In certain cases, the marketing task involves diffusion of some innovation among consumers. In such cases, the channels go much beyond the conventional functions of distribution aid act as ‘change agents’ among consumers and generate demand for the product.
Take Care of the Flows Involved in Distribution
The distribution process can be viewed as a series of flows: the physical flow of products, the title/ownership flow, risk flow, the negotiation flow, the financing/payment flow, the information flow and promotion flow. Marketing channels handle and take care of all these flows.
| • Facilitate selling by being physically close to customers • Provide distributional efficiency by bridging the manufacturer with the user, efficiently and economically • Break the bulk and cater to the tiny requirements of buyers • Assemble products into assortments to meet buyer’s needs; match ‘segments of supply’ with ‘segments of demand’ • Look after a part of physical distribution/marketing logistics Sub-distribution (a) reselling (b) transport (c) handling (d) accounting Stock holding (a) Providing warehouse space (b) storing the stocks (c) bearing risks | • transforming static stocks into operational stocks, thereby aiding the sale process • Share the financial burden of the principal; provide deposits; finance the stocks till they are sold to the ultimate consumers; extend credit to retailers/consumer • Provide salesmanship • Provide pre-sale and after-sale service • Assist in sales promotion • Assist in merchandising • Assist in introducing new products • Assist in implementing the price mechanism; assist in price negotiations • Assist in developing sales forecasts/sales plans for the territory • Provide market intelligence and feedback • Maintain records • Take care of liaison requirements • Help diffuse innovations among consumers, act as ‘change agents’ and generate demand |
Some of these flows are forward, some backward and the others take place as a two-way process. Normally, the flow takes place sequentially through different levels in the distribution chain. In some cases, however, the flow may bypass a particular level in the chain.
Channels Acquire Their Importance by Their Functions
The foregoing elaborations not only explain the importance of marketing channels, but also clarify the fact that the channels acquire their importance by virtue of the functions they perform.
Channel Functions cannot be Eliminated
Sometimes, firms tend to think that channels could be easily dispensed with and that the firm would be better off doing so. The firms assume that by eliminating the channels, they can eliminate the channel costs, this is erroneous thinking. The inherent assumption in this thinking is that by eliminating the channels, they can escape the functions that the channels perform. The fact is that even where channels are eliminated, the channel functions as such are not eliminated; they are merely transferred from the channels to the manufacturer; and the costs thereof are also just transferred, not eliminated.
Sometimes, the firms assume that while channels as a whole cannot be eliminated, a particular tier in the channel can be readily eliminated and the firm would be ipso facto better off with such elimination. Here too, if the assumption is based on the logic that with the elimination of the particular tier, the functions performed by that tier can be eliminated, then the firm will soon realize that it has committed a mistake. For here too, the alternative arrangement may not eliminate the functions performed by that particular tier. What is likely to happen is a transfer of the functions from the given tier to another one in the channel, backward or forward. So, it will be wrong to assume that the elimination of the tier will ipso facto result in savings to the firm. It depends on the circumstances.
Channels/middlemen are no parasites: The problem arises due to confusion in thinking. The firms concerned might be viewing channels as mere ‘middlemen’, with a negative connotation attached to the term. And, they might consider the channels as parasites. No wonder then, they think that they would be better off by dispensing with the channel, in part or full. It needs to be emphasized that channels/middlemen are no parasites. They are an essential and valuable part of the firm’s marketing activity. Manufacturers use them as there is economic sense in doing so, and all things considered, using them improves distribution efficiency.
This is not to suggest that under no circumstances can a tier in the channel be eliminated and that there would be no advantage at all in doing so. In some cases, it certainly is sensible to eliminate one particular tier in the channel and the firm might be better off doing so. It has to be conceded that there are always alternative methods of performing a set of channel functions and a firm may be better off by following one method in preference to another. But, it depends on the circumstances of the case. The firm has to analyze and find out whether the concerned distribution functions are performed more cost-effectively by eliminating the tier and shifting the functions backward or forward to another tier in the channel, or by keeping the tier alive. As a general rule, it can be said that where the number of tiers are far too many, the elimination of a tier would be advantageous.
The Test Question: The test question is: Are the functions duplicated in a wasteful manner? Sometimes, duplication of channel functions does take place in a channel system; the same function being performed by more than one tier. Firms often presume that in such cases, it is beneficial to dispense with one of the tiers. This is again incorrect thinking. Duplication of functions by different tiers need not automatically imply inefficiency, or waste. In many cases, such duplication may be essential for achieving the desired service level in distribution. For example, inventories may have to be kept at different levels/tiers of the channel so that the flow of products is smooth and customers get the products at the time and place of their choice. In such cases, duplication is essential and beneficial. ‘The firm, therefore, has to find out whether duplication is wasteful. If it serves the interests of the firm, it is not wasteful. So based on the facts of the case, the firm should find out how costs are reduced, efficiency increased and waste eliminated.
