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Channel Management
FUNCTIONS OF INTERMEDIARIES
The overhead costs can be reduced by reducing the number of transactions (exchanges). Marketing intermediaries increase efficient availability of products in target markets in a lesser number of transactions. Moreover, intermediaries offer the manufacturer, benefits of larger and more efficient customer service through contacts, experience, specialization, and scale of operation. Intermediaries smoothen the flow of products from sellers to buyers, by performing key functions such as informing, promoting and physical possession (including negotiation, title, payment risk taking and financing). A producer will use an intermediary when he believe that the intermediary can perform the function(s) more economically and efficiently than it can, as sharing of selling function with the intermediaries also means loss of control. This loss of control can be in terms of how and to whom the products can be sold in the market.
The main functions of intermediaries are as follows:
- Information is concerned with gathering and distributing marketing research and intelligence about the environment for planning purposes. This information is best provided by
the intermediaries as they are the people who deal with the customers regularly and understand the customers‘ attitude and motivations better than the manufacturer. And it is this pulse of the customer that needs to be felt by a company, for its strategy formulation.
- Promotion involves developing and spreading persuasive communications about an offer. The intermediaries being close to the customer know best as to the strategy which will be best suited for motivating the customers. It is these people who can tell best if the company should adopt push promotional strategies or pull strategies at a given time in the market. They can also provide valuable information concerning the possible contents of the promotion mix.
- Physical possession relates to transporting and storing of products. The intermediaries also play an important role in creating possession and place utilities. They help in value addition of a product by helping and motivating customers understand the utility of the product. This activity also involves negotiations on price and other terms. The title is the actual transfer of ownership from one organization or person to another. The payment involves buyer paying their bills. The risk-taking function assumes the risk of carrying the product and receiving payment.
- Financing involves acquiring and using funds to cover costs. Without an intermediary, each buyer has to negotiate and exchange with each seller. Intermediaries reduce the
TYPES OF INTERMEDIARIES
Merchant Wholesaler
A wholesaler or distributor is an independent commercial establishment that purchases products from various manufacturers for stock and offers complete assortments of special merchandise for resale to the retail store. A merchant wholesaler provides the widest variety of marketing functions an services. They are independently owned, and take title to merchandise. Merchant wholesalers can be further divided into full service wholesalers and limited service wholesalers.
Full service wholesalers provide a full set of services (buy, sell, transport, store, standardize, finance, bear risk, gather market information, and research). This type of wholesalers can be further categorized as follows :
- Wholesale merchants. This type of wholesalers provide full range of services and products to the retailers. These are further divided into categories based on the product lines carried by them. If a wholesaler carries only a selective or targeted range of products within several merchandise lines he is called as the general merchandise wholesaler. If a wholesalercarries extensive assortment of products in one or multiple product line then he is called as the general line wholesaler, for example wholesalers who sell pharmaceuticals, over-the counter drugs and toiletries to small, independently owned drug stores. If a wholesaler carries all products of a single line, then he is called as a speciality wholesaler. Food first.co.uk is one such online wholesaler. In addition, meat and fish (frozen foods), daiq products, hardware, groceries trade and fashion appear specialty wholesalers have also been successful.
- Industrial distributors. This category refers to those wholesalers who sell their products exclusively to other manufacturers. Industrial distributors may carry multiple product line general product line or specialty line. The products stock include: maintenance, repair and operating supplies (MRI items), original equipment manufacturers (OEMs) an machineries used for value addition for example, Harrington Industrial Plastics Inc., Terracon Corporation, CRECO Inc.
Limited-service wholesalers provide limited services to the suppliers and customers. There are several kinds of wholesalers in the category.
- Cash and carry wholesalers. This is a kind of channel partner who stocks a limited line of fast moving products. I pays and picks up the products and expects the same from t] customer as well. This wholesaler provides merchandise at reduced cost to the retailer by reducing service offers al eliminating credit risk. For example, a small grocer who bu and pays for the vegetables to the producers every day.
