Marketing Channels

Definition: Marketing channel is a system which ensures the distribution

of the merchandise from the producer to the consumers by passing it
through multiple levels known as middlemen. It is also known as
channels of distribution. Every product is different from one another and
so are their channels of distribution.

Let us take the example of Mondelez India Foods Limited (Cadbury

India Limited).

Cadbury is India’s most popular chocolate brand and we can easily buy
it from any of our next-door grocery stores. But do you know how it
reaches each and every part of the country, even to the villages?

All this possible because of marketing channels. Cadbury has limited

manufacturing units in India. With the help of a well-designed marketing
channel, the product reaches the depots located in the various states.
From these depots, it is sent to the C&F agents and from there it
reaches the distributors located in different cities.

The distributors sell the product to the wholesalers and the retailer who
finally makes it available to the customers.

Marketing Channels – Importance

A marketing channel system decisions affects the other marketing
decisions also, and therefore are among the most critical decisions.
Channel choices themselves depend on the company’s marketing
strategy with respect to segmentation, targeting, and positioning.
Marketing channels must not just see markets but they must also
make markets as one of the chief roles of marketing channels is to
convert potential buyers into profitable customers.
In addition channel decisions include relatively long-term
commitments with other firms as well as a set of policies and
procedures. Marketers in the present dynamic market should adopt
the holistic perspective and ensure that marketing decisions in all
these different areas are made to collectively maximize value.
In managing the intermediaries, the firm must also decide on the
emphasis given to the ‘push’ versus ‘pull’ marketing strategy. A
‘push’ strategy uses the manufacturer’s sales force, trade
promotional money, or other means to induce intermediaries to
carry, promote, and sell the product to end-users.
This strategy is appropriate where there is low brand loyalty in a
category, brand choice is made in the store, the product is an
impulse item, and product benefits are well understood. While, in
the ‘pull’ strategy the manufacturer uses advertising, promotion,
and other forms of communication to persuade consumers to
demand the product from intermediaries, thereby, induce the
intermediaries to order it.
‘Pull’ strategy is appropriate when there is high brand loyalty and
high involvement in the category, when consumers are able to
perceive differences between brands, and when they choose the
brand before they go to the store.
Marketing activities directed towards the channel as part of ‘push’
strategy are more effective when accompanied by a well-designed
and well-executed ‘pull’ strategy that activates consumer demand.
On the other hand, without at least some consumer interest, it can
be very difficult to gain much channel acceptance and support.

Different channel design decisions in

marketing

Manufacturers face several channel design decisions. Manufacturers

often struggle between what is ideal & what is practical in the
designing marketing channels. Having limited capital offer limited
sales in a limited market area of a firm. In these cases, this firm needs
to choose the best channel that’s more effective. There is a problem
that how to convince one or few good intermediaries to handle the
line.

If these intermediaries become successful then new segment may

select to enter. In the small markets, producer directly sells to retailers
but in the large market, producer chooses distributors to persuade
consumers.
 For maximum revenue, channel analysis & channel design decision
plays a vital role. This channel design calls on analyzing consumer
needs, setting channel objectives, identifying major alternatives,
evaluating those alternatives.

1. Analyzing consumer needs

Previously we learned that marketing channels are the part of the
overall customer value delivery network. Each channel member adds
value to the customer. In this case, designing a marketing channel, the
producer needs to find out some questions like—

 What the target consumers want from the channel members?

 Does the consumer want to buy from nearby locations?

 Or are they willing to travel to more distant?

 The way of purchasing system of consumers.

 Do they value the breadth of assortment?

 Do they prefer specialization?

 Do consumers want many add-on services like delivery, warranty,

repair, installation, and credit terms?
 Will the obtain these services elsewhere?

