Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 10

CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT

customers. In short, organizations attempt to get their products to their customers in the most

effective ways. Further, as households find their needs satisfied by an increased quantity and

variety of goods, the mechanism of exchange-i.e., the channel-increases in importance.

THE EVOLUTION OF THE MARKETING CHANNEL

As consumers, we have clearly taken for granted that when we go to a supermarket the

will be filled with products we want; when we are thirsty there will be a Coke machine

bar around the corner; and, when we don ' t have time to shop, we can pick-up the telephone

and order from the J.e. Penney cataiog or through the Internet. Of course, if we give it

thought, we realize that this magic is not a given, and that hundreds of thousands of peo-

ple plan, organize, and labor long hours so that this modern convenience is available to you,

the consumer. It hasn't always been this way, and it is still not this way in many other coun-

tries . Perhaps a little anthropological discussion will help our understanding.

The channel structure in a primitive culture is virtually nonexistent. The

or

tribal group is almost entirely self-sufficient. The group is composed of ;ndividuals who

are both communal producers and consumers of whatever

and services can be

available. As economies evolve, people begin to specialiLe in some aspect of economic activ-

ity. They engage in farming, hunting, or fishing, or some other basic craft.

specialized skill produces excess products, which

exchange or trade for needed goods

that have been produced by others. This exchange process or barter marks the beginning

of formal channels of distribution. These early channels involve a series of exchanges between

two parties who are producers of one product and con:mmers of the other.

Wi th the growth of specialization, particularly industrial specialization, and

improvements in methods of transportation and communication, channels of distribution

become longer and more complex. Thus, corn grown in Illinois may be processed into corn

chips in West Texas, which are then distributed throughout the

States. Or, turkeys

grown in Virginia are sent to New York so that they can be shipped to supermarkets in Vir-

ginia. Channels don't always make sense.

The channel mechanism also operates for service products. In

case of medical

care, the channel mechanism may consist of a local

specialists, hospitals, ambu-

lances, laboratories, insurance companies, physical therapists, home care professionals, and

so forth. All of these individuals are interdependent, and could not operate

with-

out the cooperation and capabilities of all the others.

Based on this relationship, we define a marketing channel as' 'sets of interdependent

organizations involved in the process of making a product or service available for use or

consumption, as well as providing a payment mechanism for the provider."

This definition implies several important characteristics of the channel. First, the chan-

nel consists of institutions, some under the control of the producer and some outside the producer's control. Yet all must be recognized, selected, and

into an efficient chan-

nel arrangement.

Second, the channel management process is continuous and requires cons

mon-

itoring and reappraisal. The channel operates 24 hours a day and exists in an environment

where change is the norm .

Finally, channels shou ld have certain distribution objectives guiding their activities.

The structure and management of the marketing channel is thus in part a function of a firm's

distribution objective. It is also a part of the marketing objectives, especially the need to

an acceptable profit. Channels usually represent the largest costs in marketing a product.

FLOWS IN MARKETING CHANNELS

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FLOWS IN M A RKETING CHANNELS

One traditional framework that

been used to express the channel mechanism is the con-

cept of flow. These fl ows, touched upon in Figure 10.2, reflect the many linkages that tie channel members and other agencies together in the distribution of goods and services. From

the perspective of the channel manager, there are five important flows.

1. Product flow

2. Negotiation flow

3. Ownership flow

4. Information flow

5. Promotion flow

These fl ows are illustrated for Perrier Water in Figure 10.2.

The product flow refers to the movement of the

product from the manufac-

turer through all the parties who take physical possession of the product until it reaches the

ultimate consumer.

negotiation flow encompasses

institutions that are associated

with

actual exchange processes. The ownership flow

the movement of title through

the channel. information flow identifies the individuals who participate in the flow of infor-either up or down the

Finally, the promotion flow

to the flow of

Product

Negotiation

Ownership

Information

Promotion

flow

flow

flow

flow

flow

Manufacturer

Manufacturer

Manufacturer

I

I

I

I

Advertising

Agency

FIGURE 10-2

Five flows in the marketing channe: for Perrier Water

Sou rc e: Bert Rosenbloom , Marketing Channels: A Management View, Dryden Pres s, Chicago, 1983, p. 11.'

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