- Truck wholesalers. A truck jobber or wagon distribu1 employs a wholesaler technique that combines the functions sales and delivery only. They carry a limited line of product (such as milk, bread, eggs and soft drinks) that they sell cash to supermarkets, restaurants, hotels and the like. Product most often sold include nationally advertised, fast move brands in small quantities. Frequent calls and contacts with retailer reduce retailer inventory and investment requirement This produces fast inventory turnover and prompt repleniment of products sold.
assortments on a job-lot basis. Jobbers offer flexibility of servicing small retailers and odd-lot requirements.
- Franchised distributor. A district wholesaler representing one or more manufacturers, having exclusive right to the distribution of their merchandise in the assigned territory, is called a franchised distributor.
- Voluntary group wholesaler. This is a wholesale establishment serving as a voluntary association of participating retailers or outlets, which buy from manufacturers to obtain quantity discounts. The establishment offers a complete assortment of merchandise as required by members, and provides merchandising assistance to members. This enables participating members to reduce costs and compete more effectively with corporate chains.
Brokers and Agents
Brokers and agents do not take title to the products, and offer their customers a very limited number of services. Brokers are middlemen who bring the buyer and seller together and assist in price, product and delivery negotiations. Agents are wholesalers contracted to represent the producer or the buyer. These are of several types.
Manufacturers agents. These are independent agents who usually represent two or more manufacturers who produce complementary products. They usually represent the manufacturer with whom they have entered into a contract. This contract usually contains details concerning pricing policies, territories, order handling procedures, delivery service and warranties and commission rates. These are firms composed of highly skilled sales people who are contracted by the small firms who cannot
afford to have an extensive sales force of their own.
Selling agents. These are intermediaries who are contracted by the manufacturer to sell the entire production output. This type of agents are taken on by companies incapable of employing individual fulltime sales force.
Purchasing agents. Agents adopted by the customers are purchasing agents. These agents are able to get best goods and prices for the customer and also provide consultative services.
Commission agents. These are intermediaries who purchase goods from the manufacturer and then sell it in the market for the best possible price. After deducting their fee and miscellan.eO\lS eXllen.ses, the balance is llassed on to the manufacturer.
Manufacturer and Retailer (Branches and Offices)
Manufacturers' branches and offices. These are intermediaries who perform various functions of sales and distribution without the assistance of an independent wholesaler. Various categories under this type are as follows: (a) Manufacturers' branches. These are owned by buyers or sellers and not by independent wholesalers. These usually carry little or no inventory, and primarily take orders for merchandise. Miscellaneous wholesalers include agricul tural assemblers, petroleum bulk plants and terminals, and auction companies. (b) Manufacturers' outlets. These refer to stores located in the high-density markets owned or leased by the manufacturers. These are used by manufacturers of branded consumer products like designer clothing and Jewellery makers.
F 0B 7F 02 0 A convenience store is a small store located near a residential area, that is
open long hours, seven days a week and carries a limited line of high- turnover convenience goods. An example is 7-Eleven. F 0B 7F 02 0 A superstore is a store almost twice the size of a regular supermarket that
carries a large assortment of routinely purchased food and non-food items and offers services such as dry cleaning, post offices, photo finishing, cheque cashing, bill paying, lunch counters and car care. Wal- Mart and Kay-Mart have opened some "super centres" that fall under this category. F 0B 7F 02 0 A warehouse club is an off-price retailer that sells a limited selection of
brand-name grocery items, appliances, clothing, and other goods at deep discounts to members who pay annual membership fees. The largest national chain warehouse club is Sam's Club. Stores look more like warehouses and offer few frills or services and consumers are expected to buy in bulk. In exchange, consumers get low prices. Some other warehouse clubs are Price Club, Costco, P1's wholesale club. F 0B 7F 02 0 Category killers/sub percenters are superstores that focus on a narrow
product line. A category killer carries a very deep assortment of a particular line of product, and is staffed with knowledgeable employee~. It usually comes into markets and "kills" the competition in that line of products by virtue of their size and assortment. Examples of category killers are Toys "R" Us, Best Buy, Office Depot, Staples and Horne Depot.
