Channel Strategies, Logistics & Supply Chain
Place, the last of the 4 Ps: the nature of marketing channels, push and pull, how channel members add value, channel levels, behaviour and conflict, conventional vs vertical and horizontal marketing systems, designing a channel step by step, managing channel members, and marketing logistics.
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Channel Strategies – Introduction
Place as the last marketing-mix element, intermediaries in the Sri Lankan context, the session objectives, how intermediaries add value, and push vs pull.
00:00Channel strategy = the "place" element of the marketing mix00:33Intermediaries between manufacturer and consumer01:04Sri Lankan examples: wholesalers, supermarkets, pharmacies, grocery shops01:28Direct marketing: no intermediary01:54Objectives of this session02:58Nature of marketing channels: intermediaries add value03:31Utilities: time and storage; converting and packaging04:17Push and pull strategies need intermediaries05:36Pull: advertising builds demand; insights from intermediaries06:19Next: how channel members add value1What is "place"?
Place is the fourth and final element of the marketing mix. It is also called the channel, distribution or intermediary decision. It's the mechanism through which goods and services are transferred from producer to consumer 00:00.
A marketing channel is a set of interdependent organisations involved in making a product or service available for use or consumption by the consumer.
- An excellent product at a great price is worthless if it isn't available where and when the customer wants it.
- Channel decisions mean selecting, managing and motivating intermediaries: wholesalers, distributors, brokers and retailers. They're also called resellers.
- A firm's channel decisions directly affect every other marketing decision.
- Sri Lankan examples 01:04: wholesalers buy in bulk from the manufacturer, while supermarkets, pharmacies and grocery shops are retailers that meet the final consumer.
- Selling with no intermediary is direct marketing 01:28. It can cost more, so firms choose the number of intermediaries based on their capacity and scope.
Session objectives:
- Describe the nature of marketing channels and their importance
- Identify how channels interact and are organised
- Understand the problems in designing and managing channels
- Explain the role of physical distribution and supply chain management in attracting and satisfying customers
2The nature of marketing channels
- Few producers sell directly to end customers. Most use intermediaries to reach the market.
- Intermediaries add value: they make the product available at lower cost and reach customers country-wide 02:58.
- They create utilities 03:31: time utility, and storage utility (the manufacturer can't store everything). They sometimes convert or repackage the product.
- Each layer of intermediaries that moves the product and its ownership closer to the final buyer is a channel level.
3Push and pull strategies
Push
Marketers take the product to the customer by pushing it through the channel. The manufacturer gives sales incentives, discounts and promotions to intermediaries so they push it onto consumers 04:17.
Example: fragrance brands give department stores incentives to push a new fragrance. Customers first meet it in the store.
Best for new brands or new lines that aren't well established.
Pull
Marketers make consumers come to them. Uses word of mouth, mass media promotion and advertised sales promotions to build demand, so consumers ask intermediaries for the product 05:36.
Pull aims at brand loyalty and repeat buying; push is more about the short-term sale.
Intermediaries feed customer insights back to the manufacturer to make pull campaigns more effective.
4How channel members add value
All these functions use scarce resources, are done better through specialisation, and can be shifted between channel members.
| Function | What the channel member does |
|---|---|
| Negotiate prices | Handles all negotiation with end consumers. Once bought, the product belongs to the channel member |
| Inventory management | Matches stock to demand, and doesn't order stock that won't sell (it blocks inventory and finance) |
| Communicate with buyers | Keeps contact with current and potential customers; may run a CRM |
| Persuasive communications | Local marketing and promotion to build awareness of the buying point |
| Gather and distribute information | About consumers, competitors and the environment, which feeds the firm's strategy |
| Risk taking | Bears the risk of unsold stock, bad debts and other losses |
| Financing | Pays in advance or on credit, often before consumers pay |
| Physical distribution | Gets goods to end users quickly and in good condition |
Why use intermediaries?
- Using them raises product awareness and reaches a larger customer base, so sales grow.
- They're usually cheaper than doing distribution yourself, giving higher profit and less spent on advertising and promotion.
- Lack of financial resources
- Lack of necessary skills
- Direct marketing isn't feasible
- To improve distribution efficiency
5Channel levels
The number of intermediary levels between producer and consumer. It can be 0, 1, 2, 3 or more.
| Level | Path | Example |
|---|---|---|
| Zero-level (direct) | Manufacturer → Consumer | Telemarketing, company website, own stores |
| One-level | Manufacturer → Retailer → Consumer | Car maker → dealer |
| Two-level | Manufacturer → Wholesaler → Retailer → Consumer | FMCG → wholesaler → grocery shop |
| Three-level | Manufacturer → Agent/Distributor → Wholesaler → Retailer → Consumer | Imported goods |
6Channel behaviour and conflict
- A channel is a complex behavioural system: firms depend on each other to reach individual, firm and channel goals.
