Marketing is an exchange between a firm and the consumers. This exchange happens when the cost of the product or service is less than the value perceive by the consumer. The expected benefit from consuming the product is of course the biggest contributing factor for the perceived value; however, there are many other factors affecting the purchasing decision. When you decide to buy a laptop, you select the specifications you need. Other considerations for your purchase decision may include,
- Where can it be purchased?
- When can it be purchased?
- Are there any payment plans available?
- What is the level of after sales service and what are the warranty conditions?
Answers for above questions depend on the design of the marketing channel. Regardless of the quality of the product, if it is not placed effectively and efficiently, the purchasing process will not be completed. The perceived value of the product is enhanced by correctly placing the product. In case of the laptop; a longer warranty, ease of access for purchasing, reputation of the retailer, availability of payment plans etc affect the purchasing decision. The gap between the consumers’ expectation and producers’ offering can cause a big damage to the producer so the selection of effective distribution system gives advantage in the competition (Banyte, Gudonaviciene & Grubys, 2011)
A typical marketing channel includes manufacture, wholesaler, retailer and the consumer. Depending on the scale of the business and nature of the product or service, the intermediate institutions may be bypassed by the manufacturer to reach the consumer. However marketing channel design has become more complex in modern hyper-competitive marketplace with the introduction of technology. Marketers are forced to rethink marketing channel design in order to provide the level of service expected by the consumers.
Typical Marketing Channels
Information revolution has changed the way business is done and use of internet and online purchasing is the biggest change that affected the structure of marketing channels. When it comes to Fast Moving Consumer Goods (FMCG), the manufacturers use intensive distribution strategies with pull strategy. Product or Service promotion is mainly done by manufacturer of the goods and the manufacturer relies on the wholesalers and retailers to reach the consumers. However, there are many wholesalers who offer online sales of many FMCG’s so even the supermarkets are forced to enter the online retail sales.
The manufacturers’ aim is to reach the consumers effectively and efficiently. They select the channel that can provide maximum convenience and satisfaction to the customers as it is attached to the perceived value of their product. Unless the intermediate institutions find the most efficient way to reach the consumer, the manufacturer will go for the best available alternative. As a consequence of adaptation of more efficient organizational solutions thanks to the developments in technology, the competition among the firms in marketing channel has been intensified (Musso & Consoli 2010, p. 2).
Online retail business is challenging the power of intermediate institutions by providing manufacturers an opportunity to directly access the consumers. Retailers also endeavour to provide a better customer service by modernising the shopping environment with the help of technology such as self checkouts, 24 hour shopping, home delivery services etc. Some major retailers have used the strategy of integrating the functions of the supply chain to retain the power. Private brands introduced by two Australian supermarket giants Coles and Woolworths, Costco model, Aldi’s exclusive brands, Ikea’s efficient supply chain, Dell Direct Model are some of the examples where vertical integration has been successfully used in marketing channel design.
Dell Direct Model is one of the remarkable examples of modern marketing channel designs with customers having direct access to Dell for ordering the computers with the specification they want. Dell took the vertical integration strategy a step further to become one of the most successful computer companies (The Economist, 2009)
Banyte J, Gudonaviciene R & Grubys D, 2011, ‘Changes in Marketing Channel Formation’, Kaunas University of Technology, Retrieved 14 May 2016, <http://eds.a.ebscohost.com.ezproxy-b.deakin.edu.au/eds/pdfviewer/pdfviewer?sid=59c51cdf-241d-4b0b-90b5-00e2dc9de904@sessionmgr4002&vid=10&hid=4210>
Musso F & Consoli D, 2010, ‘Technology in Marketing Channels: Present and Future Drives of Innovation’, Administration, University of Bucharest Romania, Academia, Retrieved on 15 May 2016, <https://www.academia.edu/711971/Technology_in_marketing_channels_Present_and_future_drivers_of_innovation>
The Economist, 2009, ‘Vertical Integration’, The Economist, Retrieved 15 May 2015, <http://www.economist.com/node/13396061>