17.2 Types of Marketing Channels
3 min read•june 25, 2024
Marketing channels are the pathways products take from manufacturers to consumers. They can be direct, with companies selling straight to customers, or indirect, involving like retailers and wholesalers. The choice of channel impacts how products reach consumers and shapes the overall distribution strategy.
B2B channels differ from consumer channels, often being shorter and more direct. Consumer channels tend to be longer and more complex, involving multiple intermediaries. Various distribution systems, like and omnichannel approaches, offer different ways to manage and optimize these pathways to customers.
Types of Marketing Channels
Types of consumer marketing channels
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- enable manufacturers to sell directly to consumers through various means such as manufacturer-owned stores (Apple Store), e-commerce websites (Nike.com), direct mail, and telemarketing, bypassing intermediaries
- involve intermediaries between the manufacturer and the consumer, facilitating distribution and sales
- includes a who purchases products from the manufacturer and sells them to the end consumer (grocery stores selling Coca-Cola)
- incorporates a and a retailer, where the manufacturer sells to the wholesaler, who then supplies the retailer, ultimately reaching the consumer (small boutiques purchasing clothing from wholesalers)
- consists of an , a wholesaler, and a retailer, with the manufacturer selling to an agent (sales representative), who then sells to the wholesaler, who supplies the retailer, finally selling to the consumer (imported goods distributed through agents)
B2B vs consumer marketing channels
- Business-to-business (B2B) marketing channels are often shorter and more direct compared to consumer product channels, as they may involve direct sales from the manufacturer to the business customer (Cisco selling networking equipment to enterprises)
- B2B channels frequently utilize distributors or wholesalers as intermediaries to efficiently reach business customers (Grainger distributing industrial supplies to manufacturers)
- (VARs) in B2B channels provide additional services or integrate products into comprehensive solutions for business customers (IBM partners offering customized software solutions)
- Consumer product marketing channels are typically longer and more complex than B2B channels, often involving retailers as the final link to the consumer (Walmart selling Procter & Gamble products)
- Consumer channels commonly include wholesalers and agents as intermediaries to manage distribution and sales (Costco purchasing bulk goods from wholesalers)
- (McDonald's) and (Ford dealerships) are used for specific consumer products to expand market reach and provide localized sales and service
Distribution system comparisons
- Vertical marketing systems (VMS) align the manufacturer, wholesaler, and retailer to act as a unified system, improving coordination, reducing , and achieving economies of scale
- involves common ownership of all channel members (Starbucks owning and operating its retail stores)
- establishes contracts between channel members to define roles and responsibilities (franchising agreements)
- occurs when one dominant member influences the operations of other channel members (large retailers dictating terms to suppliers)
- involve two or more unrelated companies at the same level collaborating to exploit a marketing opportunity, sharing costs, expanding market reach, and accessing new resources and capabilities (co-branding partnerships like Nike and Apple)
- utilize multiple, independent channels to reach customers, such as retail stores, e-commerce, catalogs, and mobile apps, increasing market coverage, tailoring offerings for different segments, and reducing dependence on any single channel (Macy's selling through physical stores, website, and mobile app)
- provide an integrated, seamless customer experience across all channels, ensuring a consistent brand experience and improving customer satisfaction, loyalty, and lifetime value (Sephora's unified shopping experience across in-store, online, and mobile channels)
Channel Management and Strategy
- involves selecting the most appropriate distribution channels to reach target customers efficiently and effectively
- coordinates the flow of goods, information, and finances from suppliers to end consumers, optimizing overall channel performance
- refers to a member's ability to influence other channel members' decisions and actions (e.g., a major retailer's bargaining power with suppliers)
- is achieved through effective coordination and integration of channel activities, reducing costs and improving overall performance
- involves aligning various channel members' activities and processes to create a seamless, unified customer experience
- occurs when manufacturers bypass traditional intermediaries to sell directly to consumers, often through e-commerce platforms
- Channel conflict may arise when channel members' goals and activities are misaligned, potentially impacting overall channel performance and customer satisfaction
Key Terms to Review (31)
Administered VMS: Administered VMS, or Vendor-Managed Inventory Systems, refer to a type of marketing channel where the manufacturer or supplier takes responsibility for managing the inventory levels and replenishment of products at the retailer's or distributor's location. This approach aims to optimize inventory management and ensure product availability for the end consumer.
