10 4: Functions of the Channel Business LibreTexts

Other options might require promotional costs, such as signage, coupons, displays and sale calls. This is why distribution channels that offer the highest sales volumes don’t always offer the highest profit margins. The manufacturer supplies its products to the consumers through its own retail store, salespeople, and their own delivery system. An effective distribution system involves using network resources and logistics to their full potential at the lowest possible cost.

For example, manufacturers may decide to use nontraditional channels such as the internet, mail-order channels, or infomercials to sell products instead of going through traditional retailer channels. Although nontraditional channels may limit a brand’s coverage, they can give a producer serving a niche market a way to gain market access and customer attention without having to establish channel intermediaries. Nontraditional channels can also provide another avenue of sales for larger firms. For example, a London publisher sells short stories through vending machines in the London Underground. Instead of the traditional book format, the stories are printed like folded maps, making them an easy-to-read alternative for commuters.

The backend of marketing channels gives you visibility into the logistics process and to see where each user is in their journey or where each shopper is in the buying process. These insights make it easier to group audiences based on their position in the sales cycle and improve logistics in the future. If a channel member has run out of a product when a customer wants to buy it, the result is often a lost sale. Warehouses cost money to build or rent and heat and cool; employees have to be paid to stock shelves, pick products, ship them, and so forth.

Functions of Distribution Channels

We will look first at the entities that make up a distribution channel and then examine the functions that channels serve. The company sells its products directly using its own website and physical stores, and indirectly through intermediaries such as online marketplaces and offline retailers. A one-level channel has only one intermediary – the retailer – between the manufacturer and the end-user.

1. It is an overarching term that refers to numerous activities and processes such as packaging, inventory, warehousing, supply chain, and logistics.
2. As new institutions emerge or products enter different life-cycle phases, distribution channels change and evolve.
3. In other cases, they hire third-party transportation providers—trucking companies, railroads, and so forth—to move their products.
4. Banks have responded by developing bank-by-mail, Automatic Teller Machines (ATMs), and other distribution systems.
5. Manufacturers of these goods often opt for direct or single-level channels of distribution.

Distribute Product Or Service To Customers

Three-level channel of distribution involves an agent besides the wholesaler and retailer who assists in selling goods. These agents come in handy when goods need to move quickly into the market soon after the order is placed. They are given the duty to handle the product distribution of a specified area or district in return for a certain percentage of commission. In a supply chain, a distribution network is an interconnected group of storage facilities and transportation systems that receive inventories of goods and then deliver them to customers. It is an intermediate point to get products from the manufacturer to the end customer, either directly or through a retail network. A fast and reliable distribution network is essential in today’s instant gratification society of consumers.

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Channel members also store merchandise so that goods are available when consumers want to buy them. The high cost of retail space often means many goods are stored by the wholesaler or manufacturer. One point in this regard, is to be noted that the levels of distribution vary from industry to industry and country to country. In Japan, food distribution system usually may involve as many as five or six levels while rest of the world, rely on two to three levels distribution network.

Retailers buy the product from the manufacturer and then sell it to the customers. One level channel of distribution works best for manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc. Alternatively, a simplified supply chain could involve a manufacturer shipping finished products to its distribution network and then directly to end consumers. The company’s financial resources and objectives are also major factors that come into play while deciding on marketing channels.

1. The best strategy for this type of business is to offer the highest quality and reliability through an infallible logistics chain.
2. The conflict that arises may be vertical, horizontal, or multichannel in nature.
3. Marketing channels are not only a way to communicate with both manufacturers and the people who buy from you, but they are also a tool for promoting the quality of your products and how in-demand they are.
4. A nondisclosure agreement (NDA)A contract that specifies information that is proprietary, or owned by a channel partner, and how, if at all, the other partners can use that information.
5. Warehouses cost money to build or rent and heat and cool; employees have to be paid to stock shelves, pick products, ship them, and so forth.

Kiosks on the campuses of Cheney University allow students to register for classes, see their class schedule and grades, check account balances, and even print transcripts. The general public, when it has access to the kiosks, can use them to gather information about the university. The idea is to know what functions are to be performed, who will perform them and how many levels it requires to make the distribution efforts cost effective, is another important decision to take. Access to a wealth of information about your target market will help you serve relevant content that connects and resonates with them. For example, if you learn that your target audience is busy professionals in New York City, you can deliver content that ties into their lifestyle and unique needs. In this channel, there are no intermediaries between the producer or the manufacturing company and the final consumer.

In cases of customers being geographically dispersed or residing in a different country, manufacturers are suggested to use indirect channels. In order to understand the importance of distribution channels, businesses need to understand that it doesn’t just bridge the gap between the producer of a product and its user. Distribution management is an important part of the business cycle for distributors and wholesalers. The profit margins of businesses depend on how quickly they can turn over their goods. The more they sell, the more they earn, which means a better future for the business.

3 Functions Performed by Channel Partners

This data might include details like where they’re located, their job role, and how they interact functions of channel of distribution with your brand on the channel. In many cases, two or more organizations in a channel jointly promote a product to retailers, purchasing agents, and consumers and work out which organization is responsible for what type of communication to whom. For example, the ads from Target, Walmart, and other retailers you see in the paper on Sunday are often a joint effort between manufacturers and the retailer. Coupons are another joint form of promotion even when offered directly by the manufacturer, joint in the sense that the retailer still has to accept the coupon and process it. The actual forms and styles of communication will be discussed more in the promotions and sales section of the book. On this occasion, companies work with one or more intermediaries to bring their products or services to the final customer.