MARKETING CHANNELS AND LOGISTICS NETWORKS
Marketing channel – it is a set of interdependent organisations that are involved in
the process of making the product available to the users.
WHY ARE MARKETING INTERMEDIARIES IMPORTANT
1) Direct transfer of goods requires a huge amount of financial and other resources.
2) Greater efficiency in making products available to the target market
3) Through their contacts, experience, specialisation and scale of operations, they
can achieve much more than the company itself
4) It matches demand with the supply as companies product a narrow assortments
of products in large quantities and customers want a broad assortment of
products in small quantities
5) It provides economies due to large scale of production.
ROLE/FUNCTIONS OF MARKETING CHANNELS
1) Information – providing information on marketing research and intelligence
about the external forces of the environment that the companies to plan and
2) Promotion – developing and communicating of information to the customers.
3) Contact – finding and communicating with prospective buyers.
4) Matching – it requires shaping of a market offering according to the needs of the
5) Negotiation – it is the adjustment of price and other factors of the market
offering between the intermediary and customer.
6) Physical distribution – transporting and storage of the product.
7) Financing – covering the costs of the marketing channel.
8) Risk taking – the risks associated with the transfer of goods.
CHANNEL LEVEL – it is a layer of intermediaries that brings the product and its
ownership closer to the final buyer.
NUMBER OF CHANNEL LEVELS – different products need different number of channel
levels. Some companies prefer to have no intermediaries between the producer and
the consumer and follow a direct marketing channel. Avon sells its products door-to-
door. Other companies use indirect marketing channels with one or more
intermediaries. Channel 2 has one marketing intermediary between the producer
and the consumer and it is usually a retailer. Philips sells its products through Harvey
Norman. Channel 3 has two marketing intermediaries namely the wholesaler and
then the retailer. It is used by small manufacturers of food, hardware and
pharmaceuticals. In the business sector channel 2 has a business distributor and
channel 3 has a sales branch and a business distributor. There are channel levels
special for service sectors too. CHANNEL ORGANISATION
1) Vertical marketing networks – it is a distribution channel structure in which the
producers, wholesalers and retailers act as a unified network where one channel
member usually owns the others, contracts with them or has an overall much
greater power. However in the past, conventional marketing channel was used
where the producer, wholesaler and retailer would act as complete individuals
acting to maximise their own profits ignoring the benefits of the overall
2) Horizontal marketing networks – it is distribution channel structure where two or
more companies of the same level join together to increase the amount of
resources and hence production in the organisation. They might be competitors
or non-competitors and may join together temporarily or permanently for
strategic purposes and might even create separate company.
3) Multichannel/hybrid channels – it is a distribution channel system where the
company sets up two or more channels to reach one or more marketing
segments. Boost juice sells its products directly through its own shops and also in
supermarkets like Coles and Woolworths. It offers mass market coverage and
allows the company to tailor its products according to the diverse needs of the
customers but it can lead to many conflicts as each channel is competing for sales
DISINTERMEDIATION – it is the cutting out of marketing channel intermediaries to
reach directly to the final buyers, create new intermediaries or move from a
physically bound business to an online one.
REINTERMEDIATION –it occurs as a consequence of disintermediation and involves
creation of new marketing channel intermediaries.
CHANNEL DESIGN DECISIONS
1) Analysing consumer service needs –it requires companies to analyse the needs of
the customers, whether they are willing to travel distances for their product or
whether they want it everywhere, whether they prefer internet, mail or physical
2) Setting channel objectives and constraints – refers to the objectives the company
has. Whether they are willing to have customers search for the product, whether
it prefers direct or indirect marketing.
3) Identifying major channel alternatives
a) Types of intermediaries include company’s sales force, manufacturer’s agency
and industrial distributors
b) Number of marketing intermediaries
1) Intensive distribution – it includes stocking up the products in every outlet
possible. Customers do not want to travel long distances for this product
and want it close to them. Milk, chocolate and bread. 2) Exclusive distribution – it includes stocking their products only in a few
outlets in a region. It provides greater control of the price and promotion
of the products and allows significant mark-ups. Companies like Louis
Vuitton and Mont Blanc follow this strategy and allows building of product