The Nature of Marketing Channels

Marketing Channel Concepts

• A marketing channel (also called a channel of distribution) is a group of individuals and organizations that directs the flow of products from producers to consumers. The major role of marketing channels is to make products available the right time at the right place in the right quantities.

• Some marketing channels are direct–from producer straight to customer but most channels have marketing intermediaries that link producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and reselling of products.
  • Wholesalers buy and resell products to other wholesalers, to retailers, and to industrial customers.
  • Retailers purchase products and resell them to ultimate. Consumers.
• Although distribution decisions need not precede other marketing decisions, they are a powerful influence on the rest of the marketing mix.
  • Channel decisions are critical because they determine a product’s market presence and buyers’ accessibility to the product.
  • Channel decisions have additional strategic significance because they entail long-term commitments. It is usually easier to change prices or promotion than to change marketing channels.

Marketing Channels Create Utility

• Marketing channels create three types of utility: time, place, and possession.
• Time utility–created by having products available when the customer wants them
• Place utility–created by making products available in locations where customers wish to purchase them
• Possession utility–created by the customer having access to the product to use or to store for future use
• Channel members sometimes create form utility by assembling, preparing, or otherwise refining the product to suit individual customer tastes.

Marketing Channels Facilitate Exchange Efficiencies

• Marketing intermediaries can reduce the costs of exchanges by efficiently performing certain services or functions. Intermediaries provide valuable assistance because of their access to, and control over, important resources used in the proper functioning of marketing channels.
• Despite these efficiencies, the press, consumers, public officials, and other marketers freely criticize intermediaries, especially wholesalers.
  • Critics accuse wholesalers of being inefficient and parasitic.
  • Buyers often wish to make the distribution channel as short as possible, assuming that the fewer the intermediaries, the lower the price will be.
  • Because suggestions to eliminate them come from both ends of the marketing channel, wholesalers must be careful to perform only those marketing activities that are truly desired.
• Critics who suggest that eliminating wholesalers would lower customer prices do not recognize that this would not eliminate the need for services that wholesalers provide.

Although wholesalers can be eliminated, the functions they perform cannot.

Marketing Channels Form a Supply Chain

An important function of the marketing channel is the joint effort of all channel members to create a supply chain, a total distribution system that serves customers and creates a competitive advantage.

• Supply chain management refers to long-term partnerships among marketing channel members working together to reduce inefficiencies, costs, and redundancies in the entire marketing channel and to develop innovative approaches, in order to satisfy customers.
• Supply chain management involves manufacturing, research, sales, advertising, shipping and, most of all, cooperation and understanding of tradeoffs throughout the whole channel to achieve the optimal level of efficiency and service.
• Whereas traditional marketing channels tend to focus on producers, wholesalers, retailers, and customers, the supply chain is a broader concept that includes facilitating agencies, such as component parts suppliers, shipping companies, communication companies, and other organizations that take part in marketing exchanges.

• Supply chain management is helping more firms realize that optimizing the supply chain costs through partnerships will improve all members’ profits.
• Supply chains start with the customer and require the cooperation of channel members to satisfy customer requirements.
• Technology has dramatically improved the capability of supply chain management on a global basis.
• Supply chain management should not be considered just a new buzzword. Reducing inventory and transportation costs, speeding order cycle times, cutting administrative and handling costs, and improving customer service–these improvements provide rewards for “all” channel members.