Selecting Channel Members

The points to be taken into consideration when selecting the channel members are

• Identify characteristics that distinguish the best channel members
• Evaluating Channel Members
• Performance should be checked against standards
• Channel members should be rewarded or replaced as dictated by performance

Typically, the most important consideration whether to include a potential channel member is the cost at which he or she can perform the required functions at the needed level of service. For example, it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer. On the other hand, it would not be cost effective for Procter & Gamble and Wal-Mart to involve a third party to move their merchandise. Wal-Mart has been able to develop, based on its information systems and huge demand volumes, a more efficient distribution system. Note the important caveat that cost alone is not the only consideration—premium furniture must arrive in the store on time in perfect condition, so paying more for a more dependable distributor would be indicated. Further, channels for perishable products are often inefficiently short, but the additional cost is needed in order to ensure that the merchandise moves quickly. Also that image is important—Wal-Mart could very efficiently carry Rolex watches, but this would destroy value from the brand.

Piggy-back: When goods are transported by truck and rail is called Piggy back.

Fishy Back: When goods are transported by truck and water

Parallel Distribution: Most manufacturers find it useful to go through at least one wholesaler in order to reach the retailer, and it is simply not efficient for Colgate to sell directly to pathetic little “mom and pop” neighborhood stores. However, large retail chains such as K-Mart buy toothpaste and other Colgate products in such large volumes that it may be efficient to sell directly to those chains. Thus, we have a “parallel” distribution network whereby some retailers buy through a distributor and others do not.

Nature and Importance of Marketing Channels

• Channel choices affect other decisions in the marketing mix
• Pricing, Marketing communications
• A strong distribution system can be a competitive advantage
• Channel decisions involve long-term commitments to other firms
• Marketing channels determine how and where customers buy
• Intermediaries require fewer contacts to move the product to the final purchaser.
• Intermediaries help match product assortment demand with supply.
• Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

Developing Channel Objective and Strategy

The development of channel strategies requires decision in three key areas

• Buyers Preference: It involves decisions to be made on the basis of buyers need and preference of receiving the product
• Relationship Orientation: The decision of channel development also involves the structuring of the relationship in the development process for maintaining a smooth channel flow
• Degree of Market Coverage: When developing the channels a key concern is the degree of market coverage expected from the channel network

Determining the Channel Structure

The marketing functions are pervasive since they include buying, selling, transporting, storing, grading, financing, bearing market risk, and providing marketing information. Any organizational unit, institution, or agency that performs one or more of the marketing functions is a member of a channel of distribution.

The structure of a distribution channel is determined by the marketing functions that specific organizations perform. Some channel members perform single functions-carriers transport products, and public warehouses store them. Others, such as third party logistics providers and wholesalers, perform multiple functions.

Channel structure affects the overall performance control of functions, speed of delivery and communication, and the cost of operations. While a direct manufacturer-to-user channel usually gives management greater control over the performance of marketing functions, distribution costs normally are higher, making it necessary for the firm to have substantial sales volume or market concentration. With indirect channels, the external institutions or agencies (Example: Carriers, warehouse owners, wholesalers, retailers) assume much of the cost burden and risk, so the manufacturer receives less revenue per unit.

Most distribution channels are loosely structured networks of vertically aligned firms. The specific structure depends to a large extent on the nature of the product and the firm’s target market. There is no best channel structure, for all firms producing similar products. Management must determine channel structure within the framework of the firm’s corporate and marketing objectives, its operating philosophy, its strengths and weaknesses, and its infrastructure of manufacturing facilities and warehouses. If the firm has targeted multiple market segments, management may have to develop multiple channels to service these markets efficiently.