Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 10

CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT

persuasive conununication in the

of advertising, personal

sales

and

public relations.

FUNCTIONS OF THE CHANNEL

The primary purpose of any channel of distribution is to

the gap between the pro-

ducer of a product and

user of it, whether the parties are located in the same commu-

nity or in different countries thousands of miles apart . The channel is composed of

institutions that facilitate the transaction and the physical exchange. Institutions in chan-

nels fall into three categories: (1) the producer of the product-a craftsman, manufacturer,

farmer, or other extractive industry producer; (2) the user of the product- an individual,

household, business buyer, institution, or government; and (3) certain middlemen

the whole-

sale and/or retail level. Not all

members perform the same function

Heskett2 suggests that a channel performs three important functions:

1. Transactional junctions-buying, selling,

risk

2. Logistical junctions-assembly, storage, sorting, and transportation.

3. Facilitating junctions-post-purchase service and maintenance, financir:g, information dissemination, and channel coordination or leadership.

These functions are necessary for the effective flow of product and

to the customer and

payment back to the producer. Certain characteristics are implied in every channel. First, although you can eliminate or substitute channel institutions, the functions that these institutions per-cannot

eliminated. Typically, if a wholesaler

a retailer is removed from the chan-

nel, the function they perform will be either shifted forward to a retailer or

consumer, or

shifted backward to a wholesaler or the manufacturer. For example, a producer of custom hunt-

ing

might decide to sell through direct mail instead of

outlets. The producer absorbs

the sOlting, storage, and risk functions; the post office absorbs the transportation function; and the consumer assumes more lisk in not being able to touch or try the product before purchase.

Second, all channel institutional members are part of many channel

at

any given point in time. As a result, the complexity may be quite overwhelming .

for the moment how many different products you

in a sing:e year, and the vast

of channel mechanisms you

Third, the fact that you are able to complete all these transactions to your satisfac-

tion,

well as to the satisfaction of the other channel members, is due to the routinization

benefits provided through the channel. Routinization means that the right products are most

always found in places (catalogues or stores) where the consumer expects to find them, com-

parisons are possible, prices are marked, and metnods of

are available. Routinization

aids the producer as well as the consumer, in that the producer knows what to make, wnen

to make ;t, and how

units to make.

Fourth, there are instances when the best channel arrangement is direct, from the pro-

ducer to the ultimate user. This is particularly true when available middlemen are incom-

petent, unavailable . or the producer feels he can perform the tasks better. Similarly, it may

be

for the producer to maintain direct contact with customers so that quick and

accurate

can be made. Direct-to-user channels are common in industrial set-

tings,

are door-to-door selling and cata logue sales . Indirect channels are more typical

and

for the most

because producers are not able to perfonn the iasks pmvided

by middlemen. (See Figure 10.3.)

Finally, although the notion of a channel of distribution may sound unlikely for a serv-

ice product, such as

care or air travel,

marketers also face the problem of

CHANNEL

LIMITATIONS

2 57

Manufacturer

I

I

I

I

I

I

I

Auto parts

Aircraft

Electron ic

Neon sign

Welding

Electrical

Hardware

warehouse

parts

parts

supply

equipment

distributors

wholesalers

distributors

distributors

distributors

houses

distributors

I

I

I

I

Airport

Manufacturers

Auto parts

Neon sign

maintenance

OEM

of welding

wholesalers

manufacturers

shops

supplies

Airlines

I

Radio, TV,

Garages

maintenance

and electronic

departments

equipment

repair and

Aircraft

Service

service

components

stations

manufacturers

I

I

Repair and

Auto

Welders

Industrials

service shops

dealers

Fleet

owners

Marine

maintenance

shops

FIGURE 10.3

Marketing channels of a manufacturer of electrical wire and cable

Source: Edwin H. Lewis, Marketing Electrical Apparatus and Supplies, McGraw-H ili, Inc., 1961, p. 215.

delivering their product

the form, at the place and time their customer demands. Banks

have responded by developing bank-by-mail, Automatic Teller Machines (ATMs), and other

distribution systems. The medical community provides emergency medical vehicles,

patient clinics, 24-hour clinics, and home-care providers. As noted in Figure lOA even

forming arts employ distribution channels. In all three cases, the industries are attempting

to meet the special needs of their target markets while differentiating their product from

that of their competition. A channel strategy is evident.

CHANNEL INSTITUTIONS:

CAPABILITIES AND LIMITATIONS

There are several different types of parties participating in the marketing channel. Some

are members, while others are nonmembers . The former perform negotiation functions and

participate in negotiation and/or ownership while the latter participants do not.

Producer and Manufact urer

These firms extract, grow, or make products.

wide array of products is included,

vary in size from a one-person operation to those that employ several thousand

and

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