11. Channel Levels 1. Zero-level (or direct marketing channel) - sell direct to end user with no intermediary 2. One-level or one intermediary – retailer 3. Two-level or two intermediaries – jobber, retailer 4. Three-level or three intermediaries - wholesaler, transporter, retailer 5. Reverse-flow channels - bring back products for reuse, refurbish for resale, recycle, and disposal. Different intermediaries may perform one or more of these functions E. Service-Sector Channels - focus on location and minimizing levels. Adapting to new channels such as the Internet

13. Channel Functions and Flows 1. Main function is to overcome time, place, and possession gaps that separate the producers and their goods and services from those who need and want them. 2. All channels have three things in common: a) They use up scarce resources. b) They demonstrate better performance by specialization. c) They can shift functions among members. 3. Forward flow of activity - organization to the end user (e.g. physical delivery, title, promotion). 4. Backward flow of activity - end user to the organization (e.g. ordering, payment, returns). 5. Interactive flow of activity - simultaneous exchange of physical, transactional or communication (e.g. negotiation, risk taking, information).

28. Channel-Design Decisions A. Analyze Customers’ Desired Service Output Levels 1. Lot size - number of units channel allows customer to purchase at one time 2. Waiting time - average time customers wait for delivery of goods in respective channel 3. Spatial convenience - ease of purchase 4. Product variety - large variety increases chance of consumer filling need 5. Service backup - the greater the number of ancillary services surrounding the purchase of a product, the more effort required of the channel B. Establish Objectives and Constraints based on: 1. Targeted service output levels 2. Markets chosen to serve 3. Product characteristics as service levels will vary (e.g. perishable goods require expedient delivery, bulk products require minimal handling, non-standard products require informative selling)

29. C. Identifying Major Channel Alternatives 1. Types of intermediaries 2. Number of intermediaries a) Exclusive distribution - one or a select few b) Selective distribution - more than a few, less than all c) Intensive distribution - as many outlets as possible 3. Terms and responsibilities of channel members - trade relations mix a) Price policies - must be equitable and efficient b) Conditions of sale - terms and guarantees c) Territorial rights of distributors d) Mutual services and responsibilities D. Evaluate the Major Alternatives 1. Economic criteria - sales versus costs 2. Control and adaptive criteria - degree of intermediary commitment

65. A company’s channel decisions directly affect every other marketing decision. Place decisions, for example, affect pricing. Marketers that distribute products through mass merchandisers such as Wal-Mart will have different pricing objectives and strategies than will those that sell to specialty stores. Distribution decisions can sometimes give a product a distinct position in the market. The choice of retailers and other intermediaries is strongly tied to the product itself. Manufacturers select mass merchandisers to sell mid-price-range products while they distribute top-of-the-line products through high-end department and specialty stores. The firm’s sales force and communications decisions depend on how much persuasion, training, motivation, and support its channel partners need. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members. Some companies pay too little attention to their distribution channels. Others, such as FedEx, Dell Computer, and Charles Schwab have used imaginative distribution systems to gain a competitive advantage. Functions of Distribution Channels Distribution channels perform a number of functions that make possible the flow of goods from the producer to the customer. These functions must be handled by someone in the channel. Though the type of organization that performs the different functions can vary from channel to channel, the functions themselves cannot be eliminated. Channels provide time, place, and ownership utility. They make products available when, where, and in the sizes and quantities that customers want.

66. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from producer to customer. Distribution channels create efficiencies by reducing the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers. This occurs in two ways. The first is called breaking bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number of transactions by creating assortments—providing a variety of products in one location—so that customers can conveniently buy many different items from one seller at one time. Channels are efficient. The transportation and storage of goods is another type of physical distribution function. Retailers and other channel members move the goods from the production site to other locations where they are held until they are wanted by customers. Channel intermediaries also perform a number of facilitating functions, functions that make the purchase process easier for customers and manufacturers. Intermediaries often provide customer services such as offering credit to buyers and accepting customer returns. Customer services are oftentimes more important in B2B markets in which customers purchase larger quantities of higher-priced products. Some wholesalers and retailers assist the manufacturer by providing repair and maintenance service for products they handle. Channel members also perform a risk-taking function. If a retailer buys a product from a manufacturer and it doesn’t sell, it is “stuck” with the item and will lose money. Last, channel members perform a variety of communication and transaction functions. Wholesalers buy products to make them available for retailers and sell products to other channel members. Retailers handle transactions with final consumers. Channel members can provide two-way communication for manufacturers. They may supply the sales force, advertising, and other marketing communications necessary to inform consumers and persuade them to buy. And the channel members can be invaluable sources of information on consumer complaints, changing tastes, and new competitors in the market.

67. The Internet in the Distribution Channel By using the Internet, even small firms with limited resources can enjoy some of the same competitive advantages as their largest competitors in making their products available to customers internationally at low cost. E-commerce can result in radical changes in distribution strategies. Today most goods are mass-produced, and in most cases end users do not obtain products directly from manufacturers. With the Internet, however, the need for intermediaries and much of what has been assumed about the need and benefits of channels will change. In the future, channel intermediaries that physically handle the product may become largely obsolete. Many traditional intermediaries are already being eliminated as companies question the value added by layers in the distribution channel. This removal of intermediaries is termed disintermediation, the elimination of some layers of the distribution channel in order to cut costs and improve the efficiency of the channel.

68. Product Factor a) Sizes & weight of the product – If the size, weight & price of the product is very large, then direct supply should be there as it will lead to convenience & low transportation cost & there will be less chances of damage during transportation. For eg. Big industrial products like boilers, grinders etc. On the other hand, if size & weight of product is not so big, a long chain can be as in case of Fast Moving Consumers Goods (FMCG) b) Unit Value – If the per unit value of product is less, say for eg. salt, sugar, wheat, rice etc. then the distribution channel may be large as consumption of it is comparatively more. But, if the unit price is very high, for eg. gold, silver, then a smaller distribution channel is required. c) Stability of the product – If the product is of perishable in nature, i.e. it becomes useless after a specific period of time, like milk, butter, cheese, fish, etc. then a small distribution channel is required to ensure prompt delivery, but if the product is stable in nature like soaps, shampoo etc, then the distribution channel can be long. d) Standard v/s Specific products – Some distributors only want to sell standard & famous products, so if the product is standard in nature, manufacturer has to use these types of distributors or middlemen. But, if the product is specific one, say : engineering & medical books, which are not kept by all book-sellers, so in that case, these specific dealers on middlemen have to be chosen. e) Technical nature of product – If the product is of technical nature then an effective after sales service is also to be provided. So, in this case, either direct marketing or marketing through authorized dealer should be used, on only then company can use the services of its services- engineers more effectively. For eg., in case of electronic item TV’s and Refrigerators, outlet is authorized dealers, so if after sales service is required customers may contact the dealer, which passes it to the company for final service. f) Expert of product line – The manufacturer has to decide that he should take the services of a wholesaler or retailers or both and then accordingly decide to increase or decrease the product line. For eg., if the manufacturer is manufacturing soaps, then he can increase the product line by incorporating shampoos also, as the distribution channel will be the same.

69. A small manufacturer of potato chips would like to be available in grocery stores nationally, but this may not be realistic. We need to consider, then, both who will be willing to carry our products and whom we would actually like to carry them. In general, for convenience products, intense distribution is desirable, but only brands that have a certain amount of power—e.g., an established brand name—can hope to gain national intense distribution. Distribution intensity Issues- DETERMINING INTENSITY OF DECISIONS Full service retailers tend dislike intensive distribution. Low service channel members can "free ride" on full service sellers. Manufacturers may be tempted toward intensive distribution—appropriate only for some; may be profitable in the short run. Market balance suggests a need for diversity in product categories where intensive distribution is appropriate. Service requirements differ by product category.

