Channels and Intermediaries
Distribution of products takes place by means of channels. Channels are sets of interdependent organisations (called intermediaries) involved in making the product available for consumption. Merchants are intermediaries that buy and resell products. Agents and brokers are intermediaries that act on behalf of the producer but do not take title to the products.
A firm can design any number of channels. Channels are classified by the number of intermediaries between producer and consumer. A level zero channel has no intermediaries. This is typical of direct marketing. A level one channel has a single intermediary. This flow is typically from manufacturer to retailer to consumer.
Intensive distribution means the producer's products are stocked in the majority of outlets. This strategy is common for basic supplies, snack foods, magazines and soft drink beverages.
Selective distribution means that the producer relies on a few intermediaries to carry their product. This strategy is commonly observed for more specialised goods that are carried through specialist dealers, for example, brands of craft tools, or large appliances.
Exclusive distribution means that the producer selects only very few intermediaries. Exclusive distribution is often characterised by exclusive dealing where the reseller carries only that producer's products to the exclusion of all others. This strategy is typical of luxury goods retailers such as Gucci.
In practice, many organizations use a mix of different channels; in particular, they may complement a direct sales-force, calling on the larger accounts, with agents, covering the smaller customers and prospects. In addition, online retailing or e-commerce is leading to disintermediation. Retailing via smartphone or m-commerce is also a growing area.
The firm's marketing department needs to design the most suitable channels for the firm's products, then select appropriate channel members or intermediaries. The firm needs to train staff of intermediaries and motivate the intermediary to sell the firm's products. The firm should monitor the channel's performance over time and modify the channel to enhance performance.
To motivate intermediaries the firm can use positive actions, such as offering higher margins to the intermediary, special deals, premiums and allowances for advertising or display. On the other hand, negative actions may be necessary, such as threatening to cut back on margin, or hold back delivery of product.
Channel conflict can arise when one intermediary's actions prevent another intermediary from achieving their objectives. Vertical channel conflict occurs between the levels within a channel and horizontal channel conflict occurs between intermediaries at the same level within a channel.