Why have Channel intermediaries?

Channel Roles and Functions

Why have marketing channel?

Transactional efficiency:
P1 P2 P3 Total transactions 3 producers

5 customers = 3 X 5 = 15 nos. C1 C2 C3 C4 C5

Why have marketing channel?

Transactional efficiency: P1 P2 Intermediary P3 Total transactions 3 producers 1 intermediary 5 customers

C1

C2

C3

C4

C5

= 5 + 3 = 8 nos.

Each transaction has cost associated, so reduction In number of transaction leads to reduction in cost.

Why have marketing channel?

Discrepancy of assortment of producer & buyers needs.

Companies manufacture one or a few products in large quantities while customers buy large number of products in small quantities.

Retailers add value to the consumers by selling different products under one roof. Reduces search and procurement effort for the consumers and increases brand choice options.

Why have marketing channel?

Breaking the bulk Companies can not sell in small lot sizes while customers need Only small lots. The channels break the bulk, reducing the investment cost of the Consumers and reducing the overhead cost of companies. Economic lot size for refrigerator delivery is 20-27 nos. For cold drinks it is one crate etc.

Why have marketing channel?

Cost efficiency The manpower cost of marketers is normally higher than the intermediaries Wherever the skill level required for the job are low, it makes commercial sense to use lower cost manpower. Example : Order taking for cigarettes ( most products with good Consumer pull ).

Why have marketing channel?

Routinization

The ordering , delivery & payment processes are routinized It reduces the negotiation and bargaining associated with each transaction. Improves the efficiency of the transaction. Normally terms of business are negotiated for a fixed period of time No further discussion takes place during the time.
Concept of sales policies and special deals. The objective of the channel is to reduce the cost & time of reaching the target customers.

What does the manufacturer trades-off in using the Channel intermediaries

1. The control over quality of service to consumers 2. The direct touch with the customers * Selling of air conditioning plants No channel.

Assuming same level of customer service provided Company uses the channel which maximizes savings: Cost of distribution by the company cost of using a distribution channel intermediary

Flow in marketing Channel ( summary )

1.Physical possession 2.Ownership 3.Promotion 1. Financing 2. Risking 3. Negotiation 1.Order 2. Payment 3. Information B U Y E R

S E L L E

Thank You