The five flows in marketing channels discussed in the text are

One traditional framework that has been used to express the channel mechanism is the concept of flow. It reflects the many linkages that tie channel members and other agencies together in the distribution of goods and services. From the perspective of the channel manager, there are five important flows:

1. Product flow

2. Negotiation flow

3. Ownership flow

4. Information flow

5. Promotion flow

The product flow refers to the movement of the physical product from the manufacturer through all the parties who take physical possession of the product until it reaches the ultimate consumer. The negotiation flow encompasses institutions that are associated with the actual exchange processes. The ownership flow: shows the movement of title through the channel. Information flow identifies the individuals who participate in the flow of information either up or down the channe1. Finally, the promotion flow refers to the flow of persuasive communication in the form of advertising, personal selling, sales promotion, and public relations.

Types of Distribution within Channels

Once a channel is selected, the distribution strategy can take three different forms. They are listed as follows, from most restrictive to least restrictive—and remember, in retail, the term “restrictive” does not automatically have a negative connotation.

1. Exclusive distribution is thought of most frequently for high-dollar products such as luxury cars or Rolex watches, but the fact is that even small-ticket items like toys are considered exclusive when they are in high demand.

In an exclusive distribution agreement, one retail store or chain of stores has the legal right to market and sell the product line in a geographic area. Exclusive distribution is sometimes requested by the retailer, not the producer, to ensure that the retailer has something unique, that customers can’t get anywhere else.

2. Selective distribution means the retailers are carefully screened, and only a few are permitted to carry the product line.

3. Intensive distribution is the closest thing to blanket coverage in retail, a “you can find it anywhere” theory of marketing.

Ironically, this intensive product availability requires a large and complex distribution channel in order to cover all the sales outlets, from supermarkets and convenience stores to vending machines and restaurants. Manufacturers of these products depend heavily on their wholesalers to handle the sales functions—and will drop a wholesaler who is not performing well based on sales figures—which makes this type of wholesaling very competitive.

Channel Relationships

The fact is that modern-day companies are often forced to participate in distribution channels for practical reasons—not really because they want to be “part of the team.” They need the efficiency and the economy of scale, although in some ways, this kind of cooperation runs counter to the tough, competitive side of traditional retailing.

Channel cooperation would be ideal—a joint effort of all the members to create a supply chain that is flexible, gives each partner a competitive advantage, and ultimately provides the best product and related services to the customer. However, whether you’re selling candy bars or luxury automobiles, conflict does occur when the members of a distribution channel choose different ways to operate within the system, have differing goals, or balk at sharing information. Areas of potential channel conflict are many. They can arise naturally from competition between multiple members of the same channel—retailers or wholesalers—who carry the same product line. They will also occur when retailers have service issues with the products and want to handle returns, repairs, or exchanges differently (say, more generously) than what the manufacturer is willing to do. A very common source of channel conflict is a producer’s decision to either increase or decrease prices. The wholesalers take the flack about it from retailers—who, in turn, must listen to consumers’ complaints, at least in the case of price hikes.

There is a hierarchy in all distribution channels, whether the participants like it or not. The company that has the most authority in the channel is referred to as the channel leader or channel captain. In this case, “authority” means the partner’s ability to either influence or control the behavior of any of the other partners in the channel.

It is important to note that in a distribution channel, any of the participants can refuse to do business with any of the others—as long as someone amenable to the entire group is tapped to take over the role that the ousted business has played. This game of “musical chairs” is difficult at best and disastrous at worst. It’s better for everyone if the participants can figure out how to get along.

Strategic Alliances

A similar partnership arrangement between separate companies with products or skills to share is the strategic alliance, which allows them to share the use of already-established distribution channels in pursuit of business growth in new markets. Retailers have been forging strategic alliances since the 1950s, and the pace continues unabated today as stores continue to branch into international sales.

A strategic alliance is more than two companies holding shares of each others’ stock, or ordering merchandise jointly for added buying power. In order to be truly strategic, the alliance must have all three of the following characteristics:

1. It must be collaborative. It should not involve the stronger channel member barking orders to the weaker one.

2. It must be horizontal. That is, it must be forged between companies of the same type, two retailers or two wholesalers.

3. It must be beneficial to both. This requires common objectives and the willingness to communicate and share knowledge.

A promising collaboration would be the alliance of two similar types of retailers in two different countries to share product lines, invest in technology together, and learn from each other. In so doing, they use each others’ distribution channels in the new country.

Retailers commonly belong to several strategic alliances. They offer a way to share the risks of business expansion that, if undertaken separately, the individual companies may lack the time, money, or expertise to manage. To conclude, the channel generating the largest sales volume at lower unit cost will be given top priority. This will minimize distribution cost.

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