- Provide Distribution Efficiency: In the first place, the channels bring together the manufacturer and the user in an economic manner and thereby provide distribution efficiency to the manufacturer.
- Minimize the number of contacts needed for reaching consumers: In most cases, it will be impractical for a manufacturing firm to sell its entire production directly to the consumers. Resource constraint is the first hurdle in this regard. Even assuming that the required resources can be found, the question arises whether it will be advantageous for the firm to sell its products directly and all by itself, totally avoiding external. Marketing channels analysis shows that in most cases, using external marketing channels/intermediaries is more advantageous to the firm than performing the distribution function all by itself. When channels are dispensed with, the number of contacts a manufacturer will have to establish for reaching out to the consumers are far too many; Channels minimize the number of contacts.
- Break the bulk and cater to tiny requirements: Channels break the bulk and meet the small-size needs of individual consumers.
- Supply products in suitable assortments: Channels also combine products and components manufactured by different firms and offer them in assortments that are convenient to users. The users normally need an assortment of items. They will shop at only those outlets, which supply such assortments. But, a manufacturer cannot meet the need for such assortments, since it will not be feasible for him to take up distribution of other products required by the customers. The channels thus render the vital service of assembling the products of different manufacturers and offering them to customers in suitable assortments. In other words, the channels help in ‘matching segments of supply with segments of demand’.
- Provide Salesmanship: Marketing channels also provide salesmanship. In particular, they help in introducing and establishing new products in the market. In many cases, buyers go by the recommendations of the dealers. The dealers establish the products in the market through their persuasive selling and person-to-person communication. They also provide pre-sale and after-sale service to the buyers.
- Help in Price Mechanism: In many cases, the channels also help implement the price mechanism. They conduct price negotiations with buyers on behalf of the principals and assist in arriving at the right price- the price that is acceptable to the maker as well as the user. This is vital for the consummation of the marketing process. The manufacturer would find it difficult to complete this step without the help of the channels.
- Look after a Part of Physical Distribution and Financing Channels: also look after a part of the physical distribution functions like transportation, handling, warehousing, sub- distribution, order processing and inventory management. Channels also share the financial burden of the manufacturer by financing the goods flowing through the marketing pipeline. Often, they pay cash and lift the products; in the process, the manufacturer gets his money long before the products reach the ultimate users. In some cases, the channels provide substantive deposits to the principals. In several cases, the channels also extend credit to the subordinate levels in the channel and to the consumers. This also relieves the principals’ financial strain to an extent. More than everything else, the channels place the products close to potential consumers and thereby enhance the chance f its sale.
- Assist in Merchandising: Merchandising is another important function performed by marketing channels. Through merchandising, they help reinforce the awareness about the product among customers. When a customer visits a retail shop, his attention can be allured by an attractive display of the product brand increasing his awareness and interest. Merchandising, especially display complements the selling efforts of the company and acts as a silent salesman at the retail outlet.
- Provide Market Intelligence: Channels provide market intelligence and feedback to the principal. In the nature of things, channels are in a good position to perform this task, since they are in constant and direct contact with the customers. They feel the pulse of the market all the time.
- Act as Change Agents and Generate Demand: 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.
| Functions Performed by Marketing Channels | |
| ü Facilitate selling by being physically close to customers ü Provide distributional efficiency by bridging the manufacturer with the user, efficiently and economically ü Break the bulk and cater to the tiny requirements of buyers ü Assemble products into assortments to meet buyer’s needs; match ‘segments of supply’ with ‘segments of demand’ ü 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 | d) transforming static stocks into operational stocks, thereby aiding the sale process ü 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 ü Provide salesmanship ü Provide pre-sale and after-sale service ü Assist in sales promotion ü Assist in merchandising ü Assist in introducing new products ü Assist in implementing the price mechanism; assist in price negotiations ü Assist in developing sales forecasts/sales plans for the territory ü Provide market intelligence and feedback ü Maintain records ü Take care of liaison requirements ü 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 emphasised 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.
Channel Decisions have a Bearing on Other Marketing Decisions The decisions on channel have a vital bearing on other decisions relating to marketing. Pricing decisions, for example, are related to the channel pattern adopted by the firm and the compensation paid to the channel. Similarly, decisions on sales force, its size, type, etc., depend on the nature and size of the marketing channel adopted. The channel pattern influences the pattern of salesmen’s operations. It also determines to a significant measure the size and complexity of the marketing department of the firm.
Channel decisions usually bind the firm with long-term commitments. The channel types and the number of levels/ tiers in the channel cannot be changed every now and then. For example, once a firm has developed a marketing channel of its own, with company’s own stock points performing the wholesaling/semi-wholesaling task, and dependence on external channel limited to retailing activity alone, it cannot all of a sudden switch to a sole-selling agent system or even a wholesaler-retailer system. Having invested heavily in company’s own stock points/depots, the firm cannot suddenly extricate itself from the commitments already made. Basically; once a firm adopts a particular channel model and goes along with it for some time, exiting the model will be difficult.
Channel ‘Levels’, Channel ‘Members’, and Channel ‘Length’ All marketing intermediaries do not operate at the same tier; they operate at different tiers. Each distinctive tier of intermediaries is referred to as a ‘level’ in the channel; and each link is referred to as a ‘channel member’. The number of ‘levels’ determines the ‘length’ of the channel; the more the levels, longer is the channel. The number of ‘members’ does not determine the ‘length’ of the channel.