 2. Setting channel objectives

 In this step, the company should decide its marketing channel
objectives. The nature of the company, its products, marketing
intermediaries, competitors & environment is influenced the channel
objectives.
 3. Identifying major alternatives
 It has too many major alternatives. Here, I’ll discuss three major
alternatives.
 Types of intermediaries
At first, a company identifies the different channel members who can
work for the producer to carry out its channel work. For example: at
first, Dell directly sold to final consumers as well as business buyers.
Dell uses the phone call or internet marketing channel to sell directly
to the customer. But at present to match with its competitors HP or
Apple, dell starts indirect selling through retailers & value-added
resellers, independent distributors.
  The number of marketing intermediaries: At each level of
marketing intermediaries, a company must determine the numbers
of channel members. There’re three strategies available.
 Intensive distribution: Intensive distribution is a strategy in which
sellers collect products as many as it can & make them stored for
future selling.
 Exclusive distribution: Exclusive distribution is a strategy in which
the producer gives the right to a limited number of dealers to
distribute the company’s products.
  Selective distribution: Selective distribution lies on between
intensive & exclusive distribution. It has more than one but less than
all intermediaries who’re worked for carrying out the company‘s
products.
  Responsibilities of channel members: All the channel members
should agree on the terms & conditions with the producer.  They
should maintain their responsibilities & agree on price policies,
territory rights & sale conditions. At first, producer fixed a list price
for channel members than the channel members set discount price
for customers. These members are much concern about their
territory & their customers.
All the channel members should work together. Because mutual
understanding between them can be so effective.

4.Evaluating the major alternatives

Imagine, after identified of all major channel alternatives, a company
wants to select one segment that will satisfy in the long-run
objectives. There’re three core factors that will affect the channel –

 Economic: After using economic criteria, a company can get the

better idea about it sales, costs & profitability in the different
alternatives channel. Like, how much investment will need in the
future? What’ll be the results in the near future?
 Control: All companies must consider the control issues. It means
the company should give less control over the marketing of the
product. But others things should keep equally if possible.
 Adaptability criteria: Finally, a company needs this adaptability
ability to cope up with the all favorable or unfavorable situation.
Channel Management Decisions: Top 5 Steps
The success of any marketing channel lies in the foundation
of right channel design decision. But channel design is just
the planning part; it needs right implementation to be
successful. The implementation can be taken care of, with
the help of channel management decisions, it includes right
from, selecting a channel member to training them to
motivating them and to evaluating them on their
performance. In case, the performance is not as expected,
the modifications are done by the company in the channel
arrangements.

Step # 1. Selecting Channel Members:

The first priority for any company is choosing the right

channel members. As the business is dependent upon the
marketing channel partners, it becomes crucial for the
success of any company to select the best channel partner.
All the companies whether it’s a product manufacturing
company like Colgate or Onida or a service company like
IMS or Career Launcher, needs a good channel partner to
succeed.

Generally all the companies advertise through newspapers

and trade magazines to look out for channel partners. If the
company is known and successful, it becomes quite easy for
the company to find them. But in the case of a new
company launching a new product, then finding a channel
partner can be tough. In both the cases, the parameters for
choosing a channel partner should be very clear for the
company as well as the channel partner.
In some businesses, like opening a McDonald’s franchisee,
the location becomes more important than in any other
business. As the business is dependent on the footfalls it
can get. The company can evaluate any channel partner on
the basis of business experience, financial capabilities,
locational advantages, growth and profit record, experience
of the promoters. In the case of exclusive distribution, these
parameters become more important for the company.

Step # 2. Training Channel Partners:

Once the channel partner is selected, they need to be

trained as they are the face of the company. All the
companies have intensive training programmes for its
dealers to tell them about their sales and service
capabilities, product knowledge, expected service quality
and operational procedures to follow. For example, LG
Electronics India regularly trains its sub-dealers, direct
dealers and service franchisees.

The training tries to facilitate performance, improve

knowledge, skills and attitude of its dealers and sales staff.
The training is given both through online and offline
methods, which covers functional, technical and behavioural
aspects. Similarly Kirloskar Brothers Limited (KBL) makes the
customers and dealers aware of the fundaments and
working principles of Centrifugal Pumps, enabling them to
operate and maintain the equipment more efficiently. The
training program is designed by KBL to offer best possible
theoretical as well as practical knowledge to their valued
customers and dealers.

Step # 3. Motivating Channel Members:

As the channel members are as important as your
customers, a company needs to make them happy. Just like
anybody, channel members are also needs to be motivated.
On the one hand, the company tries to train them for their
better performance and on the other hand, the company
provides them incentives, higher margins, premiums,
display allowances, advertising allowances and special deals.

While managing the relationship with the channel members,

a company can use coercive power or it can use reward
power or legitimate power. A company can also use expert
power or referent power. In the case of coercive and
legitimate power, the relationship can turn sour and it may
not be productive in the long run. But the widely used
reward power works the best to get the cooperation from
the channel members. In the case of expert power, the
channel member looks forward to the company for its
expertise and becomes dependent, if the expertise is ever
changing.

