MARKETING CHANNELS

A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products and services get to the end-user, the consumer; and is also known as a distribution channel.

Understanding how Marketing Channel Members add Value to Marketing Process

There are two forms of marketing channels, direct and indirect. Direct channels sell products directly to consumers and have no intermediary levels. Indirect channels sell their products through intermediary levels and do not deal with consumers.

Channel members consists of retailers and distributors. They purchase manufactured goods in bulk, and offer them to consumers in broad varieties. As a result, consumers are able to purchase small assortments of products that are produced in large quantities. An example of this, is when we purchase toothpaste. Manufactures produce thousands of pounds of toothpaste, which they provide to retail stores. Retail stores make single tubes available for purchase because consumers only desire a small quantity of the specific product at a time. Below is a graphic of the products and the process to the consumer.

Channel members perform many functions that add value to consumers. These functions are:

§  Gather Information and Distribute it

§  Develop Persuasive Communications on Offerings

§  Communicate with Buyers

§  Shape Offers to Meet Consumer Needs

§  Negotiate Prices

They also perform functions to assist transactions:

§  Physical Distribution

§  Financing

§  Risk Taking

(Kotler)

Channels members make good available to markets that desire the products by assisting companies who cannot do so on their own. Having channel members perform the functions stated above, consumers are able to purchase products in the desired quantities at a price they are willing to pay.

Channel Levels – Consumer and industrial marketing channels

Channel levels consist of consumer marketing channels or the industrial marketing channels. A factor common among both channel levels is that both include the producer as well as the end customer.

1) Zero Level channel / Direct Marketing Channel

Consists of a manufacturer directly selling to the end consumer. This might mean door to door sales, direct mails or telemarketing. Dell online sales is a perfect example of a zero level channel marketing. 

2) One Level channel

As the name suggests, the one level channel has an intermediary in between the producer and the consumer. An example of this can be insurance in which there is an insurance agent between the insurance company and the customer. Even E-commerce is an excellent one channel level example – wherein the companies tie up directly with E-commerce portals and then sell in the market.

3) Two level Channel

Two level channel involves the movement of goods from the company to an intermediary, from from the intermediary to another and then to customer. This is also commonly known as “breaking the bulk” in FMCG market. A widely used two level marketing channel especially in the FMCG and the consumer durables industry which consists of a wholesaler and a retailer. So the goods go from company to distributor, distributor to retailer and retailer to consumer.

4) Three level channel

Again observed in both the FMCG and the consumer durables industry, the three level channel can combine the roles of a distributor on top of a dealer and a retailer. The distributor stocks the most and spreads it to dealers who in turn give it to retailers.

In the three level channel, the example can be taken of Ice cream market. Because of the manufacturing levels required, Ice cream markets have C&F agents who stock the ice cream in refrigerated cold rooms. These ice creams are then transported to local distributors who also have refrigerated cold rooms. The distributors then transport to local dealers who will have 10-12 small freezers. And finally it is transported to the retailer who will have 1-2 freezer of each company.

Here are perfect representations for channel levels between consumer marketing channel and an industrial marketing channel.