How do you most efficiently get your product or service to the people that need it and are willing to pay for it? Using a marketing channel may be a solution. Channel marketing describes the organizations that work together to get your product or service to the end user.
Extending Your Reach
Many producers of products and services do not sell directly to their end users. They use a marketing channel. In its most simplistic form, a marketing channel performs the work of moving goods from producers to consumers.
A marketing channel includes one or more marketing intermediaries who perform a variety of functions. Each channel member:
- Provides value
- Performs a function
- Expects an economic return
Channel marketing most often relates to the sale of products. However, it is not limited to the distribution of physical goods. Providers of services and ideas also benefit from channel marketing. For example, banks and credit unions depend on a network of ATMs to offer their services. Health and medical organizations depend on a network of providers to offer their services. Financial management and insurance organizations disseminate information through systems provided by other vendors. In the cases above, channel marketing offers better services at costs lower than offerings without the assistance of channel members.
Organizations can achieve differentiation through their distribution channels. Each of these channels may offer different coverage, expertise, and performance. They may also realize economies of scale that channels of distribution often offer.
Marketing channel decisions are among the most critical decisions facing an organization. The chosen channels intimately affect all other marketing decisions. The organization’s pricing depends on whether it uses mass merchandisers or high-quality boutiques. The firm’s sales force and advertising decisions depend on how much training and motivation the dealers need.
Channel Members Provide Value
Channel marketing intermediaries exist because they offer value in making goods and services more available and accessible to the targeted markets.
Channel intermediaries offer contacts, experience, specialization, and economies of scale to organizations that cannot offer these attributes on their own. Marketing channels allow producers to realize the benefits that only larger organizations may be able to support.
Each channel intermediary provides value in the form of:
Information: Collect and disseminate marketing information about potential and current customers, competitors, and other aspects of the marketing process.
Promotion: Develop and share marketing communications designed to inform and attract customers.
Negotiation: Reach final agreement on the price and other terms of the transaction.
Funding: Acquire access to funds to finance inventories at different levels of the marketing channel.
Risk taking: Take on risks associated with performing the functions of the channel. Obsolete or damaged inventory, bad debt, and slow payment are a few examples of this risk.
Physical possession: Store and move products from raw materials to the final customers.
Payment options: The buyers’ payment of their bills to the sellers through banks and other financial institutions.
Title: Transfer title of ownership from one organization or person to another.
In a functional sense, these are some examples of the types of resources that marketing channels offer. Each adds value to the promotion, the transaction, or the services associated with the purchase:
- Accounting services
- Advertising planning assistance
- Catalog service
- Co-op advertising programs
- Consumer advertising
- Data processing programs and systems
- Dealer shows and events
- Drop-ship programs
- Employee training
- Forms and printing assistance
- Inventory control systems
- Insurance programs
- Management consultation services
- Merchandising assistance
- Ordering and processing systems
- Point-of-sale identification
- Private-label merchandise
- Store planning and layout
Through their acquired expertise and economies of scale, channel members offer these activities more efficiently than organizations, particularly smaller ones, could provide on their own. The marketing channel allows the producer and the channel members to do what they each do best in higher volumes.