When a company is highly respected like Sony, LG, Apple,

Maruti Suzuki, then they have referent power. The channel
members feel proud to be associated with it. In turn, it
makes the channel partners cooperate with the company.
This is the highest authority a company can possess.

The most advanced supply distributor agreement is

distribution programming, which can be defined as building
a planned, professionally managed vertical marketing
system that meets the needs of both manufacturers and
distributors. The manufacturer establishes a department
within the company called distributor relations planning. Its
job is to identify distributor needs and build up
merchandising programmes to help each distributor
operate as efficiently as possible.

Step # 4. Evaluating Channel Members:

Channel members are evaluated on the basis of their sales,

inventory level, service support, delivery time performance,
complaint redressal, promotional program implementation
and training performance.

If the performance of the channel member is satisfactory,

then it is rewarded for its efforts and if the performance falls
below mark, it is advised to make necessary changes in the
processes. In case of channel members, where the
problems are beyond rectification, they are removed and
the company appoints a new channel member.

Step # 5. Modifying Channel Arrangements:

With the changing times, the company needs to modify its

channel arrangements. The product line can expand, the
consumers buying pattern can change, the new competition
can come up, a new distribution channel can emerge or the
demand of the product can change by getting into the later
stages of product life cycle. All these factors can lead the
company to change its channel arrangement.

When Intex started their operations in 1996, they had just

one product – Ethernet card. Now the product has
expanded to 26 product groups with more than 300 stock
keeping units. Now their marketing channel consist of 2
mother warehouses, 2 regional offices, 28 branches, 57
service centres, 183 service franchises and more than 2000
channel partners. Similarly with the growing usage of
Internet, all the retailers are trying to follow a brick and click
model, where they sell their merchandise in their stores and
they sell it online also. Kishore Biyani’s Future group is a
good example of the same.

They target their customers through a brick model with Big

Bazaar, Pantaloons, E-Zone, Home Town etc. and follow the
customers online through their click model i.e.
www(dot)futurebazaar(dot)com and
www(dot)ezoneonline(dot)com . From time to time, a
company needs to track the changes in the market and on
this basis; they need to modify their channel members.

Channel Conflict
Definition: Channel conflict can be explained as any dispute,
difference or discord arising between two or more channel
partners, where one partner’s activities or operations affect the
business, sales, profitability, market share or similar goal
accomplishment of the other channel partner.

As we know that every manufacturing company needs to plan

its distribution and marketing channel appropriately, to ensure
market captivity and customer satisfaction along with growth
and profitability.

In the process of the constant supply of products in the market,

several channel partners and intermediaries join the supply
chain of the brand. Any clash and disturbance among these
trading partners can be considered as a channel conflict.

Content: Channel Conflict

1. Types
2. Conflict Magnitude
 3. Causes
4. Consequences
5. Management
6. Example

Types of Channel Conflict

The channel conflict can be classified majorly into the following
four categories depending upon its flow and the parties
involved:

Vertical Level
Conflict

In the vertical level conflict, the channel partner belonging to a

higher level enters into a dispute with the channel member of a
lower level or vice-versa.

For instance, channel conflict between dealers and retailers or

wholesalers and retailers.

Horizontal Level Conflict

The conflict among the channel partners belonging to the same

level, i.e., issues between two or more stockists or retailers of
different territories, on the grounds of pricing or manufacturer’s
biases, is termed as horizontal level conflict.

Inter-type Channel Conflict

These type of conflicts commonly arise in scrambled

merchandising, where the large retailers go out of their way to
enter a product line different from their usual product range, to
challenge the small and concentrated retailers.

Multi-channel Level Conflict

When the manufacturer uses multiple channels for selling the

products, it may face multi-channel level conflict where the
channel partners involved in a particular distribution channel
encounters an issue with the other channel.

Conflict Magnitude
The level to which the conflict is considered critical or needs the
attention of the channel leader, i.e., manufacturer, is known as
its magnitude.

The magnitude of conflict can be determined through the

proper analysis of the change in market share and the
company’s sales volume in a particular area or region.

Causes of Channel Conflict

What are the reasons responsible for a channel conflict?

Following are some of the key reasons for which the

organizations need to face channel conflict:
Role Ambiguity: The uncertain act of an intermediary in a
multi-channel arrangement may lead to disturbance in the
channel of distribution and cause conflict among the
intermediaries.

