Marketing channels refer to the people, organizations and activities that are needed in order for a business to transfer products from the production point to the consumption point. In other words, it is the way in which products and services reach an end user. Also known as a distribution channel, a marketing channel is an extremely important tool for management, and it is key to creating an effective marketing strategy.
The main purpose of any channel of distribution is to bridge the gap between whoever produces the product and the end users of the product, regardless of where the parties are located; the producer and the end user can be located a few miles apart or a few thousand miles apart. The channel of distribution is defined as the most effective and the most efficient way to put a product in the hands of a user.
Distribution channels are comprised of different types of institutions that facilitate the transactions and the physical exchanges. There are three main entities involved in a distribution channel:
- The producer of a product. This can include a manufacturer, a craftsperson, a farmer, or any other type of producer in any given industry.
- The person who uses the product. This can include an individual person, a business, an institution, a government agency, or a household.
- A middleperson. This can be someone or a collection of people at the retail or wholesale level.
The Functions of a Distribution Channel
A distribution channel performs three primary and highly important functions:
- Transactional functions. This involves buying and selling, as well as risk assumption of a product.
- Logistical functions. This refers to the assembly, storage, sorting, and transportation of a product.
- Facilitating functions. This involves the services that are offered after purchases have been made, financing, the dissemination of information, coordination of channels, or leadership.
It’s important to understand that not all members of a distribution channel perform the same function. However, all of these functions are vital for every aspect of the distribution channel, as they ensure that products are effectively flowing from the point of origin to the end user.
The Characteristics of a Distribution Channel
There are specific characteristics that are implied to every type of distribution channel.
Firstly, though channel institutions can be eliminated or substituted, the functions that channels perform cannot be removed. For example, if a retailer or a wholesaler is eliminated from a distribution channel, its function will either be shifted forward to a retailer or a consumer, or it will be shifted backward toward a wholesaler or the producer of the product. For instance, a producer of women’s bathing suits might decide to sell their products via direct mail instead of a retail outlet. The producer of the bathing suits will absorb the sorting, storage and risk functions; the post office will absorb the transportation functions; and the consumer will assume more risk because he or she will not be able to visibly see or try on the product before purchasing it.
Secondly, all members of a distribution channel are part of several transactions within a channel at any given point. As such, the complexity of transactions can become overwhelming. Think about how many products you purchase over the course of a single year and the wide variety of distribution channels that are used in order to get the products in your hands.
Thirdly, the very fact that all transactions within a distribution channel are able to be completed satisfactorily is the result of the right products being found in places where you would expect to find them, you have the ability to compare products, the prices are clearly marked, and there are multiple payment methods available.
Fourth, there are specific instances when the optimal channel arrangement is direct from the producer to the end user. This tends to be particularly true when the middleperson that is available is not available or is incompetent; or, when the producer feels that he or she is better equipped to handle the task him- or herself. It might also be extremely important for the producer of the product to have direct contact with the customer so that adjustments can be made as quickly and as accurately as possible. Direct-to-user distribution channels tend to be the most common in industrial settings, catalogue sales, and door-to-door sales. Indirect distribution channels are more common because, for the most part, producers are unable to execute the tasks that the middleperson can offer.
Lastly, while the notion of a channel of distribution may seem ineffective or unlikely for a service (think transportation or health care), producers that offer services do face issues when it comes to delivering their products in the manner in which the customer wants to receive them, as well as in the time and place that they would like to receive them. Banks have responded to this issue by offering ATM machines, bank-by-mail and other types of distribution channels so that their customers can access their money and other needs whenever and wherever they want to. The medical community has addressed this issue by offer emergency medical vehicles, outpatient clinics, and home care providers.
Different Types of Marketing Channels
There are four basic types of marketing channels:
- Direct selling
- Selling via intermediaries
- Dual distribution
- Reverse channels
Basically, a marketing channel could be a retail store, a website, a catalogue, or a direct form of communication, such as letter, email or text message.
Direct Selling Explained
Direct selling refers to directly marketing and selling products to consumers. Door-to-door sales is one of the oldest forms of direct selling. Today, direct selling involves sales that are made by hosting parties, offering demonstrations, and even internet sales.
Direct selling often relies on multi-level marketing platforms. In this platform, a salesperson is paid for selling and for the sales that are made by the people that they recruit.
Selling via Intermediaries
Intermediaries can include wholesalers and retailers. This is known as an indirect marketing channel. The most indirect channel that can be used involves several different small manufacturers and many different small retailers, as well as an agent, and all work together to coordinate a large supply of a product.
This marketing channel refers to a large array of marketing arrangements. The manufacturer or wholesaler makes use of more than one channel at the same time in order to reach the end user. For example, they may sell products directly to the end user, and they may sell products to other companies for resale. While this method may be effective, it can lead to conflict, as two or more channels are being used to attract the same market.
In this marketing channel, there is no producer; there is only a user or a beneficiary. Reverse channels of marketing go in the opposite direction of the other marketing channels; the move from consumer to intermediary to beneficiary. Making money from recycling or by reselling a product is known as reverse channel marketing.
Marketing and distribution channels are vital for the success of a business, as they help to get products out to end users, and thereby, the keep business moving.