(b ) Non-store retailing. This type of retailing is growing more rapidly than store retailing. This includes direct selling (door- to-door, party selling), direct marketing, automatic vending, and buying services. Much of the retailing is in the hands of
large retail organizations such as corporate chains, voluntary chain and retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates. F 0B 7F 02 0 A direct selling organization is a marketing method wherein the manufacturer or producer sells directly to retailer, user, or ultimate consumer without intervening intermediaries. This offers flexibility with maximum control of sales effort and marketing information feedback. F 0B 7F 02 0 A direct sales or catalogue or mail order house is a retail or
wholesale concern employing a· technique in marketing, wherein sales are generated entirely through advertising from brochures or catalogues without the use of salespeople or retail outlets. The placement of orders and shipments are handled through the mail or delivery service. This provides wide coverage at low per-unit sales cost and allows centralization of warehousing and service facilities. Catalogue marketing involves selling through catalogues mailed to a select list of customers or made available in stores. F 0B 7F 02 0 Telemarketing involves using the telephone to sell directly to
consumers. F 0B 7F 02 0 Television marketing utilizes dire
ct-response advertising features that provide a toll-free number, 24- hour a day, for consumers to call immediately to purchase the product. Advertisements can be of 60-second spots or half-hour infomercials, often featuring celebrity spokespersons. An example is, Home Shopping Network. F 0B 7F 02 0 Electronic marketing utilizes computer and the Internet.
They thus adopt a micro view, which in turn effects the working of the super organization. The reason for this could be that the efficiency of the marketing channel depends upon the ability of the members to work together. This necessitates some motivators and control efforts. These need to practised by the manufacturer on the channel members in order to achieve
(a) improved channel communication, (b) co-operation among various channel member, and (c) to induce the channel members to give their best to the product. To bring this to reality, in addition to good motivational policy, a well- planned system should be followed to choose the channel members.
Variables to be Considered for Selecting Channel Members
Once an optimal distribution channel has been designed, the channel members have a clear and concise idea of the activities to be performed to achieve a high customer satisfaction level. For this purpose, the channel members are required to commit, not only psychologically but also monetarily, to the mission and objective statement of the planned distribution system. Monetary resources involve procurement of resources like warehouses, toll- free telephone lines, well-trained sales force, electronic data storing and managing equipment. Thus, to make a distribution channel work, the channel partners should be carefully selected. The factors which are considered before selecting a channel member are as follows:
Financial strength of the prospective partner : "financially sound': This deals with finding the financial resources at the disposal of the partner
performed by them like packaging of products, sorting, advertising and storing, but also to sell the product to a wider market. The primary aim of any company to share market control with the intermediary is to bridge the gap between itself and a larger number of consumer. Thus an intermediary chosen, should also have a wide coverage area, quantified in terms of number of outlets per market area (geographic coverage), industry coverage and intensity coverage (Le. the number of times a customer is called upon).
Sales performance : "good track record". Sales strength indicates the qualitative strength of the sales force. While this is so the competencies of the sales force is enhanced by the intermediary. This is done by analyzing the performance of the existing related product lines in the portfolio of the channel partner. Moreover, efficiency is also judged by measuring the capacity of the intermediary to reach target individuals, provide after sale services and organize advertising and sales promotion programmes.
Management strength. Manufacturers look for an intermediary to increase their strength in the market. For this purpose an analysis into the management style of the intermediary is done. It is not necessary that the two styles have to be the same or compatible. But they have to be efficient. Efficiency is measured in terms of factors such as employee relations, strategic direction, organization decision making structure and employee training programmes.
Equipment and facilities. This variable analyzes the kind of transportation facilities, delivery methods, safety precautions during storage and transportation and record keeping facilities at the disposal of the prospective intermediary to be provided to the manufacturer.
Ordering and payment procedures. The efficiency with which an intermediary places orders with the manufacturer and settles his bills also influence the selection process. This is so because there is no use of a fast inventory conversion period to a manufacturer if the average collection period is long.
Willingness. This variable considers the willingness on the part of the intermediary to commit resources, co-operate in joint programme and share data with the manufacturer concerning customers, sales force and inventory.
A company cannot achieve the best of all the variables in an intermediary. A manufacturer has to understand the needs of the product and market, and then land upon a set of priorities. He should then try to trade off between certain selected variables. This selection process would help get the best of the line to constitute a distribution channel. But the best are of no use, i f they do not co-operate with other channel members in achieving the company's objectives.
