a useful way to visualize where various channel partners may be in the overall organizational process. 

A diagram that shows Porter’s value chain – primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (firm infrastructure, human resource management, technology, and procurement).

This could be in the form of vertical integration, where a company creates an alliance with an organization that assists in some aspect of the production process (through strategic alliances, such as partnerships, joint ventures, mergers and acquisitions). Whether a formal alliance is established or not, managing the relationships between the organization and the various channel partners along the value chain is an important aspect of controlling costs, communicating to consumers, and building a reliable production channel.

Co-branding

Another useful idea in channel partnerships is the concept of co-branding. To understand co-branding, the easiest thing to do is consider a few examples. Right now, you’re likely reading this on a device. It may be a laptop, where the laptop manufacturer (let’s say Dell, for the sake of discussion) may be co-branded with Intel (for your processor). You’re smartphone may be a Sony, with a built in Google Android OS. This is another example of co-branding.

The idea is fairly simple. Various organizations function better together, and in many situations they may both have strong brands. In these situations, both companies can list their brand on a given product, allowing each organization in the channel partnership to gain access to a new, loyal targeted customer base (i.e. that of their partner). 

Value-added Resellers

Another strong example of a channel partner is a reseller, which should in some way add value in the process. For example, consider the sale of a new tablet with internet connection. More often than not, an individual will go to a mobile device carrier outlet to browse for new devices. When purchasing a tablet from a reseller that also offers mobile data services, a consumer will receive a SIM card that is a value add to the initial tablet. This SIM card will provide data on the go, a nice additional benefit for the user. This reseller is taking a product, adding value to that product, and reselling at a higher price.

Conclusion

Channel partnerships are, in conclusion, essentially a strategic alliance or contract between organizations that enable a producer of a given product or service to access markets and provide value to consumers through collaboration. These collaborations should add value during the distribution process, whether that value is simply access to retail space, shipping resources, digital marketplaces, established brands, or other more specialized examples.

Maintaining a strong relationship with various channel partners, and identifying opportunities in the competitive environment for new partnerships, is a central facet of a modern marketer’s responsibilities. Channel marketing should be at the forefront of most marketing strategies in the digital era, as distribution and simply being noticed by consumers can be greatly enhanced through strategic partnership selection.

11.5.4: Channel Integration

The integration of marketing channels to varying degrees is known either as multi-channel or omni-channel retailing.

Learning Objective

Describe omni-channel marketing as it relates to the retail industry

Key Points

• Omni-channel retailing is concentrated on a seamless approach to the consumer experience through all available shopping channels, like mobile internet devices, computers, bricks-and-mortar, television, catalog, and so on.
• The omni-channel consumer wants to use all channels simultaneously, and retailers using an omni-channel approach will track customers across all channels, not just one or two.
• With omni-channel retailing, marketing is made more efficient with offers that are relative to a specific consumer determined by purchase patterns, social network affinities, website visits, loyalty programs, and other data mining techniques.
• A consistent and convenient brand exposure from an omni-channel retailer will create better top of mind awareness from consumers.

Key Terms

e-commerce

Commercial activity conducted via the Internet.

retailing

selling goods directly to the consumer

Channel Integration

The integration of marketing channels involves a process known as multi-channel retailing. Multi-channel retailing is the merging of retail operations in such a manner that enables the transacting of a customer via many connected channels. Channels include: retail stores, online stores, mobile stores, mobile app stores, telephone sales, and any other method of transacting with a customer. Multi-channel retailing is said to be dictated by systems and processes, when in fact it is the customer that dictates the route they take to transact. Systems and processes within retail simply facilitate the customer journey to transact and be served. The pioneers of multi-channel retail built their businesses from a customer centric perspective and served the customer via many channels long before the term multi-channel was used.

Omni-channel retailing is very similar to, and an evolution of, multi-channel retailing. Omni-channel retailing is concentrated more on a seamless approach to the consumer experience through all available shopping channels like mobile internet devices, computers, bricks-and-mortar, television, catalog, and so on. The omni-channel consumer wants to use all channels simultaneously and retailers using an omni-channel approach will track customers across all channels, not just one or two. Omni-channel retailing with the connected consumer uses all shopping channels from the same database of products, prices, promotions, etc. Instead of perceiving a variety of touch-points as part of the same brand, omni-channel retailers let consumers experience the brand, not a channel within a brand. Merchandise and promotions are not channel specific, but rather consistent across all retail channels. The brick-and-mortar stores become an extension of the supply chain in which purchases may be made in the store, but are researched through other channels of communication. With omni-channel retailing, marketing is made more efficient with offers that are relative to a specific consumer determined by purchase patterns, social network affinities, website visits, loyalty programs, and other data mining techniques.

Omni-Channel Retailing

Omni-channel retailing requires constant integration across all marketing channels.

A move to omni-channel retailing can create a more knowledgeable consumer, so store employees need to be more knowledgeable about merchandise carried and production processes. Omni-channel retailers carry merchandise that is customer-centric and is not specific to any channel(s). Research has shown that omni-channel shoppers spend up to 15% to 30% more than multi-channel shoppers and exhibit strong brand loyalty, often influencing others to patronize a brand. Real-time data may be necessary when moving towards an omni-channel approach. As socially connected consumers move from one channel to another, they expect their stopping point to be bookmarked, allowing them to return through a different channel to finish browsing or purchasing where they left off. A consistent and convenient brand exposure from an omni-channel retailer will create better top of mind awareness from consumers.

Preparing for an omni-channel presence will require a heavy investment of both time and money. Communications between the IT department, marketing department, and sales staff will need to be as smooth as possible with little confusion about goals and strategies. A clear and thorough understanding of the customer, or target market, is required to be able to make appropriate decisions about channel integration and usability. Because brick-and-mortar sales influenced by online search are four times higher than total e-commerce sales, omni-channel retailers need to be informative, personable, always connected, and allow channel transparency.