Agent: An agent is a person or entity that acts on behalf of another person or organization, representing their interests and carrying out tasks or transactions on their behalf. Agents play a crucial role in marketing channels, facilitating the flow of products, services, and information between producers and consumers.
B2B Marketing Channels: B2B marketing channels refer to the various pathways and intermediaries used by businesses to promote and distribute their products or services to other businesses, rather than directly to consumers. These channels facilitate the flow of information, goods, and services between organizations in the business-to-business market.
Channel Conflict: Channel conflict refers to the tension or disagreement that can arise between different members of a marketing distribution channel, such as manufacturers, wholesalers, and retailers, due to competing goals, interests, or decision-making processes. This term is particularly relevant in the context of the key topics covered in this chapter: 17.1 The Use and Value of Marketing Channels, 17.2 Types of Marketing Channels, 17.3 Factors Influencing Channel Choice, 17.4 Managing the Distribution Channel, and 18.1 Retailing and the Role of Retailers in the Distribution Channel.
Channel Efficiency: Channel efficiency refers to the effectiveness and optimization of marketing distribution channels in delivering products or services from producers to consumers. It measures how well a marketing channel performs its intended functions, such as facilitating the movement of goods, reducing costs, and enhancing customer satisfaction.
Channel Integration: Channel integration refers to the seamless coordination and alignment of different marketing channels to provide a consistent and cohesive customer experience. It involves the strategic integration of various distribution and communication channels to ensure a smooth and efficient flow of information, products, and services between the business and its customers.
Channel Power: Channel power refers to the degree of influence and control that a member of a marketing channel has over the other members. It is a critical factor in understanding the dynamics and power dynamics within a distribution channel.
Channel Strategy: Channel strategy refers to the selection and management of the various pathways and intermediaries used to deliver products or services from a company to its customers. It is a critical component of a company's overall marketing and distribution plan.
Contractual VMS: Contractual VMS, or Contractual Vendor Management System, is a type of marketing channel arrangement where a company outsources the management of its supplier relationships and procurement processes to a third-party vendor. This system allows the company to focus on its core business activities while the vendor handles the complexities of managing multiple suppliers and vendors.
Corporate VMS: Corporate VMS, or Vendor Management System, is a centralized platform used by organizations to manage and optimize their relationships with third-party vendors and suppliers. It serves as a comprehensive system for streamlining the procurement, onboarding, and oversight of external service providers, helping businesses improve efficiency, reduce costs, and mitigate risks associated with their vendor ecosystem.
Dealer Networks: Dealer networks refer to the distribution channels that manufacturers or producers use to make their products available to consumers. These networks consist of a group of independent dealers or retailers who act as intermediaries between the manufacturer and the end-user, facilitating the sale and delivery of products to the market.
Direct Marketing Channels: Direct marketing channels refer to the methods and pathways used to directly connect businesses with their target customers, bypassing traditional intermediaries. These channels allow for personalized, targeted communication and transactions between the company and the consumer.
Disintermediation: Disintermediation refers to the process of eliminating or reducing the number of intermediaries, such as wholesalers, distributors, or brokers, in a supply chain or marketing channel. It involves a direct connection between the producer and the consumer, bypassing traditional intermediaries.
Distributor: A distributor is a key intermediary in a marketing channel, responsible for facilitating the movement of products from manufacturers to retailers or end-consumers. Distributors play a vital role in ensuring the efficient distribution and availability of goods within a given market or region.
Exclusive Distribution: Exclusive distribution is a marketing strategy where a manufacturer or supplier grants the right to sell its products to a single retailer or distributor within a specific geographic area or market segment. This type of distribution arrangement limits the availability of the product to a select number of authorized outlets, creating a sense of exclusivity and control over the product's distribution and pricing.
Franchises: A franchise is a type of business model where a company (the franchisor) grants the right to use its brand, products, and business systems to another party (the franchisee) in exchange for a fee and ongoing royalties. Franchises are a common marketing channel strategy used by companies to expand their reach and distribution.