- Example: a Volvo dealer depends on Volvo to design cars customers want, and Volvo depends on the dealer to sell them. Each dealer's success depends on how well the whole Volvo channel competes with other carmakers' channels.
- The channel works best when each member does the tasks it does best.
- But members often focus on their own short-run goals, and disagree on who does what, for what reward. That creates channel conflict.
Horizontal conflict
Between firms at the same level of the channel.
Example: a dealer complains that other dealers in town steal sales by aggressive pricing or by selling outside their territories.
Vertical conflict
Between different levels of the same channel. It's more common.
Example: a manufacturer and its distributors or retailers disagree, as in the pharmaceutical industry, where powerful intermediaries strengthen their negotiating position.
Some conflict is healthy competition and can trigger innovation. But for the channel to perform well, roles must be clearly specified and conflict managed, ideally by a firm with the power to assign roles. The goal is a win-win for all members.
7Conventional vs vertical marketing systems
Conventional marketing channel
Manufacturer, wholesaler and retailer are independent businesses, each seeking its own profit. No member controls the others beyond specific contracts.
Example: a supermarket buys from several wholesalers, who each buy from different growers.
Vertical marketing system (VMS)
Producers, wholesalers and retailers act as a unified system. One member owns the others, has contracts with them, or has so much power that they all cooperate.
Examples: Ferrero (Nutella) owns hazelnut suppliers; Delta Airlines owns a jet-fuel refinery.
| VMS type | How it's coordinated | Example |
|---|---|---|
| Corporate VMS | Ownership of all levels by one firm, through forward integration (towards customers) or backward integration (towards suppliers) | Apple selling through its own stores |
| Contractual VMS | Formal contracts between independent firms at different levels; gains economies of scale. The most popular kind | Franchising (McDonald's, Burger King), retailer- or wholesaler-sponsored cooperatives |
| Administered VMS | Size and power of one dominant member, informally | Walmart setting standards for makers of small products |
Two or more companies at the same level join forces to exploit a new opportunity, combining financial, production or marketing resources.
Examples: a bank's ATMs inside a supermarket; two manufacturers joining to get economies of scale.
Choosing the right system: look at product, environment, customer and company factors, and ask:
- Which system gives the best coverage of the target market?
- Which gives customers what they want: convenience, variety or service?
- Which is the most profitable?
8Designing a marketing channel
- Analyse consumer needs
- Set channel objectives and constraints
- Identify the major channel alternatives
- Evaluate the alternatives
1. Analyse consumer needs: five service outputs
| Service output | Meaning |
|---|---|
| Lot size | How many units a buyer can purchase at one time |
| Waiting and delivery time | How long customers wait for the goods (buyers prefer fast) |
| Spatial convenience | How easy the channel makes it to reach and buy the product |
| Product variety | The range offered (consumers usually prefer more) |
| Service backup | Add-ons such as delivery, credit, installation and maintenance |
Higher service outputs mean higher channel costs and higher prices. Discount resellers (online and offline) show that many customers accept lower service to save money.
2. Set objectives and constraints
State objectives in terms of targeted service output levels, while keeping total channel cost down. Different segments may need different service levels.
Objectives are influenced by:
- The nature of the company
- The products
- The marketing intermediaries
- Competitors
- The environment (economic conditions, legal regulations)
Sometimes a firm sells in the same outlets as competitors; sometimes it avoids their channels.
3. Identify the major alternatives
Each alternative is described by (a) types of intermediaries, (b) number of intermediaries and (c) responsibilities of each member.
(a) Types of intermediaries
| Type | Role | Takes title? |
|---|---|---|
| Agents and brokers | Facilitate sales and earn a fee or commission. Popular with small firms needing wider distribution | No |
| Merchant wholesalers | Buy in bulk, hold inventory, resell to businesses and small/medium retailers | Yes |
| Distributors (functional wholesalers) | Advance sales between manufacturer and retailers without buying the products | No |
| Retailers (traditional and online) | Sell to the final consumer: corner stores, malls, e-commerce sites | Yes |
(b) Number of intermediaries
| Strategy | Meaning | Typical products |
|---|---|---|
| Intensive | Stock the product in as many outlets as possible (place utility) | Convenience goods: soap, biscuits, soft drinks |
| Selective | More than a few but fewer than all willing intermediaries | Shopping goods: appliances, clothing brands |
| Exclusive | Strictly limit the number of intermediaries, for more aggressive, informed selling and control over price, credit and promotion | Luxury and specialty goods: luxury fashion, high-end cars |
(c) Responsibilities of each member
Members must be treated fairly and given a chance to be profitable. Responsibilities include risk taking, financing, physical distribution, negotiations, inventory management, contacts, promotions and information.
