Marketing channel is the route between producers and users through which goods are distributed. This route is also known as Channel of Distribution, Marketing Channel or Trade Channel. In case of services, the distribution channel is generally direct because of its peculiar nature of simultaneous production and consumption, perishability and heterogeneity. A distribution channel generally requires a buyer and a seller. The buyer can either be an industrial consumer or the end customer. Other than the buyer and seller in the marketing channel, various middlemen are also involved in the supply chain. Here, middlemen may be distributors, wholesalers, retailers or dealers. Broadly, a distribution channel involves the movement of goods and services from the manufacturer to the ultimate consumer through various intermediaries. Therefore, the key in the distribution channel are manufacturers, intermediaries and consumers.
‘Delivery’ is the main aim of distribution channel. The availability and reachability of all public and private goods and services to final consumers can be made only through distribution channels. As a result, numerous distribution-oriented agencies have emerged recently; such agencies are usually termed as ‘intermediaries’ since they mediate between production and consumption activities.
Nature of Marketing Channels
The nature of distribution channels is enumerated below:
Pathway or Route: Distribution channel is the route through which goods and services are transmitted from the manufacturers to the consumers.
Flow: In a distribution channel, the goods and services flow in a sequential, smooth and unidirectional manner.
Composition: The channel comprises of intermediaries like agents, distributors, retailers, wholesalers, etc., who willingly participate in the distribution process.
Function: The functions of distribution channel are performed by intermediaries. They assist in transfer of title, ownership and possession of goods and services between manufacturers and consumers.
Remuneration: The remuneration of intermediaries is paid in form of commission. Manufacturers compensate the remuneration as commission that they provide or by adding it to the price of goods sold.
Time Utility: The goods are made available to the consumers whenever required.
Convenience Value: The goods provided to the consumers are inconvenient shape, size, unit, package and style.
Possession Value: It facilitates consumers to attain goods with the ownership of title.
Marketing Tool: Distribution channel acts as a medium for screening the external aspects of the marketing organisation and for bridging the physical and non-physical gaps which occur while transferring goods from the manufacturers to the consumers.
Supply-Demand Linkage: It bridges the gap between the manufacturers and consumers by eliminating all the spatial (geographical distances) and temporal (time based) related to supply and demand.
Need for Marketing Channels: Purpose of Marketing Channels
Following points highlight the need for/purpose of distribution channels:
To Ensure the Proper Availability of Desired Product: The major purpose of any distribution channel is to provide the desired product at the desired marketplace. For this, organisations first identify the relevant marketplace having significant demand for the concerned product. Then, suitable retail outlets or stores are selected in that marketplace. Thus, through these outlets, organisations provide desired products to target customers.
To Improve the Sales Outlook: In a particular retail store, the sale of organisational products depends on its display. The purpose of distribution channels is to arrange a proper display of orgamsational products in the retail store so that the sales outlook of that particular retail store as well as organisation can be improved. Contribution of retail salesperson(s) is also necessary.
To Establish Cooperation between Distribution Factors: Various factors affect the distribution system like, type of unit loads, delivery time limits, order size, delivery access, handling aids or tools, nature of product handling, etc. A Strong cooperation between these factors is required for efficient distribution. Therefore, establishing cooperation between such is also a purpose of organisational distribution channels.
To Achieve and Maintain a Level of Service: Another purpose of distribution channels is to achieve and maintain a level of service towards both customers and suppliers. This is important for the customers. They observe the service performance of different suppliers so as to compare them and to determine the future purchase decision.
To Minimise Logistics and Total Cost: Cost of production is included in the price of a given product. This cost is very important for pricing. Therefore, distribution channels of an organisation are focused to minimise the logistics and total cost of the product. A particular cost reflected by selected distribution channel must be evaluated in terms of type of product served and the required service level.
To collect Accurate Information: Another purpose of distribution channels is to collect accurate information. An efficient distribution System requires sound flow of information. Sales trends, cost monitoring, service levels, damage reports, inventory levels, etc., are helpful in getting required information.
