MARKETING CHANNELS A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process. A marketing channel is a useful tool for management. An alternative term is distribution channel or 'route-to-market'. It is a 'path' or 'pipeline' through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor). A marketing channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer Roles of marketing channel in marketing strategies -Links producers to buyers. -Performs sales, advertising and promotion. -Influences the firm's pricing strategy. -Affecting product strategy through branding, policies, willingness to stock. -Customizes profits, install, maintain, offer credit, etc. Coordinated Channel Marketing - Brands carry out online and offline advertising on behalf of channel partners to aid them in generating sales of their branded products. Those online and offline marketing initiatives are can either be isolated or coordinated to inform one another. There are basically four types of marketing channels: •Direct selling; •Selling through intermediaries; •Dual distribution; and •Reverse channels.
Direct Selling Direct selling is a type of sales channel where products are marketed directly to customers, eliminating the need for middlemen – wholesalers, advertisers and retailers. Direct selling can be conducted one-on-one, in a group or party format, or online.
Benefits of Direct Selling Benefits for the Consumers: • Opportunity to try and test the products; • Tailored made demonstration and consultation in a friendly environment; • Personalised delivery at home; • Right to withdraw the purchase within a given period (additional protection); • Direct contact with the seller; • Guarantee and after sales service; • Flexible buying hours.
Benefits for the Direct sellers: • Possibility to establish and to run own business at minimum cost/low risk; • Convenient flexible earning opportunities; • Flexibility to choose working hours; • Spouses or family members can be partners in business (family business); • Adjustable opportunities ranging from part-time to full-time activity; • No formal qualifications required; • Adequate training and support from companies; • Large range of products available; • Social contact and personal recognition.
Benefits for the Companies: • The most effective method to enter new market with relatively low cost, especially providing unique products or services; • Does not require high capital investment; • Allows to avoid additional intermediaries in distribution, saved money can be invested elsewhere; • Effective in gaining the initial interest and attention of prospective customer – personal touch;
â€˘ Particularly effective in the marketing of low-cost consumer goods or products insufficiently known: new products, technically complex products.
Limitations of Direct marketing channel
Expensive Direct selling is relatively expensive compared to other forms of marketing. Each direct sales call can cost over $300 in some industries, according to "Know This" online, a reputable business reference site. Companies that sell directly must hire sales reps. Hence, the sales reps' salaries and benefits must be factored into the costs of all sales appointments. Sales reps must also be trained in classrooms and on the job before they can even call on customers. These training programs often last several weeks, which can get expensive. Sales reps also incur expenses traveling by air or car as not all customers are local.
Time Consuming Sales calls can be time consuming. A sales rep may spend an hour or more introducing the features and benefits of her products. During this process, she may need to ask questions, overcome objections and try to close the sale. Moreover, reps may take several visits or calls to actually make sales. Some consumer or business clients need to think about their purchasing decisions. Also, the decision maker or owner may not even be available at the time of the sales call. Sales reps can only make one sale at a time. Contrarily, an online marketer may receive several sales in the same time period. Limited Coverage Small companies have limited coverage when they sell to clients directly. In other words, they can only cover one or more markets at a time, depending on the number of sales reps they employ. For example, yellow pages sales reps may spend 3 to 6 weeks in one market to visit all advertisers. They may then move on to a contiguous market and complete coverage for the next directory. Contrarily, companies using advertising or online sales methods can cover entire regions or the national market with single promotions. Inconvenient or Obtrusive Direct selling can also be inconvenient or obstrusive for business clients or consumers. Sales reps often appear at times that are inconvenient for business owners or managers. These individuals may be having relatively busy days, or they may have crucial deadlines to meet. Consequently, the last thing they want to do is make a buying decision. Small company sales reps may get around the inconvenience factor by leaving brochures or business cards with web addresses. That way customers can study the information at their convenience
What makes direct selling such an attractive career option is the flexibility it offers. Those who engage in direct selling are independent contractors who determine how much time and energy they want to invest in their businesses. They set their own hours, and define and control their work-family life balance. An Independent Sales Representative is her own boss. Direct selling is also a way to own a business with a minimal capital investment. Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, personal contact arrangements as well as internet sales. A textbook definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs." Industry representative, the World Federation of Direct Selling Associations (WFDSA), reports that its 59 regional member associations accounted for more than US$114 Billion in retail sales in 2007, through the activities of more than 62 million independent sales representatives. The United States Direct Selling Association (DSA) reported that in 2000, 55% of adult Americans had at some time purchased goods or services from a direct selling representative and 20% reported that they were currently(6%) or had been in the past(14%) a direct selling representative. According to the WFDSA, consumers benefit from direct selling because of the convenience and service benefits it provides, including personal demonstration and explanation of products, home delivery, and generous satisfaction guarantees. In contrast to franchising, the cost for an individual to start an independent direct selling business is typically very low, with little or no required inventory or cash commitments to begin. Most direct selling associations, including the Bundesverband Direktvertrieb Deutschland, the direct selling association of Germany, and the WFDSA and DSA require their members to abide by a code of conduct towards a fair partnership both with customers and salesmen. Most national direct selling associations are represented in the World Federation of Direct Selling Associations (WFDSA). Direct selling is different from direct marketing in that it is about individual sales agents reaching and dealing directly with clients while direct marketing is about business organizations seeking a relationship with their customers without going through an agent/consultant or retail outlet. Direct selling often, but not always, uses multi-level marketing (a salesperson is paid for selling and for sales made by people he recruits or sponsors) rather than single-level marketing (salesperson is paid only for the sales he makes himself).