4. Evaluate the alternatives
The firm's options might be a company sales force, a manufacturer's agency or industrial distributors. Judge each one against three criteria:
| Criterion | Question |
|---|---|
| Economic | Which gives more sales at lower cost: own sales force or an agency? |
| Control | Using intermediaries means giving up control. How much is acceptable? |
| Adaptive | Can we keep flexibility over the long term vs the short term? |
9Managing the marketing channel
Managing a channel means analysing, planning, organising and controlling it. Motivation tools include higher allowances, strong advertising support, higher trade discounts, training, and logistic support.
| Task | Key points |
|---|---|
| Selecting members | "For consumers, the channels are the company." Check years in business, growth and profit, financial strength, service reputation. For agents, check other lines carried and sales-force quality; for exclusive outlets, check location and type of customer |
| Training and motivating | Treat intermediaries like customers: understand their needs, offer training and capability building |
| Evaluating | Regularly check sales quota attainment, delivery time, average inventory, handling of damaged/lost goods, cooperation in training. Give functional discounts for each agreed service; retrain or counsel weak performers |
| Modifying arrangements | Review when distribution isn't working, buying patterns change, new competitors or channels appear, or the product moves through its life cycle. Add/drop members or channels; use data mining on shopping data |
10Marketing logistics and supply chain management
Planning, implementing and controlling the physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit.
| Logistics type | Direction |
|---|---|
| Outbound | Factory → resellers → customers |
| Inbound | Suppliers → factory |
| Reverse | Returned goods: reusing, refurbishing or disposing of broken or excess products |
Supply chain management handles the upstream and downstream flows of materials, finished goods and information among suppliers, the company, resellers and final customers.
Give a targeted level of customer service at the lowest cost. Logistics is about profit, not just sales.
Advantages of good logistics:
- Reduced delivery time: impresses customers and builds loyalty
- Pinpointing customer issues: tracking orders and shipments to fix problems fast
- Quality control: catch and correct production problems quickly
- Extra services: better tracking, customisation, self-service tools
Major logistics functions
| Function | Key decisions |
|---|---|
| Warehousing | Storing finished goods until sold. Decide location, number, size, layout, building design and ownership. Automated warehouses cut injuries, labour costs and theft |
| Inventory management | Balance too much (high carrying cost: finance, insurance, storage, losses) vs too little (stock-outs, emergency shipments, unhappy customers) |
| Transportation | Choose among rail, truck, water, pipeline and air, based on cost, infrastructure and urgency (fastest is usually most expensive) |
| Order processing | The purchase order is the central legal document: product, price, delivery, payment terms. Computerised systems speed up the order–shipping–billing cycle |
| Logistical packaging | Protects against damage, eases handling and saves storage space. It's different from product packaging, which serves marketing goals |
| Information | Logistics is information-based: identification, storage, analysis and decision support |
Quiz 13 / Activity: take a known FMCG company (e.g. a Sri Lankan biscuit, tea or soap maker) and explain:
- Its channel levels (e.g. manufacturer → distributor → wholesaler → retailer → consumer) and channel behaviour (conflict, VMS type)
- How it analyses consumer needs (the five service outputs)
- How it sets channel objectives (company, product, intermediaries, competitors, environment)
- Its channel alternatives (types and number of intermediaries, i.e. intensive distribution, and members' responsibilities)
Terminal question 2: a luxury fashion brand should use exclusive distribution, few levels (often a corporate VMS with its own boutiques), high service backup, and tight control over price and image.
11Quick revision sheet
| Concept | Remember it as |
|---|---|
| Place | 4th P: channel / distribution; producer → consumer |
| Marketing channel | Interdependent organisations making the product available |
| Push vs pull | Push = incentives to intermediaries · Pull = advertising builds consumer demand |
| Member functions | Negotiate, inventory, communicate, promote, information, risk, financing, physical distribution |
| Why intermediaries | Lack of money, lack of skills, direct not feasible, efficiency |
| Channel levels | 0 = direct · 1 = retailer · 2 = wholesaler + retailer · 3 = + agent |
| Conflict | Horizontal = same level · vertical = different levels (more common) |
| Conventional vs VMS | Independent members vs one unified system |
| VMS types | Corporate (ownership, Apple) · contractual (franchise, McDonald's) · administered (power, Walmart) |
| Horizontal system | Same-level firms join forces (bank ATM in supermarket) |
| Design steps | Analyse needs → objectives → alternatives → evaluate |
| Five service outputs | Lot size, waiting time, spatial convenience, variety, service backup |
| Number of intermediaries | Intensive (convenience) · selective (shopping) · exclusive (luxury) |
| Evaluate alternatives | Economic · control · adaptive |
| Logistics | Outbound, inbound, reverse; goal = target service at lowest cost |
| Logistics functions | Warehousing, inventory, transportation, order processing, packaging, information |
| Transport modes | Rail, truck, water, pipeline, air |
?Self-check quiz
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