Unit 4 Place Mix

Unit 4 Place mix
BY, Komal Suryavanshi

Topics to be covered
• The nature and importance of marketing channels.
• Channel behavior and organization.
• Channel design decisions.
The nature and importance of marketing
channels.
• Marketing channels are the vessel between seller and customers. They
allow the seamless exchange of information between your brand and its
buyers, providing the opportunity to reach more people and expand
awareness of your product and services.
Marketing channels are important because they:
• Identify the best channels to distribute to a target audience.

• Ensure products reach their intended audience.
• Save time and money by having a channel do the work.
• Reach more customers.
Functions of Marketing Channels
Number of Channel Levels
• Channel level – A layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer.
• Direct Marketing Channel- A marketing channel that has no
intermediary levels
• Indirect marketing channel- Channel containing one or more
intermediary levels
Channel Behaviour and Organisation
• Channel Behaviour- A marketing channel consists of firms that have
banded together for their common good. Each channel member
depends on the others.
• For example, a Ford dealer depends on Ford to design cars that meet
consumer needs. In turn, Ford depends on the dealer to attract
consumers, persuade them to buy Ford cars, and service cars after the
sale. The Ford dealer also depends on other dealers to provide good
sales and service that will uphold the brand's reputation. In fact, the
success of individual Ford dealers depends on how well the entire
Ford marketing channel competes with the channels of other auto
manufacturers.
Channel Conflict
• Channel conflict- Disagreement among marketing channel members
on goals and roles- who should do what and for what rewards.
• Horizontal Conflict- occurs among firms at the same level of the
channel. Example- TATA dealers in Mumbai might complain that the other
dealers in the city steal sales from them by pricing too low or by advertising
outside their assigned territories
• Vertical Conflict- conflict between different levels of the same

channel, is even more common. Example- Retailers may not cooperate with
a company because of its policies, the trade margin it offers, or its behaviour.
VERTICAL MARKETING SYSTEMS
• For the channel as a whole to perform well, each channel member's role must
be specified and channel conflict must be managed. The channel will perform
better if it includes a firm, agency, or mechanism that provides leadership and
has the power to assign roles and manage conflict.
• A conventional distribution channel consists of one or more independent
producers, wholesalers, and retailers. Each is a separate business seeking to
maximize its own profits, even at the expense of the system as a whole. No
channel member has much control over the other members, and no formal
means exists for assigning roles and resolving channel conflict.
• A vertical marketing system (VMS) consists of producers, wholesalers, and
retailers acting as a unified system. One channel member owns the others, has
contracts with them, or wields so much power that they must all cooperate.
The VMS can be dominated by the producer, wholesaler, or retailer.
three major types of VMSs: corporate,
contractual, and administered.
1. A corporate VMS integrates successive stages of production and distribution
under single ownership. Coordination and conflict management are attained
through regular organizational channels.
• Example- The secret to Zara's success is its control over almost every aspect of the supply chain, from design
and production to its own worldwide distribution network. Zara makes 40 percent of its own fabrics and
produces more than half of its own clothes, rather than relying on a hodgepodge of slow-moving suppliers.
New styles take shape in Zara's own design centers, supported by real-time sales data. New designs feed into
Zara manufacturing centers, which ship finished products directly to 450 Zara stores in 30 countries, saving
time, eliminating the need for warehouses, and keeping inventories low. Effective vertical integration makes
Zara faster, more flexible, and more efficient than international competitors such as Gap, Benetton, and
Sweden's H&M. Zara can make a new line from start to finish in just three weeks, so a look seen on MTV
can be in Zara stores within a month, versus an industry average of nine months. And Zara's low costs let it
offer midmarket chic at downmarket prices. The company's stylish but affordable offerings have attracted a
cult following, and the company's sales have more than doubled to $2.3 billion in the past five years
• Contractual VMS-
• A contractual VMS consists of independent firms at different levels of production
and distribution who join together through contracts to obtain more economies or
sales impact than each could achieve alone. Coordination and conflict management
are attained through contractual agreements among channel members. The
franchise organization is the most common type of contractual relationship—a
channel member called a franchiser links several stages in the production-
distribution process.
• Administered VMS-
• In an administered VMS, leadership is assumed not through common ownership or
contractual ties but through the size and power of one or a few dominant channel
members. Manufacturers of a top brand can obtain strong trade cooperation and
support from resellers. For example, General Electric, Procter & Gamble, and Kraft
can command unusual cooperation from resellers regarding displays, shelf space,
promotions, and price policies. Large retailers such as Wal-Mart, Home Depot, and
Barnes & Noble can exert strong influence on the manufacturers that supply the products
Horizontal Marketing Systems
• In this two or more companies at one level join together to follow a
new marketing opportunity. By working together, companies can
combine their financial, production, or marketing resources to
accomplish more than any one company could alone.
• Example- McDonald's now places "express" versions of its restaurants
in Wal-Mart stores. McDonald's benefits from Wal-Mart's considerable
store traffic, while Wal-Mart keeps hungry shoppers from having to go
elsewhere to eat.
Multichannel Distribution Systems
• In the past, many companies used a single channel to sell to a single market or market segment.
Today, with the proliferation of customer segments and channel possibilities, more and more
companies have adopted multichannel distribution systems—often called hybrid marketing
channels. Such multichannel marketing occurs when a single firm sets up two or more
marketing channels to reach one or more customer segments. The use of multichannel systems
has increased greatly in recent years.
Channel Design Decisions
• Designing a channel system calls for analyzing customer needs,
establishing channel objectives, & identifying & evaluating the major
channel alternatives.
Designing a channel system calls for-

