Types of Marketing Channels

There are basically 4 types of marketing channels: direct selling; selling through intermediaries; dual distribution; and reverse channels.

LEARNING OBJECTIVES

Define direct selling, indirect channels, dual distribution, and reverse channels

There are basically four types of marketing channels:

• Direct selling;
• Selling through intermediaries;
• Dual distribution; and
• Reverse channels.

Essentially, a channel might be a retail store, a web site, a mail order catalogue, or direct personal communications by a letter, email or text message. Here’s a bit of information about each one.

Direct Selling

Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling.

Modern direct selling includes sales made through the party plan, one-on-one demonstrations, personal contact arrangements as well as internet sales.

A textbook definition is: “The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs. ”

Industry representative, the World Federation of Direct Selling Associations (WFDSA), reports that its 59 regional member associations accounted for more than US$114 Billion in retail sales in 2007, through the activities of more than 62 million independent sales representatives.

The United States Direct Selling Association (DSA) reported that in 2000, 55% of adult Americans had at some time purchased goods or services from a direct selling representative and 20% reported that they were currently(6%) or had been in the past(14%) a direct selling representative.

According to the WFDSA, consumers benefit from direct selling because of the convenience and service benefits it provides, including personal demonstration and explanation of products, home delivery, and generous satisfaction guarantees. In contrast to franchising, the cost for an individual to start an independent direct selling business is typically very low, with little or no required inventory or cash commitments to begin.

Most direct selling associations, including the Bundesverband Direktvertrieb Deutschland, the direct selling association of Germany, and the WFDSA and DSA require their members to abide by a code of conduct towards a fair partnership both with customers and salespeople. Most national direct selling associations are represented in the World Federation of Direct Selling Associations (WFDSA).

Direct selling is different from direct marketing in that it is about individual sales agents reaching and dealing directly with clients while direct marketing is about business organizations seeking a relationship with their customers without going through an agent/consultant or retail outlet.

Direct selling often, but not always, uses multi-level marketing (a salesperson is paid for selling and for sales made by people they recruit or sponsor) rather than single-level marketing (salesperson is paid only for the sales they make themselves).

Selling Through Intermediaries

A marketing channel where intermediaries such as wholesalers and retailers are utilized to make a product available to the customer is called an indirect channel.

The most indirect channel you can use (Producer/manufacturer –> agent –> wholesaler –> retailer –> consumer) is used when there are many small manufacturers and many small retailers and an agent is used to help coordinate a large supply of the product.

Dual Distribution

Dual distribution describes a wide variety of marketing arrangements by which the manufacturer or wholesalers uses more than one channel simultaneously to reach the end user. They may sell directly to the end users as well as sell to other companies for resale. Using two or more channels to attract the same target market can sometimes lead to channel conflict.

An example of dual distribution is business format franchising, where the franchisors, license the operation of some of its units to franchisees while simultaneously owning and operating some units themselves.

Reverse Channels

Recycling Containers: Recycling is an example of a reverse marketing channel.

If you’ve read about the other three channels, you would have noticed that they have one thing in common — the flow. Each one flows from producer to intermediary (if there is one) to consumer.

Technology, however, has made another flow possible. This one goes in the reverse direction and may go — from consumer to intermediary to beneficiary. Think of making money from the resale of a product or recycling.

There is another distinction between reverse channels and the more traditional ones — the introduction of a beneficiary. In a reverse flow, you won’t find a producer. You’ll only find a User or a Beneficiary.

Selecting Marketing Channels

Strategic selection of marketing channels can impact an organization’s brand, profitability, and overall scale of operations for a given line of products or services

The Value of Channels

Before selecting which marketing channels are ideal for a given organization, it’s important to understand the underlying role of channels in marketing strategy. Channels influence:

• The relationship between the producer and the buyers.
• The firm’s pricing strategy.
• The overall product strategy through branding, policies, and willingness to stock.

By selecting the optimal channels, organizations create strategic alliances between the firm and the providers. This has a number of implications, including how a user group will perceive the organization’s brand and how they will be treated when interacting with that brand in a given channel situation (such as a retail outlet ). With this in mind, there are a few key considerations organizations will want to keep in mind when selecting channels.

Channel Selection

Consumer Preferences

First and foremost, the consumer’s habits and behaviors determine channel strategy more than anything else. If all of an organization’s consumers love to shop at Walmart, then it may be a smart idea to begin stocking Walmart shelves with products. If consumers have a strong desire to find a given good in a given channel, organizations should strive to make that happen (as long as the opportunity costs down exceed the potential benefits).

Another good example of consumer preferences would be digital storefronts. If a record label manages a few bands, and almost all of those fans are on Spotify, it may be practical to begin using this digital distribution system. If a movie studio knows that the majority of their demographic rents films via iTunes, they may want to create a strategic alliance with Apple.

Cost

Some channels will be more costly than others. Low cost goods function best at low cost retail outlets. Better yet, directly selling eliminates organizations between the user and the producer, and therefore can be even lower cost (albeit, shipping, storing and other logistics must be considered). Wholesalers are willing to buy large shipments of goods, but usually at a significant discount. In many cases, the overall revenue maximizing curve will be a useful tool in determining the optimal volume at the optimal price for a firm to satiate a given market demand.

Brand

Organizations create strategic alliances to build channels for consumers, and these alliances will reflect on the overall branding initiatives of both partners. If an online retailers stocks a certain type of item, users of that online retailer will equate the two brands together. This can have an impact on how those consumers view both companies.

For example, A premium coffee machine manufacturer may not want to be stocked at a discount retailer, as it will lower the brand’s power in the eyes of the consumer. A high end good being sold on a low-cost distribution channel can cannibalize sales and reduce profitability through offering a price point the producer doesn’t believe matches the quality of the produced good.

Localization

In the current global economy, it is also useful to localize and enter new markets through effective marketing channel selections. A producer of household goods, for example, like laundry detergent could just as easily sell their goods in Europe as in the United States. The question for accomplishing this task is which retailers to work with, and how to localize the brand to be recognized and understood by foreign consumers. Strategic channel selection can greatly improve an organization’s ability to accomplish this goal.