MARKETING CHANNELS Structure and Functions
Introduction The purpose of marketing is to deliver the goods from the producer to the consumer. Consumers are aware of the existence of a very large number of diverse channel outlets, but they are not aware of the fact that the channel structures, or the set of institutions and agencies through which the product moves, can be fairly complex. Usually, a combination of such institutions, specializing in manufacturing, wholesaling, retailing, join hands to make delivery possible to the consumers. Definition Marketing channels can be viewed as a set of interdependent organizations involved in the process of marketing a product or service available for consumption or use. Stern El-Ansary. Marketing channels satisfy demand by supplying goods at the right place, quantity and time, quality and price.
Marketing channels also stimulate demand through the promotional activities of the units, i.e. wholesalers, retailers, sales offices. The Role of Channels Channels should be viewed as an orchestrated network that creates value for consumers by generating form, possession, time and place utilities. Channels of distribution evolve to serve customer needs and the roles of channel members and the extent of their cooperation varies from one context to another. Major focus of channel management is delivery. It is only through distribution that public and private goods and services can be made available for use or consumption. Producers of goods and services are capable of generating only form or structural utility for their products. The actual delivery of the products to the consumers demand different types of efforts that create time, place, and possession utilities. As marketers continue to face hostile, unstable, and competitive environments, distribution will play an increasingly important role in satisfying consumer needs.
Emergence of Marketing Channel Structures Economic reasons are the foremost determinants of channel structures. The emergence of channel intermediaries is explained in terms of FOUR steps in an economic process: 1. Intermediaries arise in the process of exchange because they can improve the efficiency of the process. 2. Channel intermediaries arise to adjust the discrepancy of assortment through performance of the sorting process. 3. Marketing channels hang together in channel arrangements to provide for routinization of transactions. 4. Channels facilitate the searching process. Efficiency Rationale for Intermediaries In primitive cultures, most household needs were produced within the household. As goods produced were in excess of current household needs, exchange replaced production as a means of satisfying needs.
With economic development, as households find their needs satisfied by an increased quantity and variety of goods, the mechanism of exchange increases in importance. Channel members provide an efficient means for completing these exchanges. Discrepancy of Assortment and Sorting Besides increasing the efficiency of transactions, intermediaries smoothen the flow of goods and services by creating possession, place and time utilities. There is a discrepancy between assortment of the goods produced by manufacturers and that demanded by consumers. This discrepancy is minimized by the sorting function performed by the channels:
Sorting out involves breaking down a heterogeneous supply into separate stocks that are homogeneous. Accumulation involves bringing similar stocks from a number of sources into a large homogeneous supply. This is exhibited by wholesalers building assortments for retailers and retailers accumulating their goods for customers.
Allocation refers to breaking a homogeneous supply into smaller lots. Assorting implies building up of an assortment of products for resale in association with each other.
Routinization Each transaction involves ordering, valuation and paying for goods and services. Logically, the buyer and seller must agree to the amount, mode and timing of payment. These transactions are routinized through the intermediaries. Routinization facilitates the development of an efficient exchange system and leads to standardization of goods and services whose performance characteristics can be compared and evaluated. Searching Buyers and sellers are engaged in a double-search process in the market place since there is uncertainty in the minds of both as to what to produce and whether the producers offer what the consumers need.
This gap is bridged by marketing channels; e.g. Wholesale and retail institutions are organized by specialized lines of trade, such as drug, hardware, and grocery. Products such as OTC drugs are widely available through drug stores, supermarkets and other retail outlets. Hundred of thousands of components and parts are supplied within hours of placement of orders. *********