Functions of Marketing Channels
The functions of distribution channels are discussed below:
- Information Provider
- Time and Place Utility
- Price Stability
- Financing
- Assist in production Function
- Pricing
- Assist in Merchandising
- Matching Buyers and Sellers
- Assortment of Products
- Promotion
- Title
- Matching Demand and supply
- Standardising Transactions
- Provide Market Intelligence
Information provider: The main role Of intermediaries is to provide market information to the manufacturers. The information required by all manufacturers may include changes in customer demography, psychography, media habits, changing customer preferences and entry of a new competitor or brand. This information can be easily provided by middlemen without any additional cost as they are a part of the marketplace and have close relationship with the customers.
Matching Buyers and Sellers: Mostly, buyers are not aware of how and where they can meet potential sellers and likewise, sellers are not aware of how and where they can meet the potential buyers. Therefore, to match the needs of buyers and sellers is the most important role of marketing channel members.
Time and Place Utility: Distribution channels facilitate the goods and services to customers at the time and place they require them. This creates time and place utility to the buyers by reducing the spatial discrepancy (distance between consumers and manufacturers) in the marketplace.
Assortment of products: The assortment of products leads to the convenience of consumers since distribution channel enables the customers to purchase goods in convenient lots, units, packs and assorted range of products. Manufacturers produce goods and services in bulk in order to achieve economies of scale and to reduce the overall cost of production.
Price Stability: Another function of intermediaries is to maintain price stability in the marketplace. Mostly, the intermediaries keep the increased part of price With them and cost the products at the same old price from the customers. This happens due to the intra-middlemen competition. They also strive to stabilise prices to keep their overhead costs low.
Promotion: The promotion of products in one’s own region is also the function of intermediaries. Several middlemen design sales incentive schemes on their own which targets at increasing customers traffic at the stores. Distribution channels carry out several promotional activities like personal selling, advertising and sales promotion, etc., in order to help the manufacturer in attaining larger market share in sales and market coverage of the product.
Financing: The middlemen also provide financial assistance to manufacturers for their production activities in the form of advance payments for goods and services. The manufacturer might extend credit but still the payment is made in advance, much before the goods are purchased, paid for and consumed by the end consumers.
Title: Usually, the goods and services are titled on the name of intermediary. This helps in minimising the risk that lies between manufactures and intermediaries. This also provides physical possession of goods to the intermediaries, enabling them to fulfill the customers’ demand immediately.
Assist in Product Function: It helps the manufacturers to concentrate on the production function and the marketing activities are solely handled by the intermediaries, who are marketing specialists. They can sell the product in a better way than the manufacturer itself. The money that would be otherwise spent in marketing the goods can be utilised in production where an increased rate of return can be earned.
Matching Demand and Supply: The key function of intermediaries is to collect the goods from several manufacturers and provide them to the customers conveniently. Matching the level of demand with the supply of products is the main goal of marketing.
Pricing: While pricing a product, manufacturer must take suggestions from the intermediaries, as they know what the end customers can pay for the product. since middlemen are in touch with them. The pricing decision may vary for different markets or products in lieu of their distribution channel.
Standardising Transaction: Another imponant role of marketing channel is standardising transactions. When transactions are standardised then the stages involved in the movement of the goods from the manufacture to the customer gets automated. For example, in a milk delivery system, a standardised delivery system is followed throughout the distribution channel. By applying this method, no consumer is able to negotiate with the sellers on any ground, may it be price, payment method, quantity, or location of the product.
Assist in Merchandising: Distribution channels also perform merchandising function. Merchandising helps in reinforcing awareness among customers about the product. An attractive display of products or brands not only attracts the attention of the customers but also increases the awareness and interest. Merchandising (with special emphasis on display) enhances the sales efforts of the organisation and functions as a silent salesman at the retail stores.
Provide Market Intelligence: The distribution channel provides market intelligence and feedback to the manufacturers. This is possible because channel members are directly associated with the customers. They are aware of all situations in the market.
Types of Marketing Channels: Channel Alternatives
Channel structure that a company adopts is based on the size of channel. Distribution channels can be categorised into three types, i.e., direct, indirect and multi-channel or hybrid distribution system. In a direct distribution channel, manufacturer sells directly to the consumers without involving any intermediaries. On the other hand, in an indirect distribution channel, the manufacturer sells his goods With the help of numerous intermediaries like agents, wholesalers, retailers, etc. Whereas in a multi-channel distribution system, the manufacturer uses two or more channels to sell its product. The three types of distribution channel are as follows:
- Direct Marketing Channel,
- Indirect Marketing Channel, and
- Hybrid Distribution Channel or Multi-channel distribution system..