Marketing channels and value networks

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: Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel (also called a trade channel or distribution channel). Formally, marketing channels are sets of interdependent organisations involved in the process of making a product or service available for use or consumption. They are the set of pathways a product or service follows after production, culminating in purchase and use by the final end user.

Some intermediaries—such as wholesalers and retailers—buy, take title to, and resell the merchandise; they are called merchants. Others—brokers, manufacturers’ representatives, sales agents—search for customers and may negotiate on the producer’s behalf but to not take title to the goods; they are called agents. Still others—transportation companies, independent warehouses, banks, advertising agencies—assist in the distribution process but neither take title to goods nor negotiate purchases or sales; they are called facilitators.

The importance of channels

A marketing channel system is the particular set of marketing channels employed by a firm. Decisions about the marketing channel system are among the most critical facing management. Marketing channels also represent a substantial opportunity cost. One of the chief roles of marketing channels is to convert potential buyers into profitable orders.

In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. A push strategy involves the manufacturer using its sales force and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users. Push strategy is appropriate where there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood. A pull strategy involves the manufacturer using advertising and promotion to persuade consumers to ask intermediaries for the product, thus inducting the intermediaries to order it. Pull strategy is appropriate when there is high brand loyalty and high involvement in the category, when people perceive differences between brands, and when people choose the brand before they go to the store.

Channel development