4.08 CHANNEL MANAGEMENT & ITS ROLE IN MARKETING

Definitions Channel of distribution – path a product takes from producer (or manufacturer) to final user (consumer) Producer – maker of the product Ultimate consumer – individual or group who actually uses a good or service Industrial user – individual or group who uses a good or service within a business setting

Definitions cont’d Middlemen/intermediaries – firm or person who acts as a link between parties in a business deal Retailers – A business that sells goods to a consumer. Can be large or small. For example, Target or a family run diner. Wholesaler – buy large quantities of goods from manufacturers then resell them to other businesses

Definitions cont’d Agent – party that has express or implied permission to act on the behalf of another. For example a real estate agent acts on behalf of their client negotiating terms of the sale/purchase of property Direct channel – producer supplies directly to the ultimate consumer Indirect channel – involves one or more intermediaries

Types of channel members Wholesalers Retailers Rack jobbers – manage inventory and merchandising for retailers by counting stock, filling in when needed, and maintaining store displays. Drop shippers – own the good they sell but don’t physically handle the products Brick-and-mortar – sell goods to customers from their physical stores Automatic retailer – vending machines Direct mail, catalog, home shopping networks, & e-tailing

Types cont’d Agents Independent Manufacturers’ Representative Broker Work with several related, noncompeting, manufacturers in a specific industry. They are paid commission based on what they sell. For example, may carry fishing rods, hunting gear, or outdoor shirts all from different manufacturers Broker Purpose is to bring buyers and sellers together in order for a sale to take place. The relationship is temporary

Importance of channel members Cost savings in specialization – these people know what they’re doing and can often perform tasks better and at lower costs Reduce exchange time – in other words faster product delivery. Imagine if every manufacturer delivered their products! Customers want convenience and variety. Resellers sell small quantities

Importance cont’d Create sales – retailers use creative means to drive customers into their stores Offer financial support – allow customers options in purchasing products. i.e. payment programs Provide information

DISTRIBUTION CHANNEL OPTIONS Retail outlets – owned by YOU or an independent chain Wholesale outlets –Sale of goods, generally in large quantity, to a retailer for resale purposes. - Examples: Wholesalers buys goods in bulk quantities from either manufacturers or importers, then sells in smaller quantity to retail stores. Sales force – compensated by salary, commission, or both Direct mail – via YOUR own catalog or flyer Telemarketing – on YOUR own or contract out Cybermarketing – Internet based promotion through websites, banners, email, etc. TV and cable – direct and home shopping channels

Factors that affect the choice of distribution Perishability of the product – require rapid delivery and careful handling. Include items such as bread, fresh flowers, and ice cream. Geographic distance between producer and consumer – As the distance between producer and consumer increases so does the number of channel members Need for special handling of the product – for example gasoline or large computer systems. Will either have few handlers or go directly to the user

Cont’d Number of users – the greater the number of users, the more channels members there probably will be. Number of types of products manufactured – for example, pottery, probably sell directly to a wholesaler. Electrical products probably sell to large retailers. Financial strength and interests of the producer – large companies who are strong are better able to perform marketing activities required to move goods through the least number of channel members

Selecting YOUR distribution channel Choose a single channel or a limited number of distribution channels that offer: Identify what competitors are doing Analyze your SWOT The greatest ease of entry against the competition Lowest costs of entry compared to the competition Least financial risk and commitment to the trade Sufficient volume potential to reach short-term goals