Marketing Channels 101 - Channel Structures

I'll start with a review of the basics over the next few posts.

Marketing channels, also known as distribution channels, are the conduits between a producer and a consumer. These conduits can be individuals or organisations that provide the services post production that are required to fulfil a consumer demand. These services typically include, but are not restricted to:

• Consumer access
• Physical distribution
• Warehousing
• Disaggregation
• Configuration and customisation
• Technical support
• Sales and marketing services
• User education
• Warranty and returns
• Finance
• Consumer research

Marketing channels are important because they facilitate the availability of products in the right quantities, in the right place, at the right time. Specialisation, then, allows manufacturers to provide products to mass markets, through its channel partners, without having to engage with each end consumer directly.

These activities add significant cost to the end consumer of the product. Competitive advantage can gained by optimising the delivery of these activities with channel partners.

Channel models

Typical channel models are differentiated by the use of third-party partners to deliver the services outlined above.

• Direct - the producer provides the services directly to its end consumer groups
• Indirect - the producer utilises single or multiple third-party partners to provide the services to its end consumer groups
• Hybrid - the producer uses both direct and indirect channels

Direct channels can include producer-owned:

• web sales sites
• field salesforce
• telemarketing
• mail order

Indirect channels are characterised by the number of level or tiers between the producer and the end consumer. Examples of some typical models are:

• Single tier systems: Manufacturer - Retailer - Consumer
• Two tier systems: Manufacturer - Wholesaler - Retailer - Consumer
• Three tier systems: Manufacturer - Broker - Wholesaler - Retailer - Consumer

The hybrid model combines one or more of the indirect channel models with one or more of the direct models.

References:

Distribution Channels: Understanding and Managing Channels to Market, Julien Dent, 2008.

Marketing Channels: A Management View, Bert Rosenbloom, 1999.

Marketing Channels, Anne Coughlan, Erin Anderson, Louis W, Stern and Adel El-Ansary, 2006.