Marketing Channel Decision

Marketing Channels

Introduction

Of the four elements of marketing mix, product, price, promotion and distribution, distribution [i.e., the channels of distribution and physical distribution] is the most important element. The success or failure of a firm depends largely upon the efficiency of distribution

CHANNELS OF DISTRIBUTION

MEANING

The term channel‘ is derived from the French word canal‘ meaning artificial water way for transportation or irrigation so, channel of distribution refers to the pathway, path or route taken by goods as they flow or move from the point of production to the point of consumption or use.

In the words of Prof. W. Stanton ―channel of distribution is the route taken by the goods as they move from the producer to the ultimate consumer or industrial user‖

According to Philip kotler ―every producer seeks to link together the set of marketing intermediaries that best fulfill the firm‘s objective. This set of marketing intermediaries is called the marketing channel [also trade channel or channel of distribution]‖

Levels of Channels

By channel level we mean how many intermediaries are there between the producer and consumer. Distribution channels are usually of two types, namely zero level channel or direct marketing channel and indirect marketing channel.

Direct Marketing Channel or Zero Level Channel

This type of channel has no intermediaries In this distribution system, the goods go from the producer direct to the consumer. Companies use their own sales force to reach consumers.

Eg. Eureka Forbes which markets water purifiers in Indian market, Dell Computers.

     Producer       Consumer

Zero Level Channel

 

Indirect Marketing Channel – These are typical channels in which a third party is involved in the distribution of products and services of a firm. It can be classified into following categories:

Ø  One-Level Channel- In this type of channel there is only one intermediary between producer and consumer. This intermediary may be a retailer or a distributor. It is used for specialty products like washing machines, refrigerators, Automobiles etc.   

Producer      Distributor / Retailer      Consumer

Ø  Two-Level Channel – This type of channel has two intermediaries, namely, wholesaler/distributor and retailer between producer and consumer. It can be seen in pharmaceuticals, liquor, expensive readymade garments.

Producer  Wholesaler   Retailer      Consumer Producer

er

Consumer

Ø  Three-Level channel – This type of channel has three intermediaries namely distributor, wholesaler and retailer. This pattern is used for convenience products like soaps, toothpaste, icecreams, soft drinks etc.

Producer

Producer     Agent     Wholesaler     Retailer       Consumer

Consumer

Factors affecting the choice of channels are as follows

It is a firm and its customer oriented and it should be proper.

1. Market considerations:

a. Type of the market

b. Number of potential customers

c. Geographic concentration of the market

d. Order size.

2. Product considerations

a. Unit value

b. Perishability

c. Technical nature

3. Middlemen considerations

a. Services provided by middlemen

b. Availability of desired middlemen

c. Producer’s and middlemen’s policies

4. Company considerations

a. Desire for channel control

b. Service provided by seller

c. Financial resources.

Retailing

Includes all activities involved in selling goods or services directly to final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.

Major Retailer Types

—  Specialty Store – Narrow product line with a deep assortment. Eg. Park Avenue Men’s Clothing Store.

—  Department Store – Several product lines-typically clothing, home furnishings and household goods-with each line operated as a separate department managed by specialist buyers. Eg. Shoppers Stop, Pantaloons

—  Supermarket – Relatively large, low cost, low margin, high volume, self-service operation designed to serve total needs for food, laundry and household products. Eg. Food World, Food Bazaar, Reliance Fresh etc.

—  Convenience Store – Relatively small store located near residential area, open long hours, seven days a week and carrying a limited line of high-turnover convenience products at slightly higher prices. Nearby Mom n Pop Stores in the residential area..

—  Discount store – Standard merchandise sold at lower prices with lower margins and higher volumes. Eg.  Wal-Mart, Metro

—  Hypermarket – Large sized store and product assortment includes furniture, large and small appliances, clothing and many other items. Eg. Spar Hypermarket.

Wholesaling

Includes all the activities in selling goods or services to those who buy for resale or business use. Buy from manufacturer and sell to retailers.

Functions –

—  Selling and promoting – Wholesaler’s sales force helps manufacturers reach many small business customers at a relatively low cost. Wholesalers have more contacts, and often buyers trust wholesalers more than they trust a distant manufacturer.

—  Buying and assortment building – Wholesalers are able to select items and build the assortments their customers need, saving the customers considerable work.

—  Bulk breaking – Wholesalers achieve savings for their customers through buying in large carload lots and breaking the bulk into smaller units.

—  Warehousing – Wholesalers hold inventories, thereby reducing inventory costs and risks to suppliers and customers.

—  Transportation – Wholesalers can often provide quicker delivery to buyers because they are closer to the buyers.

—  Financing – Wholesalers finance customers by granting credit, and finance suppliers by ordering early and paying bills on time.

—  Risk bearing – Wholesalers absorb some risk by taking title and bearing the cost of theft, damage, spoilage and obsolescence.

—  Market Information – Wholesalers supply information to suppliers and customers regarding competitor’s activities, new products, price developments and so on.

—  Management services and counseling – Wholesalers often help retailers improve their operations by training  sales clerks, helping with store layouts and displays and setting up accounting and inventory control systems.

