Introduction
The "what" of Marketing Channels and Marketing Channel strategies have been covered in chapter 1. This chapter looks at the "why" of Marketing Channels in depth.
Marketing Channels move the goods from producers to consumers, and doing so requires certain functions to be performed by the channel members (for more information about key players in the marketing channel, look at chapter 1)
An intro about the importance of marketing channels has been looked at in the earlier chapter; this chapter builds upon that and takes you forward to the marketing channel functions and channel flows and how the right marketing channel strategy will pay keen attention to the details of the same.
Let us start the chapter by looking at the types of marketing channels
Main types of Marketing Channels
Channels are primarily divided into types based on the number of intermediaries between the producer and the consumer. There are essentially four kinds of Marketing Channels; a pictorial representation of the same can be seen as follows
The arrows represent the flow of the movement across intermediaries in the marketing channel. The types of channels can be defined as follows:
- Zero-Level Channel: Without the intervention of a middleman, the manufacturer sells the items or offers the service directly to the consumer. This type of marketing is thus also known as a direct marketing channel
- One-Level channel: this channel usually has one intermediary. A firm selling its products to a retailer and retailer selling to consumers is an example of one level channel
- Two-level channel: Add a wholesaler to the above one-level channel. It forms a two-level marketing channel system with intermediaries between the firm and the producer.
- Three-Level channel: usually another intermediary is between the wholesaler and the retailer known as the jobber. A jobber is essentially a small scale wholesaler.
While the above four channels talk about the forward movement of products, another critical movement, which makes up for the final channel, is the reverse flow channel. Return of products from customers to producers, resale of the products purchased, recycling, and disposal after the usage are examples of activities on the reverse flow channel.
How exactly the movement happens among these four different levels of marketing channel will be seen in the next segment of marketing channel flows
Channel Flows: what actually happens here?
A question that can come into mind is what is the flow of channel distribution? Let's simplify the answer to this question. The movement of goods and services via the channel is known as a flow. The channel flow links intermediaries in the marketing channel and helps them perform the channel functions efficiently. The arrows in the above infographic show the direction of flow
There are three directions in which the flow occurs
Forward Flow: Movement of the product or service from the company to the customer. An example of this can be as simple as a product ordered on Amazon arriving at one's doorstep.
Backward Flow: From the customer to the company. In the above example, if the customer is not satisfied with the product, they would send it back to the manufacturer, an example of backward flow.
Hybrid Flow: Both way movement, usually seen in negotiations or information sharing.
While the above classification shows the direction of flow, based on the type of products or services moving in the channel, six universal channel flows have been identified.
They are:
- Product flow: The actual flow of product from the manufacturer to the customer. It can be done on many levels, as shown in the picture above.
- Title flow: This involves the transfer of ownership via channels. For example, a retailer becomes the temporary owner of the product before the product's final sale to the customer.
- Payment flow: This flow involves the financial element associated with delivering goods and services. Banks and mobile wallets are prominent players in this channel.
- Information flow: Flow of information via the channel. Feedback mechanism, request of information and request for quotations (RFI/RFQ) can be an example of this flow type.
- Promotion Flow: Persuasion of the manufacturer to convince the customer to buy the product is promotion flow. It usually involves advertising, publicity, personal flow etc.,
- Risk Flow involves the flow of risk associated with the movement of goods in the channel. For example, the delicate product can break in transition, or a perishable good can be expired before reaching the shelf.
All the various type of channel flow aims to attain a specific outcome. The functions these flows perform will be seen in the next section.
Channel Functions: what is the ultimate aim of a channel
In the earlier chapter, we have seen that channels do not just take the product or service to the end-user but also help create the market. With these two broad functions in the back of the mind, we can arrive at a couple of essential features of Channel members
- Create an effective communication medium between end-users and producers
- Collate information about existing customers, potential customers and all other players involved in the supply chain.
- Represents client to the customer either via taking temporary ownership or via acting as an agent of the client.
- Provide for storage of products.
- Assume risks associated with the temporary ownership of the product
The channel functions mentioned above have three main characteristics
- Utilize the scare resources efficiently.
- Can be better performed when the channel members are specialists and not generalists.
- The functions can be shifted or delegated with ease among the channel members.
Conclusion To Role Marketing Channels
These bring us to the conclusion of the main types of marketing channels, the channel functions and various channel flows.
The role of a marketing channel in a gist would be to gather information from the market, use it for product promotion, arrange for contracts, negotiate prices between parties and physical distribution of goods.
The next chapter will look at channel design decisions and understand how they will play a role in marketing channel strategy.