• Analysing Consumer Needs
• Setting Channel Objectives
• Identifying Major Alternatives
• Evaluating Major Alternatives
Analyzing Customers’ Desired Service Output Levels
Channels produce 5 service output levels:
• Lot size: # of units that the marketing channel permits a typical customer to purchase on a
purchase occasion
• Waiting time: Average time that customers of that channel wait for receipt of the goods.
• Spatial convenience: Degree to which the marketing channel makes it easy for customers to
purchase the product.
• Product variety: assortment breadth.
• Service backup: add-on services provided by the channel (installation, repairs, credit).
• Establishing the Channel Objectives & Constraints
 Channels objectives vary with product characteristics.
 Channel design must take into account the strengths &

weaknesses of different types of intermediaries.
 Channel design is also influenced by the competitors’
channels.
 Channel design must also adapt to the larger environment.
Identifying the Major Channel Alternatives
• A channel alternative is described by three elements:
• Types of intermediaries.
• Depends on the service outputs desired by the target market & the channel’s transactions costs. The company must search for
the channel alternative that promises the most long-run profitability.
• Number of intermediaries.
• Exclusive distribution - a way of referring to a very highly selective pattern of distribution.
• Selective distribution- means that not all possible intermediaries are used, but rather those included in the channel have been
carefully chosen.
• Intensive distribution - sometimes called saturation means that as many outlets as possible are used at each level of the
channel.
• The intensity of distribution dimension is a very important aspect of channel structure because it is often a key factor in the
firm’s basic marketing strategy and will reflect the firm’s overall corporate objectives and strategies.
• Terms & responsibilities of channel members

The producer must determine the rights & responsibilities of the participating channel members, making sure that each channel
member is treated respectfully & given the opportunity to be profitable.
Evaluating the Major Channel Alternatives
Each alternative needs to be evaluated against three criteria.
• Economic Criteria
• The first step is to determine whether a company sales force or a sales agency
will produce more sales.
• The next step is to estimate the costs of selling different volumes
through each channel.
• The final step is comparing sales & costs.
• Each channel will produce a different level of sales & costs.
• Control Criteria
The agents may concentrate on other customers’ products or they may
lack the skills to handle our products.
Reference -
• “Principles of Marketing” - By Philip Kotler, Gary Armstrong, Prafull Y.
Agnihotri, Ehsan ul Haque
Practical Assignment-4
• Mani and Prasad are good friends. Mani is a marketing
executive working for an MNC
• and Prasad is a small scale businessman making plastic toys:
• Mani : Hi Prasad! How are you?
Questions-
• Prasad : Hello ! Mani, nice to see you.
• Design 3-4 distribution channel for
• Mani : How is your business going on?
• Prasad : Not very well. Prasad.
• Mani : Why? • Channel should have proper flow and
• Prasad : For the past 3 years my sales turnover has not mention reason for adopting the
increased. It is quite disturbing.
• Mani : I understand, but tell me how is your distribution of
channel.
the product done. • Also mention the customer base and
• Prasad : I sell the toys in the local market and in the nearby region that you plan to cater.
town. I have a dealer.
• Thats it.
• Mani : No, you have to analyse your distribution channel. Let
us sit down and do
• some work. I think you should have at least three channels of
distribution.
• Prasad : Why?
Play the role of Mani and explain to Prasad the three suitable

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Unit 4 Place mix

BY, Komal Suryavanshi

Marketing channels are important because they:

• Identify the best channels to distribute to a target audience.

• Vertical Conflict- conflict between different levels of the same

Designing a channel system calls for-

• Product variety: assortment breadth.

 Channel design must take into account the strengths &

• Exclusive distribution - a way of referring to a very highly selective pattern of distribution.

• Terms & responsibilities of channel members

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