Selling Through Intermediaries/indirect channel A marketing channel where intermediaries such as wholesalers and retailers are utilized to make a product available to the customer is called an indirect channel. The most indirect channel you can use (Producer/manufacturer --> agent --> wholesaler --> retailer --> consumer) is used when there are many small manufacturers and many small retailers and an agent is used to help coordinate a large supply of the product. Benefits with selling through intermidiaries channel 1.In-depth knowledge of the tax consequences. There are many ways to sell your business and each structure can have very different tax consequences to you and to the buyer. Knowing what the tax man will require of you under each scenario is critical to your negotiations and to your ability to pay all your obligations and still have cash left over. 2.Knowledge of your business and its industry. If included in the preparation process prior to the actual sale, a business intermediary can provide insight into your industry and help you find ways to maximize the value of your business. Most value maximizing strategies will take time to implement. Therefore, it is important to communicate with all of the experts you plan to use during the transaction as early as possible. 3.Awareness of market conditions. An M&A professional is constantly involved in the market and learns when the timing is right to buy or sell a business in a variety of industries and to a variety of buyers. Sometimes private equity groups are extremely active while other times corporate strategic acquisitions are more popular. As the economy surges in certain areas, some industries will benefit from higher valuations and more M&A activity. Other times, it will be wisest to stick it out and wait to sell your business if at all possible. 4.Marketing your business for sale. Marketing a business for sale involves preparation, analysis, and a unique mix of technical and creative skills. Unfortunately, it is nothing at all like marketing your goods or services. 5.Exposure to create competition for your business. You will receive the maximum value for your business when several buyers are competing with each other to acquire your company. A good business intermediary will know who the players are in your market and will be able to craft this competitive environment through research, skillful timing of marketing materials, and deft negotiation. 6.Confidentiality. Many times, even the news that you might be interested in selling your business can cause ripple effects that are far reaching and uncertain. How will your key employees react? What will your key customers think? A professional M&A advisor can be engaged in a confidential manner and control who receives information about your interest in selling and with whom they can communicate that information. 7.Removal of distractions. Selling your business will not happen overnight and you will be needed to keep your business profitable and growing. If you are spending too much time
mired in the details of selling your business you will not be effective at managing it and vice versa. Having a dedicated advisor to work on selling your business will free up your time and energy to continue to run it. 8.Emotional buffer. Most of the time, buyers and sellers of businesses will not agree on everything. When that happens, an emotional buffer in the form of a designated negotiator can be extremely helpful to keeping the deal on track. In addition, since the M&A advisor has less “skin in the game”, he or she can be more objective and help you to make decisions based on the facts and not in the heat of the moment. 9.Facilitation of the process. The process of selling a business is incredibly complex and involves many moving parts. A qualified business intermediary can successfully bring together attorneys, bankers, accountants, insurance agents, key customers, suppliers, employees, buyers, sellers, and everyone else who may be a stakeholder to make sure their needs are met and the process can move forward. Not having this point of contact generally means the task is up to you. 10.Negotiation ability. Almost anything can be negotiated during a business sale. How much working capital will you leave in the business? Will this be a stock sale or an asset sale? Will the buyer assume any debt? Which ones? What is the final closing price? How will the closing price be allocated among the assets? The best M&A professionals are tirelessly working to produce the best possible outcome for you, knowing your goals and needs Limitations with working with intermidiaries channels Increased Costs When you use intermediaries, you must pay them a commission or offer a discount. This decreases your profit margins, even though you might have increased sales and revenues. Project your gross profits before you sign a long-term distribution agreement to determine if it’s a cost-effective option for you. In addition, you might need to extend trade credit or deliver product on terms that your cash flow situation can’t support. If you must negotiate extra loans or credit to fulfill orders for which you won’t be paid for 90 days or longer, you’ll increase your debt and debt service requirements. Lack of Control When you use marketing and sales intermediaries, you might be one of many companies they represent, and they most likely won’t pay the same attention to communicating your message and protecting your brand as you would. If a retailer can’t sell its inventory of your product, it might discount it so low that the public thinks you have a product that’s inferior or won’t sell. Customers might also come to your intermediaries for post-sale service and get a bad experience. Negotiate agreements that specify how intermediaries can promote your products, where they can sell them, and what prices they can charge.
Dual Distribution Dual distribution describes a wide variety of marketing arrangements by which the manufacturer or wholesalers uses more than one channel simultaneously to reach the end user. They may sell directly to the end users as well as sell to other companies for resale. Using two or more channels to attract the same target market can sometimes lead to channel conflict. An example of dual distribution is business format franchising, where the franchisors, license the operation of some of its units to franchisees while simultaneously owning and operating some units themselves. Reverse Channels This is also known as marketing channel reverse reciprocity. This term can also be used for a company or business that is simply the midpoint in the reversal by collecting, sorting, and bundling these raw post-consumer goods for sale to a manufacturer using them for a completely different end product. Other situations where reverse marketing channel comes into play would be: the refurbishing and reuse of industrial storage containers like barrels, crates, and pallets; computers and their components; and recycling of paper, aluminum, and plastics Technology has made another flow possible. This one goes in the reverse direction and may go -- from consumer to intermediary to beneficiary. Think of making money from the resale of a product or recycling There is another distinction between reverse channels and the more traditional ones -- the introduction of a beneficiary. In a reverse flow, you find a producer. You'll only find a User or a Beneficiary. Reverse Marketing Channel - this term describes the backward flow or process by which used goods, that will be used in the recycling and repurposing of those goods as raw materials, come from the consumer. Benefits of reverse channels reduced environmental impact, improved customer service, minimized product damage through enhanced packaging, and improved safety. In most cases, a Reverse Distribution system can be implemented with existing packaging, but a more durable package will often produce a lower Cost-Per-Use.