Incompatible Goals: When the manufacturer and the

intermediaries do not share the same objectives, both work in
different directions to meet their ends, this results in channel
conflict.

Marketing or Strategic Mis-Alignment: Sometimes, two-

channel partners promote the manufacturer’s product in a
different manner, which created two different images of the
same product in the consumers’ mindset, which creates
conflicting brand perception.

Difference in Market Perception: The manufacturer’s

understanding of the potential market and penetration into a
specific region or territory, may vary from the perception of the
intermediaries, which can create conflict and reduce the
intermediary’s interest in capturing that particular market.

Change Resistant: When the channel leader plans to modify

the distribution channel, the intermediaries may or may not
accept this change. Thus, it may result in a condition of discord
or non-cooperation.
Improper Geographic or Demographic Distribution: If the
sales territory has a narrow consumer base, and the channel
leader allows many selling partners, they tend to lose interest
soon because of low profit and limited sales.

Consequences of Channel Conflict

Now that we know about the causes of such conflicts, we must
also understand how dangerous these may prove to be for an
organization.

Given below are some of these outcomes:

 Price Wars: Due to channel conflict, the partners compete

with each other on the grounds of price, and therefore, the
consumer may defer the purchase searching for the best
deal.
 Customer Dissatisfaction: If there exists a channel
conflict, then the distributors or retailers may show much
interest in the company’s products and resist to assist the
consumers, which results into their resentment towards the
brand.
 Sales Deterioration: Conflicts can adversely affect the
sales of the products due to the decline in distributors’
 interest and an increasing number of consumers shifting to
competitors’ products.
 Distributors Exit: For the manufacturers, it is essential to
retain the distributors or partners to increase product sales.
When there is a channel conflict, the chances of various
distributors leaving the channel increases.
 Poor Public Relations: The unsatisfied distributors may
negatively publicize the brand and its products as a result
of manufacturer’s unhealthy public relations with them.

Channel Conflict Management

It is a universal fact that the conflicts cannot be eliminated,
though these can be handled smartly to reduce its negative
impact on business.

Following are some of the ways to manage the channel

conflicts:
Mediation, Arbitration and Diplomacy

To resolve a dispute, the manufacturer can adopt the strategy

of intervention where a third person intervenes to create
harmony. The other option is arbitration, where an arbitrator
listens to the argument of the parties involved in a conflict and
declares a decision. Or, the parties can resort to diplomacy
where the representatives of both the parties conversate and
find a solution.

Co-optation
The manufacturer should hire an expert who has already
gained experience in managing the channel conflicts in other
organizations, as a member of the grievance redressal
committee or board of directors, for addressing such conflicts.

Dealer Councils and Trade Associations

To handle the horizontal or vertical conflicts, the manufacturer

forms a dealer council where the dealers can unanimously put
up their problems and grievances in front of the channel leader.
To bring in unity among the channel partners or intermediaries,
they can be added as members in trade association which
safeguards their interest.

Superior Goals

Establishing a supreme goal of the organization and aligning it

with the individual goals or objectives of the channel partners,
may reduce the channel conflicts.

Regular Communication

The channel leader should take regular feedback from the

channel partners through formal and informal meetings to know
about market trends and dynamics. Also, the channel partner’s
issues and conflicts can be addressed through frequent
interactions.

Legal Procedure

When the conflict is critical and uncontrollable by the channel

leader, the aggrieved party can seek legal action, by filing a
lawsuit against the accused party.

Fair Pricing

Most of the channel conflicts are a result of the price war, and
therefore, these can be resolved by ensuring that products are
equally priced in all the territories and a fair margin is provided
to the channel partners.

Channel Conflict Example

The world-renowned brand ‘Samsung Electronics‘, faced a
multi-channel level conflict in its Indian market in the year 2014.
The company was selling its products (especially mobiles)
through multiple channels, i.e., via offline mode and online
mode.

The offline channel partners raised the issue that the e-retailers
are providing high discounts to attract more and more
customers, which had ultimately affected the offline sale of the
product.

Due to this, many retailers and distributors in the offline market,

distance themselves from the brand and its products.

To address this issue and retain its offline distributors and

retailers, Samsung provided the right to sell forty-eight models
of its brand exclusively through the offline distribution channel,
thus, re-energizing the brick and mortar channel partners.