236 CHAPTER13 SELECTING ANDMANAGINGMARKETINGCHANNELS
and the Internet are adding value by expediting the flow of physical goods, ownership,
payment, information, and promotion. We explore the selection and management of
marketing channels from the viewpoint of producers of goods and services.WHAT WORK IS PERFORMED BY MARKETING CHANNELS?
Most producers do not sell their goods directly to the final users. Between them stands
a set of intermediaries that perform a variety of functions. These intermediaries con-
stitute a marketing channel (also called a trade channel or distribution channel).
Marketing channelsare sets of interdependent organizations involved in the
process of making a product or service available for use or consumption.^2 Why would
a producer delegate some of the selling job to intermediaries? Although delegation
means relinquishing some control over how and to whom the products are sold, pro-
ducers gain several advantages by using channel intermediaries:➤ Many producers lack the financial resources to carry out direct marketing. For
example, General Motors sells its cars through more than 8,100 dealer outlets in
North America alone. Even General Motors would be hard-pressed to raise the cash
to buy out its dealers.
➤ Direct marketing simply is not feasible for some products. The William Wrigley Jr.
Company would not find it practical to establish retail gum shops or sell gum by
mail order. It would have to sell gum along with many other small products, and
would end up in the drugstore and grocery store business. Wrigley finds it easier to
work through a network of privately owned distribution organizations.
➤ Producers who do establish their own channels can often earn a greater return by
increasing their investment in their main business. If a company earns a 20 percent
rate of return on manufacturing and only a 10 percent return on retailing, it does
not make sense to undertake its own retailing.Intermediaries normally achieve superior efficiency in making goods widely
available and accessible to target markets. Through their contacts, experience, spe-
cialization, and scale of operation, these specialists usually offer the firm more than it
can achieve on its own. According to Stern and El-Ansary, “Intermediaries smooth the
flow of goods and services.... This procedure is necessary in order to bridge the dis-
crepancy between the assortment of goods and services generated by the producer
and the assortment demanded by the consumer. The discrepancy results from the
fact that manufacturers typically produce a large quantity of a limited variety of
goods, whereas consumers usually desire only a limited quantity of a wide variety of
goods.”^3
As shown in Figure 5-1, working through a distributor as intermediary cuts the
number of contacts that manufacturers must have with customers. Part (a) shows
three producers, each using direct marketing to reach three customers, for a total of
nine contacts. Part (b) shows the three producers working through one distributor,
who contacts the three customers, for a total of only six contacts. Clearly, working
through a distributor is more efficient in such situations.Channel Functions and Flows
A marketing channel performs the work of moving goods from producers to con-
sumers, overcoming the time, place, and possession gaps that separate goods and ser-