Channel marketing involves the use of intermediaries between manufacturers and customers. It covers all decisions in creating a chain and can offer logistical and marketing benefits, but also financial consequences and potential conflicts between channels.
Channel marketing involves the specific route by which products get from the manufacturer to the end user. This could involve a distributor, wholesaler or retailer, but usually not direct sales. In the context of channel marketing, the term marketing refers as much to the logistics of getting the product or service to market – i.e. to the customer – as it does to promotion and advertising in the more traditional sense.
A marketing channel is any setup by which there is an intermediary between the manufacturer and the customer. This then creates a chain that can be as simple as manufacturer > dealer > customer, or it can be more complicated. The concept of channel marketing covers all decisions and options that are made in creating such a chain.
There are several reasons why a manufacturer would want to use channel marketing. Some are purely logistical: the demand for a product might be so high that a manufacturer cannot produce enough units to meet the demand without running into logistical problems such as storage before distribution. Selling to wholesalers can allow the company to get the products quickly from their factories after production.
In some cases an intermediary such as a distributor may offer marketing benefits that are not available to the manufacturer. Sometimes this can be economies of scale, such as a magazine distributor being able to act more efficiently in presenting more titles to newsstand owners than a single publisher can handle. In other cases it may involve expert knowledge of a particular audience. This can happen on a large scale, such as a specialist distributor marketing a product overseas. It can also be on a small scale, such as an agent for a cosmetic company who sells products to friends, family and colleagues, thus benefiting an existing relationship.
There are also financial consequences to channel marketing. Each link in the chain will want to take a proportion of the final sale price. A producer must consider two factors in negotiating this ratio. The first is what cost savings you get by using an intermediary. The second is how much the overall sales revenue will increase as a result of the middleman.
Another potential problem is conflict between different channels or different parts of a channel. An example would be a manufacturer who used a distributor but also sold directly to some customers. The producer would usually be able to offer a lower price because he doesn’t have to share the proceeds. This could cause problems if the distributor thinks they are being cut.
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