Types of Channels

Types of Channels

Many different distribution path alternatives have been developed because certain channel types may be appropriate for one product but may not be suitable for others. Various channel types may be classified generally as channels used for consumer products or industrial products.

Channel Types

Consumer Product Channels

Companies producing consumer products may use several different channel types. Producers can choose a zero-level channel (also called direct-marketing channel). This approach involves moving product direct from producer to customer. Zero-channel system does not involve resellers. Examples include company-owned stores, telemarketing, mail order, and door-to-door selling etc. Sara Lee, Amway, Avon cosmetics, Eureka Forbes, Amazon and others use zero-channel. This is a quite simple arrangement but may not be the most efficient or economical means of distributing products to consumers (Figure 9.1). Sumit K. Majumdar and Venkatram Ramaswamy suggest that faced with making the strategic choice of going direct to the consumer or using channel partners, a company must weigh the benefits to consumers against the transaction costs involved in using intermediaries before going directly to consumers.
One-level channel (B) moves products from the manufacturer to retailer. The retailer makes these products available to consumers. Large retailers such as supermarkets and chain stores prefer to buy large quantities of goods from manufacturers. Two-level channel (C) has been quite popular among consumer product companies since long. Between a manufacturer and consumers, there are two channel types intermediaries – wholesalers and retailers. The goods pass from producer to wholesalers, then to retailers, and finally to consumers. This channel arrangement is a practical option for producers who sell to millions of consumers in several geographic areas through few thousand to lakhs of retail shops including the locality Kirana stores. In India, there are an estimated 12 million grocery outlets. Wholesalers of all shapes and sizes cater to a large number of retail stores, including rural markets. Tobacco products, tea, and laundry products etc. are typical examples where wholesalers and retailers operate between manufacturers and consumers.
Three-level channel arrangement involves intermediaries at three levels. The manufacturer does not handle any distribution functions and appoints sole agents with substantial resources or C&F agents. They have their own network of wholesalers and retailers all over the country. This kind of arrangement may also be on the territorial basis. C&F agents handle only distribution functions. Sole selling agents may also handle personal selling on behalf of producer besides taking care of distribution. This is a fairly common practice in India among pharmaceutical manufacturers lacking resources to handle personal selling and distribution functions.
Another channel option is strategic channel alliance. This refers to an arrangement when another company through its own marketing channels sells the products of one producer. For example, a soft drink company may distribute the bottled water of another manufacturer, or a domestic company might distribute the product of a foreign company.
Traditional channels discussed above refer to the forward movement of products from producer to consumer. Some producers must also plan for channel intermediaries performing the role of reverse-flow channels to retrieve products that customers no longer want. For example auto firms, drug companies, toy manufacturers, and others sometimes have to recall products due to defects, breakage, safety reasons, and repairs during the warranty period. They, including producers, help in reversing the flow of certain Channel types of containers for reuse, computer circuit boards for refurbishing and resale, paper, cardboards, and metals etc. for recycling.

Industrial Product Channels

Industrial products manufacturers include any company that manufacturers or markets a product or service not intended to be used exclusively for mass consumer marketing. The manufacturer or marketer of the product is considered to be the product source whether it actually produces the product or ha it produced by contract. Industrial product manufacturers and the companies who market their products need to develop specific relationships with each of their channel members, learning their needs and facilitating their capabilities.
Products for industrial uses are normally researched and produced for the specific needs of the markets they serve. Markets are not created for products; rather, products are researched and developed for the markets. This relationship is not as common in industries that product for the nonindustrial market. In many of the industrial product industries, the users of the manufactured products are themselves, producers or manufacturers. These users buy products from the marketing channel not for personal consumption but for the operation of their business. This relationship to the products used affects the development and management of the marketing channel structure differently than with the users who are not producers themselves but are true consumers. The primary difference is centered on the measurable value of the industrial product whose use is motivated by need rather than by want. These products are purchased from their utility. The satisfaction of the need is measured by product value and intrinsic worth.
Industries involved in the manufacture and marketing of industrial products are also those that tend to be highly regulated by state and federal governmental agencies. The channel members and participants serving these industries must frequently perform services mandated by governmental regulations. The channel members’ capability of satisfying these regulations significantly influences the manufacturer’s ability to manage their marketing channels for compliance and effectiveness. Many consumer products also come under state and federal regulations. The significant difference for the channel member is that consumer product regulatory compliance is often completed at the point of processing or packaging, whereas for industrial products, compliance follows each step in the marketing channel. [ Channel Types ]

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