Page 206 - DMGT408DMGT203_Marketing Management

Unit 9: Managing Marketing Channels

2. Channel Members Facilitate Exchange Efficiencies: Channel members offer exchange Notes
efficiencies and help reduce the exchange costs by providing certain functions or services.
Let us assume that three customers seek to buy products from four producers. If there are
no middlemen involved, the total transactions with three customers will be twelve. If
these four producers sell to one reseller, the total transactions for producers will come
down to four (one for each producer), and in turn the reseller will handle three transactions
with customers. The costs of three transactions for each producer are likely to be more
than just one transaction with reseller for each producer. In this situation just one reseller
serves both producers and the customers. Cost is a major factor coupled with better service
to customer needs for using channel intermediaries.
3. Channel Members may Reduce Discrepancies and Separations: For most customers,
producers are located far from them and customers may want different product assortment
and quantity of the manufacturer’s produce. Customers too may not be very clear about
their product choices and channel members help adjust these discrepancies.
Assortment discrepancy refers to the difference between the product lines a company
produces and the assortment customers want.

Example: A company may be specialist in producing cricket balls only, but a typical
cricket enthusiast would also be interested in cricket bat or gloves, and other complimentary
products and may not prefer to shop for these items elsewhere.

The resellers adjust these discrepancies.
Quantity discrepancy means the difference between what quantity is economical for the
company to produce, which in most cases is quite large.

Example: The cricket ball manufacturers might be producing 10 or 15 thousand balls in
a given period. The average buyer would buy far less number of balls at a time.
Channel members may also help in handling this discrepancy. Middlemen collect and
accumulate products from various producers. Wholesalers buy in bulk, break it into different
grades or qualities desired by different customer groups, and sell smaller quantities to
retailers, who sell to the customer one or few units at a time.
4. Other Functions: Distribution channels share financial risk by financing the goods moving
through pipeline and also sometimes extend the credit facility to next level operators and
consumers as well as handle personal selling by informing and recommending the product
to consumers, and partly look after physical distribution such as warehousing and
transportation, provide merchandising support, and furnish market intelligence.
The main criticism about using intermediaries is that this increases prices. Customers prefer
lower prices and would like the channels as short as possible. The assumption is that lower the
number of intermediaries, the lower the prices. This thinking ignores the fact that channel
members perform certain functions and producers cannot escape these functions by not involving
intermediaries. The functions and associated costs are simply transferred to producer.

9.1.2 Role of Marketing Channels

A distribution channel moves goods from producers to consumers. It overcomes the major time,
place, and possession gaps that separate goods and services from those who would use them
from those who make them. Marketing channel members perform many roles: buying, carrying

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