70. Distribution coverage is measured in terms of the intensity by which the product is made available. For the most part, distribution coverage decisions are of most concern to consumer products companies, though there are many industrial products that also must decide how much coverage to give their products. As we will see the marketer must take into consideration many factors when choosing the right level of distribution coverage. There are three main levels of distribution coverage - mass coverage, selective and exclusive. • 1.Mass Coverage - The mass coverage (also known as intensive distribution) strategy attempts to distribute products widely in nearly all locations in which that type of product is sold. This level of distribution is only feasible for relatively low priced products that appeal to very large target markets (e.g., see consumer convenience products). A product such as Coca-Cola is a classic example since it is available in a wide variety of locations including grocery stores, convenience stores, vending machines, hotels and many, many more. With such a large number of locations selling the product the cost of distribution is extremely high and must be offset with very high sales volume. 2.Selective Coverage - Under selective coverage the marketer deliberately seeks to limit the locations in which this type of product is sold. To the non-marketer it may seem strange for a marketer to not want to distribute their product in every possible location. However, the logic of this strategy is tied to the size and nature of the product’s target market. Products with selective coverage appeal to smaller, more focused target markets (e.g., see consumer shopping products) compared to the size of target markets for mass marketed products. Consequently, because the market size is smaller, the number of locations needed to support the distribution of the product is fewer. 3. Exclusive Coverage - Some high-end products target very narrow markets that have a relatively small number of customers. These customers are often characterized as “discriminating” in their taste for products and seek to satisfy some of their needs with high-quality, though expensive products.

71. Effective channel management helps companies decrease costs and reach potential customers profitably. Effective channel management involves proper recruitment of channel members. Recruiting channel members should be a continuous process. In the recruitment process, screening involves elimination of applicants who do not match the criteria set for the position. After effective screening, the company has to make the final selection based on some criteria. These criteria can be divided into sales factors, product factors, experience factors, administrative factors and risk factors. After selecting channel members, they have to be constantly evaluated and based on their performance, the company will either retain existing channel members or try to forge relationships with new channel members. Channel members can be evaluated by using parameters like sales quota attainment, average inventory levels, proper management of inventory, channel members'cooperation in promotional and training programmes, etc. The distribution requirements of a company will keep changing according to changes in the product life cycle. Modifying channels accordingly is essential for the success of the organization. However, care should be taken in dealing with channel members for proper channel management. Conflict management among channel members is another important activity for the management of the organization.

72. Channel-Management Decisions A. Selecting Channel Members - evaluate experience, number of lines carried, growth and profit record, solvency, cooperativeness, and reputation B. Training Channel Members - prepare the channel-member employees to perform more effectively and efficiently. This may also provide a competitive advantage C. Motivating Channel Members - coercive, reward, legitimate, expert, or referent power. Producers vary in channel power 1. More sophisticated companies try to form partnerships 2. Can evolve into long-term distribution programming D. Evaluating Channel Members - sales quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs E. Modifying Channel Arrangements - system will require periodic modification to 1. Correct inefficiencies 2. Adapt to change in consumer buying patterns 3. Manage market expansion 4. Thwart new competition 5. Implement innovation 6. Adjust activity to changes in product life cycle

73. Conflict, Cooperation, and Competition 1. Types of conflict and competition a) Vertical channel conflict b) Horizontal channel conflict c) Multi-channel conflict 2. Causes of channel conflict a) Goal incompatibility b) Unclear roles and rights c) Differences in perception d) Overdependence 3. Managing channel conflict (responses) a) Adoption of super ordinate goals b) Exchange of people between channel levels c) Co-optation - winning support at different levels d) Joint membership in and between trade associations e) Diplomacy, mediation, and arbitration E. Legal and Ethical Issues in Channel Relations 1. Exclusive dealing 2. Exclusive territories 3. Tying agreements 4. Dealers’ rights