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Basics of Marketing - Kotler Philip

Decisions about the structure of the channel

Now we will discuss some of the problems that manufacturers face when deciding on the structure of the channel . When forming the distribution channel, you have to constantly link the desired with the available. A novice company is usually an organization of local or regional scale, trading in a limited market. Due to the limited financial resources, it usually uses the services of existing intermediaries. And in any local market, the number of intermediaries is likely to be small: several manufacturers' trade agents, several wholesalers, several entrenched retailers, several trucking companies and several warehouse enterprises. Choosing the best channels is unlikely to be a difficult task. The difficulty will probably be to convince one or more intermediaries on the market to work with a new product.

If the newcomer is lucky, it will be able to expand its activities to other markets. At the same time, she will again have to work through existing intermediaries, which can mean the use of distribution channels of different types in different regions. In small markets, the firm can organize sales directly to retailers, in larger markets - act through wholesalers. In rural areas, it can work with merchants of mixed goods, in urban areas - with merchants of limited range of goods. In one region of the country, it can grant exclusive privileges to intermediaries, since all traders work here under these conditions, in another - to sell their goods through any trading enterprises that agree to deal with it. Thus, the system of distribution channels is formed under the influence of local opportunities and conditions.

Identification of the main channel options

Suppose a manufacturing company has defined both its target market and its positioning on it. Now she has to identify the main options for the channels in terms of the type and number of intermediaries available to them.

TYPES OF INTERMEDIARY . The firm needs to identify the types of existing intermediaries that could ensure the functioning of its channel. Consider the following example.

The manufacturer of the test equipment has created a signal sound device for detecting unreliable mechanical connections in any mechanisms with moving parts. The firm's management believes that the product will find a market in all industries using or producing electric motors, internal combustion engines or steam engines. And this - aircraft building, car manufacturing, railway, canning, construction and oil industry. The number of the company's sales staff is small, and the question arises as to how to cover all these so different branches in the most effective way. Based on the results of the discussion, the management decided on three options for distribution channels. 1. Increase in the number of full-time trade specialists of the firm. This can be expressed either in the appointment of sales representatives for sales zones and imputing to each of them the responsibility to maintain contacts with all potential buyers in their zone, or to create a separate staff of sellers to serve each individual industry. 2. Involvement of third-party organizations as representative offices of the manufacturer in different regions or industries for the sale of new test equipment. 3. Selection of distributors in different regions and / or industries willing to buy a novelty and trade it8, and granting them the exclusive right to distribute the goods, as well as providing distributors with a corresponding rate of profit, training their specialists for handling the goods, and supporting Sales promotion.

At the same time, firms should also look for more progressive marketing channels. An innovative approach, for example, was applied by the company "Conn Organ Company", when it decided to sell its organs through department stores and discounted stores, which attracted much more attention to them than with regular trade through small music stores. A bold step was also completed by the Book of the Month Club, deciding to use the new channel and sell books on postal orders. Soon, his example was followed by other sellers: clubs "The Plate of the Month", "The Fruit of the Month" and dozens of others.

Sometimes a firm has to form a completely different channel, which it prefers, since it is too difficult or too expensive to work with the channel of the desired structure. And in some cases, such a decision on the formation of a new channel is extremely successful. For example, at first the firm "Yu. C. Time Company "tried to sell its inexpensive" Timex "watches through conventional jewelry stores. But most jewelry traders refused to deal with them. Then the company started looking for other channels and managed to introduce its watches into active sales stores. The decision turned out to be wise, for this form of trade has just started to develop intensively.

NUMBER OF MEDIATORS . The firm will have to decide how many intermediaries will be used at each level of the channel. There are three approaches to solving this problem.

Intensive distribution. Manufacturers of consumer goods and conventional commodities, as a rule, tend to establish their intensive distribution, i.e. Ensure the availability of stocks of their goods in as many trading enterprises as possible. For these goods, the convenience of the place of purchase is mandatory. Cigarettes, for example, are sold in more than a million retail outlets - the only way to achieve the widest possible representation of the brand and convenience for customers.

Distribution on the rights of exclusivity. Some manufacturers deliberately limit the number of intermediaries selling their goods. The limiting form of such a restriction is known as distribution on the rights of exclusivity, when a limited number of dealers are granted exclusive rights to distribute the firm's products within their sales territories. In this case, it is often the condition of exclusive dealership, when the manufacturer requires that dealers selling his goods do not trade and competitor's goods. Distribution on the rights of exclusivity is found in the practice of trade in new cars, some large electrical appliances, individual brands of women's clothing. Granting exclusive rights to distribute its goods, the manufacturer hopes to organize more aggressive and sophisticated sales, as well as to the possibility of more complete control over the actions of the intermediary in the field of price policy, incentives, lending operations and various services. Distribution on the rights of exclusivity usually contributes to the elevation of the image of the product and allows it to produce higher markups on it.

Selective distribution. The method of selective distribution is something between the methods of intensive distribution and distribution on the rights of exclusivity. In this case, the number of intermediaries attracted is greater than one, but less than the total number of those willing to deal with the sale of goods. The firm does not need to spray its efforts at a variety of outlets, among which there are many and clearly secondary. She can establish good business relations with specially selected middlemen and expect them to sell at above-average level. Selective distribution gives the manufacturer the opportunity to achieve the necessary coverage of the market with more stringent control and with lower costs on his part than with the organization of intensive distribution.