Horizontal Marketing Systems: A horizontal marketing system is a strategic alliance between two or more companies at the same level of the marketing channel, such as manufacturers, wholesalers, or retailers, who work together to take advantage of a marketing opportunity. These systems allow companies to combine their resources, expertise, and market reach to achieve greater efficiency and effectiveness in reaching and serving customers.
Indirect Marketing Channels: Indirect marketing channels refer to the distribution of products or services through intermediaries, rather than directly from the producer to the consumer. These channels involve one or more middlemen, such as wholesalers, retailers, or other third-party entities, who facilitate the movement of goods and services from the manufacturer to the end-user.
Intensive Distribution: Intensive distribution is a marketing strategy where a product is made available in as many retail outlets as possible, maximizing its presence and accessibility to consumers. This approach aims to ensure that the product is readily available to the target market, making it convenient for them to purchase the item when the need or desire arises.
Intermediaries: Intermediaries are entities that facilitate the exchange of goods, services, or information between producers and consumers in a marketing channel. They act as a bridge, connecting the different parties involved in the distribution process.
Multichannel Distribution Systems: Multichannel distribution systems refer to the practice of using multiple channels to reach and serve customers. This approach allows businesses to provide a diverse range of options for consumers to access and purchase products or services, enhancing convenience and accessibility.
Omnichannel Distribution Systems: Omnichannel distribution systems refer to the integration of multiple sales and marketing channels to provide a seamless and cohesive customer experience. This approach allows customers to engage with a brand through various touchpoints, such as physical stores, online platforms, mobile apps, and social media, while ensuring a consistent and personalized experience across all channels.
One-Level Channel: A one-level channel is a type of marketing channel that involves a single intermediary between the manufacturer and the consumer. This channel structure is relatively simple and direct, providing an efficient way to distribute products to the end-user.
Retailer: A retailer is a business that sells goods or services directly to consumers, typically in small quantities, for personal or household use. Retailers play a crucial role in the marketing channels discussed in Chapters 17.1 and 17.2, as they serve as the final link between producers/wholesalers and the end consumer.
Selective Distribution: Selective distribution is a marketing strategy where a manufacturer or producer limits the number of retailers or wholesalers authorized to sell their products. This approach aims to maintain control over the distribution and presentation of the brand, ensuring a consistent brand image and customer experience across the selected channels.
Supply Chain Management: Supply chain management is the coordination and management of the flow of goods, services, information, and finances across an entire supply chain, from the sourcing of raw materials to the delivery of products to the end consumer. It involves the planning, implementation, and control of all activities related to the movement and storage of goods, as well as the effective management of relationships with suppliers, intermediaries, and customers to maximize value and achieve a sustainable competitive advantage.
Three-Level Channel: A three-level channel is a marketing distribution channel that involves three distinct entities: the manufacturer, a wholesaler or distributor, and a retailer. This channel structure is commonly used to efficiently move products from the point of production to the end consumer through multiple intermediaries.
Two-Level Channel: A two-level marketing channel is a distribution system that involves two intermediaries between the manufacturer and the final consumer. This type of channel structure typically includes a wholesaler or distributor who purchases products from the manufacturer and then sells them to a retailer, who in turn sells them to the end-user or consumer.
Value-Added Resellers: Value-added resellers (VARs) are businesses that purchase products or services from manufacturers or distributors and then add their own unique features, services, or expertise before reselling them to end-users. They play a crucial role in enhancing the value of products and services within the marketing channel.
Vertical Marketing Systems: A vertical marketing system (VMS) is a type of marketing channel structure where manufacturers, wholesalers, and retailers work together as a unified system. In a VMS, the different levels of the distribution channel coordinate their activities and function as a single unit, rather than acting independently.
Wholesaler: A wholesaler is a business that purchases goods or products in bulk from manufacturers or other suppliers and resells them to retailers, industrial users, or other wholesalers, typically without any alteration of the products. Wholesalers play a crucial role in the distribution and marketing channels by facilitating the flow of goods from producers to end-consumers.