Presented BY: Sweta Kumari (2011MB0028)

Anjali Swati Topno (2011MB0030) Ratnesh Kumar Mishra (2011MB0043)

Channel Selection Process and Criteria

One of the most basic of all marketing decisions is that on marketing channel(s).

Decision on marketing channels are required more often than is commonly supposed.

The obvious occasions are those following the initial organization of the enterprise, and when making addition to the product line.

Appearance of new institution , marketing innovations, changes in characteristics of market also forces the organizations to think about their distribution channels.

Marketing Channel

Direct Marketing Channel This type of channel has no intermediaries. In

this distribution system, the goods go from the producer directly to the consumer, e.g., Amway, Eureka Forbes.

Indirect Marketing Channel In this type of channel a producer who sells

to consumer market have four choices to go for and is having three choices if he sells to industrial market

Types of Channels

The policymakers keep in mind all three profit factors- sales volume, costs and resultant net profits- and they consider the effect of different channel options and combinations on each factor over both short and long periods.

Selecting a channel

For each channel option, the key question is: Can enough potential buyers be reached to absorb the desired quantity of product?

The Answer to this is found through market research.Among the most important factors influencing any

channel’s sales potential are the ability of sales management, the excellence of its planning, and its skill in implementing sales programs.

In appraising the sales potentials of alternative channels, one must assume that, regardless of the channel chosen, the sales management functions will be performed with the same degree of managerial competence.

Sales Volume Potential

Distribution cost studies show that the costliest channels are the shortest ones.

Direct sales is more common in the industrial than in the consumer field.

The manufacturer selecting directing to consumer selling must recognize that it will face a broad range of problems and incur additional distribution expenses.

The shorter the channel, the more the manufacturer’s selling costs tend to be fixed rather than variable in nature.

This is important, especially with fluctuating sales volumes, because the break-even point is almost always higher when short marketing channels are used.

Comparative distribution Cost

Longer marketing channels result in lower selling costs for the manufacturer. When middlemen are used they perform some of the activities that the manufacturer would otherwise perform.

The result of using indirect distribution is often higher profit per unit of product sold.

In addition, the manufacturer shifts a wide range of problems to the middlemen and, in most situations, operates with a lower break-even point.

Greater remoteness from final consumers and less control over the conditions of product sales are main disadvantages of longer channels.

Comparative distribution Cost con…

Sales volume potentials are meaningful only when considering relation to distribution costs. A channel with high sales potential may involve high distribution costs, causing low net profit.

The relationships among gross margin, expenses, and net profit must be kept in mind while selecting a channel.

The Rule should be : determine which agency – the manufacturer or the middleman – can perform this particular marketing activity most efficiently.

If this rule is followed, the manufacturer’s total cost of moving the product to final buyers should be lower, and its net profit should be higher.

Net Profit possibilities.

Choice of marketing Channels is intertwined with policy on distribution intensity. The different types of distribution intensity which can be used are

1.Mass Distribution2.Selective Distribution3.Exclusive Agency Distribution

Policies on Distribution Intensity

The company following a policy of mass distribution aims for maximum sales exposure by securing distribution through all those outlets from which final buyers might expect to purchase the product.

The manufacturer using this policy needs not one but several marketing channels.

In areas where retail outlets are concentrated, the manufacturer may find that it can sell directly to all accounts, large and small; in other markets, manufacturers secure distribution through wholesalers.

Mass Distribution

Selective distribution means selecting only those outlets that can best serve the manufacturer’s interests.

The basic procedure is to set up criteria for the selection of accounts. An account analysis helps differentiate profitable from unprofitable accounts.

These criteria relate to sizes of orders, volume of purchases, profitablity, type of operation, and geograpical location.

It is not unusual for 20% of the accounts to produce 80% of the net sales, and even more of the net profits.

But there are exceptions to the general rule that only profitable accounts should be retained or solicited. Some losing accounts may be retained because of long-standing relationships, others because of there future promise.

Selective distribution

It is an extreme form of selective distribution.The manufacturer makes an agreement with

a middleman in each market area stipulation that that distribution of the manufacturer’s product(s) within that area is to be confined solely to that middleman.

Exclusive agencies are common in marketing automobiles, musical instruments, household appliances, machine tools, branded men’s clothing, etc.

Exclusive agency distribution

Advantages 1. It is easy to develop distributor enthusiasm for the

product and stimulate the distribution to sell it aggressively.

2. Sales force can be smaller and supervision and control can be more effective.

3. Relation between sales personnel and the middlemen are likely to be of long duration.

Disadvantages 1. In some markets, most desirable dealers may be under

agreement with another supplier, and company may have to select a second or third rate dealer or open up its own outlet.2. If exclusive distribution is used at the wholesale level, the wholesaler may not reach certain desirable outlets on the dealer level.

The Selection Process

1. Finding prospective channel members

2. Applying selection criteriato determine the

suitability of prospective

channel members

3. Securing theprospective

channel membersas actual

channel members

Selection Criteria

Credit & Financial Condition

Sales StrengthProduct LinesReputationMarket Coverage

Sales PerformanceManagement

SuccessionManagement AbilityAttitudeSize

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