Channel members execute different marketing and selling functions to increase the sales of the company in a designated area. Channel members perform many functions, including creating utility and facilitating exchange efficiencies. Channel functions play an important role in deciding the channel structure. As the product moves through various stages in the marketing channel, different members in the channel perform different functions and add value for the end users.
The channel functions can be broadly classified into exchange, logistics, and facilitation. Buying and selling of products are part of the exchange function. The logistics function includes storage and transportation of products, while facilitation function includes financing, risk bearing, providing market information and sales promotion.
The functions performed by channel members are:
Inventory management. Good inventory management by different marketing channels affects product availability in the market. It is a critical factor as out-of-stock conditions can impact customer satisfaction, retention, and company’s profitability. The distribution channels need to maintain optimum stocks of different products to meet customer demands. The channels need to order appropriate assortment of different merchandise. Companies are using information technology to efficiently manage inventories. Marketing channels also provide storage of merchandise in appropriate facilities.
Physical distribution. Another important function of marketing channels is to provide good market coverage to ensure the availability of the products. Marketing channels coordinate the delivery schedules to meet customer expectations. The marketing channels approach existing and potential customers to increase the sales of the company. Marketing channels are also responsible for providing customer service in the form of credit, delivery and technical assistance. It also arranges for the return of defective merchandise from the customers.
Bulk-breaking. Bulk-breaking refers to the process of breaking up the large pack lots into smaller lots. Channel partners do bulk-breaking to facilitate the sale at the retailer level. Companies usuallyhave large pack sizes of different stock keeping units (SKUs). For example, Trident group is having “Home Essential” brand of towels with 8 colors. The company packs 24 towels of a single color in a pack. Distributors and wholesalers are required to send their orders for minimum 24 towels of a single color of Home Essential range, whereas retailers buy towels of different companies according to the sales in their area. Retailers may order for 4 SKUs of a particular color and distributor will supply the required quantity to the retailers. The retailer further breaks up the lots into smaller quantities to sell to customers.
Marketing Communications. Channel partners play a significant role in the promotion of the company’s products. Many channel partners design their sales promotions to increase the sales in their territories. Distributors and wholesalers help in advertising the product at the retail level. They also help in increasing point-of-purchase (PoP) displays at the retailers. Different channel partners also providing salesforce that offers information and service to retailers and customers.
Market Feedback. Channel partners play a critical role in passing the market feedback from the customers and retailer to the company. Channel partners are an important source of information about the changes in customer preferences, competitive strategies, and changes in the market.
Retailers directly interact with customers and are a good source of information about the changing market dynamics.
Financial Risk. Channel partners help in financing the company’s operation in the form of advance payments for various products. They offer credit to the retailers to increase the sales and availability of the products. Many companies supply their products to distributors and wholesalers against advance payments and few companies give a credit period of 7 to 21 days depending upon the location of the distributors and wholesalers. Local distributors and wholesalers get 7 days and out-station distributors get 14-21 days of credit, whereas retailers usually give payments to distributors and wholesalers in 30-60 days, depending upon the sector. Retailers in FMCG sector take credit period of 30-45 days, whereas retailers in pharmaceutical industry take credit period of 30-60 days. Channel partners, by taking the responsibility of distribution, reduce manufacturers’ risks to a great extent. Channel partners also manage the risks related to product loss or deterioration. They also manage the risks related to product safety and liability.
Guidance and technical support. Many customers need guidance on how to use complex products like electronic equipment and medicines. Although, companies are having field force to provide technical support to its customers. Marketing channels also provide product information at the time of sale and they also help to ensure post-purchase technical support to the customers. Retail pharmacies provide information to the customers on the right dosage of the medicines.
Although, most of these functions are performed through the joint efforts of channel partners, some of these functions may be performed by a single-channel partner. A well-managed distribution relationship among the different channel members can establish an effective and efficient supply chain that benefits all members of the channel, including the company and the end consumer. A well-managed channel management relationship can establish an effective and efficient supply chain that benefits all members of the channel, including the company and the end consumer.
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.