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(A TOOL0F MARKETING

Marketing Channel
Strategy
Place:-The 3rd “P” in the Marketing
Mix has been largely neglected

But this is changing....


M a r k e t i n g C h a n n e l S t r a t e g y is
Growing in Importance. Why

Five Reasons:-
(1) Search for Sustainable Competitive Advantage
(2) Growing Power of Retailers in Marketing Channels
(3) The Need to Reduce Distribution Costs
(4) The Increased Role and Power of Technology
(5) The New Stress on Growth
1.The Search for Sustainable
Competitive Advantage
 A competitive advantage that cannot be quickly and easily
copied by competitors

 Superior Marketing Channel Strategy is More Difficult for


Competitors to Copy Because:
Channel Strategy is Long Term
Requires a Channel Structure
Depends on Relationships and People
Requires Effective Interorganizational
Management
2.Growing Power o f
R e t a i l e r s in M a r k e t i n g
Channels
3.The Need to Reduce
Distribution Costs

Distribution
Costs
 Distribution Costs
Often Account for a
Significant Percentage
of the Final Price of
Products
4.Increasing Role and Usefulness of
Technology

 Firms that make effective


use of these technologies in
their channel
strategy can gain a
substantial competitive
advantage
5.The New Stress on Growth
Strategy
Place Decisions Are an Important Part of
Marketing Strategy
Channels o f

Dist r ibut i o n
Channel System May Be Direct or Indirect

Greater Control

Lower Cost

Internet Makes Direct Distribution


Easier

Direct Contact with Customer

Some Needs

Reasons Quicker Response or Change in


Marketing Mix
For Choosing
Suitable Middlemen Not
Direct Channels Available
F a c t o r s R e l a t e d t o t h e Use o f
D i re c t Distribution

• Direct (producer to customer) distribution is more Manufacturer


common when:

– an aggressive personal selling effort is required and/or when


customers need special technical service
– the product is primarily a service rather than a physical
good
– when working with middlemen would make it difficult to
maintain control of the marketing mix
– the producer can perform marketing functions more efficiently
End User
(economically) by itself
Indire ct Distribution
 Goods may move through a set of intermediaries
 Most FMCG companies follow this route
 The intermediary has a far better reach than the
company
 The cost of operations of an intermediary like a
wholesaler / retailer is shared with many
businesses.
Indire ct Distribution
Manufacturer Manufacturer Manufacturer

Agent

Distributor/ wholesaler

Distributor/ wholesaler

Retailer Retailer

Retailer

End User End User


End User

One level Two level Third level


Marketing Channel
Systems
Vertical:
Corporate
 Administere
d
Contractual

Horizontal
 Multi-channel
Ve r t i c a l M a r k e t i n g S y s t e m
 Various parties like producers, wholesalers and retailers act as a
unified system to avoid conflicts
 Improves operating efficiency and marketing effectiveness
 3 types:
 Corporate:- combine production and distribute under single ownership
 Administered:-Co-ordinates distribution activities and Gains market power
by dominating a channel
 Contractual:-Independent producers, wholesalers and retailers operate on
a contract
Ho ri zo ntal Marketing System

 Two or more unrelated companies join together


to pool resources and exploit an emerging market
opportunity
 In-store banking in hotels, big stores
 Retail outlets in petrol bunks
 Coffee Day outlets in airports
Limiting Market Exposure

Producer

Vertical
Arrangements
Wholesaler

Retailer Retailer Retailer

Horizontal Arrangements
M u l t i - c h a n n e l Distribution

 Company uses different channels to reach /


same or different market segments
 Most FMCG companies have separate networks for
retail market and institutions
 Pharma companies may use different channels to
reach doctors, chemists and hospitals