2. Warehousing

A warehouse is a place. Here, surplus goods can be kept safely for future use. Modern warehouses are equipped with latest equipment‘s and facilities for the safety of goods from theft, sun, moisture, rats etc. Warehousing has removed the obstacle of time in the smooth flow of trade. It helps in storage of goods until they are demanded for further use or sale. It has proved to be a boon to the manufacturers and trades by helping them to store and accumulate goods. 

Functions of warehousing

1.      Storage:- This is the basic function of warehousing. Surplus commodities which are not needed immediately can be stored in warehouses. They can be supplied as and when needed by the customers.

2.      Price stabilization:- Warehouses play an important role in the process of price stabilization. It is achieved by the creation of time utility by warehousing. Fall in the prices of goods when their supply is in abundance and rise in their prices during the slack season are avoided.

3.      Risk Bearing:- When the goods are stored in warehouses they are exposed to many risks in the form of theft, deterioration, exploration, fire etc. Warehouses are constructed in such a way as to minimise these risks. Contract of bailment operates when the goods are stored in wave-houses.

4.      Financing:- Loans can be raised from the warehouse keeper against the goods stored by the owner. Goods act as security for the warehouse keeper. Similarly, banks and other financial institutions also advance loans against warehouse receipts. In this manner, warehousing acts as a source of finance for the businessmen for meeting business operations.

5.      Grading & Packaging:- Warehouses nowadays provide the facilities of packing, processing and grading of goods. Goods can be packed in convenient sizes as per the instructions of the owner.

Types of warehousing

Ø  Private warehousing:- The private warehouses are owned and operated by big manufacturers and merchants to fulfil their own storage needs. The goods manufactured or purchased by the owner of the warehouses have a limited value or utility as businessmen in general cannot make use of them because of the heavy investment required in the construction of a warehouse, some big business firms which need large storage capacity on a regular basis and who can afford money, construct and maintain their private warehouses.

Ø  Public warehousing :- A public warehouse is a specialised business establishment that provides storage facilities to the general public for a certain charge. It may be owned and operated by an individual or a cooperative society. It has to work under a license from the government in accordance with the prescribed rules and regulations.

Ø  Bonded warehousing:-  Bonded warehouses are licensed by the government to accept imported goods for storage until the payment of custom duty. They are located near the ports. These warehouses are either operated by the government or work under the control of custom authorities.

The warehouse is required to give an undertaking or ‘Bond’ that it will not allow the goods to be removed without the consent of the custom authorities. The goods are held in bond and cannot be withdrawn without paying the custom duty. The goods stored in bonded warehouses cannot be interfered by the owner without the permission of customs authorities. Hence the name bonded warehouse.

Ø  Government warehousing:- The Government warehouses are owned and operated by Governments for the purpose of  storing government products.

 Logistics:-

                    Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. The resources managed in logistics can include physical items such as food, materials, animals, equipment, and liquids; as well as abstract items, such as time and information. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security.

Functions of logistics

Order processing

          It is an important task in functions of logistics operations. The purchase order placed by a buyer to a supplier is an important legal document of the transactions between the two parties. This document incorporates the description or technical details of the product to supply, price, delivery period, payment terms, taxes, and other commercial terms as agree.

Inventory control

Inventory management is to keep enough inventories to meet customer requirements, and simultaneously its carrying cost should be lowest. It is basically an exercise of striking a balance between the customer service for not losing market opportunity and the cost to meet the same.

Warehousing

Warehousing is the storing of finished goods until they are sold. It plays a vital role in logistics operations of a firm. The effectiveness of an organization’s marketing depends on the appropriate decision on warehousing. In today’s context, warehousing is treated as switching facility rather than a storage of improper warehousing management. Warehousing is the key decision area in logistics. The major decisions in warehousing are:

• Location of warehousing facilities
• Number of warehouses
• Size of the warehouse
• Warehouse layout
• Design of the building
• Ownership of the warehouse

Transportation

For movement of goods from the supplier to the buyer, transportation is the most fundamental and important component of logistics. When an order is placed, the transaction is not completed till the goods are physically moved to the customer’s place. The physical movement of goods is through various transportation modes. In logistics costs, its share varies from 65 to 70 percent in the case of mass-consumed, very low unit-priced products.

Material handling and storage system

The speed of the inventory movement across the supply chain depends on the material handling methods. An improper method of material handling will add to the product damages and delays in deliveries and incidental overheads. Mechanization and automation in material handling enhance the logistics system productivity. Other considerations for selection of a material handling system are the volumes to be handled, the speed required for material movement and the level of service to be offered to the customer.

Logistical packaging

Logistical or industrial packaging is a critical element in the physical distribution of a product, which influences the efficiency of the logistical system. It differs from product packaging, which is based on marketing objectives. However, logistical packaging plays an important role in damage protection, case in material handling and storage space economy. The utilisation of load has a major bearing on logistical packaging with regard to the packaging cost.

Information

Logistics is basically an information-based activity of inventory movement across a supply chain. Hence, an information system plays a vital role in delivering a superior service to the customers.

Use of IT tools for information identification, access, storage, analysis, retrieval and decision support which is vital among the functions of logistics is helping business firms to enhance their competitiveness.

Types of logistics

1.      Road (on surface)

2.      Rail

3.      Water ways

4.      Air ways