SALES AND DISTRIBUTION MANAGEMENT

LESSON 21: MARKETING INTERMEDIARIES

Learning Objectives
On completion of this lesson,you should be able to
Understand the meaning of marketing intermediare. Understand the concept of marketing channel Types of marketing intermediare

Marketing Channel Although wholesalers can be eliminated, the functions theyperform cannot.An important function of the marketing channel is the joint effort of all channel members to create a supply chain, a totaldistribution system that serves customers and creates acompetitive advantage. 1. Supply chain management refers to long-term partnershipsamong marketing channelmembers working together toreduce inefficiencies, costs, and redundancies in the entiremarketing channel and to develop innovative approaches,in order to satisfy customers. a. Supply chain management involves manufacturing,research, sales, advertising, shipping and, most of all,cooperation and understanding of tradeoffs throughoutthe whole channel to achieve the optimal level of efficiencyand service. b. Whereas traditional marketing channels tend to focus onproducers, wholesalers, retailers, and customers, the supplychain is a broader concept that includes facilitating agencies,such as component parts suppliers, shipping companies,communication companies, and other organizations thattake part in marketing exchanges. 2. Supply chain management is helping more firms realizethat optimizing the supply chain costs throughpartnerships will improve all members profits. 3. Supply chains start with the customer and require thecooperation of channel members to satisfy customerrequirements. 4. Technology has dramatically improved the capability of supply chain management on a global basis. 5. Supply chain management should not be considered just anew buzzword. Reducing inventory and transportationcosts, speeding order cycle times, cutting administrative and handling costs, and improving customer servicetheseimprovements provide rewards for all channel members. Types of Intermediaries The different types of marketing intermediaries differ significantlyin their roles, capabilities, territories, level and size ofoperations, cost of operations, remunerations and amenabilityfor control by the principal. Let us see the main characteristics ofeach of them. Sole-Selling Agent/Marketer When a manufacturer prefers to stay out of the marketing anddistribution task, he appoints a suitable agency as his solesellingagent/marketer and entrusts the marketing job with

him. A sole-selling agent or a marketer is usually a largemarketing intermediary with large resources and extensiveterritory of operation. He will be having his own network of distributors/stockiest/wholesalers, semiwholesalers andretailers. He takes care of most of the marketing and distributionfunctions on behalf of the manufacturer. Obviously; a sole-selling agent/ marketer will earn a large margin/commissioncompared to other types of intermediaries. A manufacturercan have one or more marketers; but when he opts for a solesellingagent, he appoints just one agency as the sole-sellingagent (in a given territory). Types of Marketing Intermediaries Sole-selling agent Marketer C & F agents (CFAs) Redistribution stockiest Stockiest / Distributor / Wholesaler Semi-wholesaler Retailer / dealer Broker Franchisees Authorised representatives Commission agents Jobbers In many cases, manufacturers employ carrying and forwardingagents, often referred to as C&F Agents, or CFAs. The CFAs canbe described as special category wholesalers. They supply stockson behalf of the manufacturer to the-wholesale sector or theretail sector. Their function is distribution. Their distinguishingcharacteristic is that they do not resell products, but act as theagent/representative of the manufacturer. They act on behalfof the manufacturer and as his extended arm. In essence, theyare manufacturers branches. Wholesaler/Stockiest/Distributor A wholesaler or stockiest or distributor is also a largeoperator but not on a level comparable with a marketer or soleselling agent, in size, resources, and territory of operation. Thewholesaler/stockiest/distributor operates under the marketersoleselling agent, where such an arrangement is used by themanufacturer. Nature and Characteristics of Wholesaling A wholesaler buys the product in large quantities, (often, fromseveral producers) and resells the goods in sizeable lots to otherintermediaries down the line, such as semi-wholesalers and retailers. Normally, a wholesaler does not sell directly toconsumers, the exception being institutional buyers who preferto buy their requirements from wholesalers rather than retailers.
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In fact, the distinguishing feature of wholesalers is that they donot sell to the ultimate consumers for personal consumption.Even when they sell to institutional buyers who are ultimateconsumers, the sale is not for personal consumption of an individual/household consumer.Wholesalers generally specialise; some specialise by type of product, some by industry and some by markets. The rationalefor their existence is their cost-effective operation in buyinggoods in large quantities and reselling them to other intermediariesin smaller, yet sizeable lots. Wholesalers add value by performing a number of vitalmarketing functions. Stock holding and sub-distribution are themain functions of the wholesalers. They also perform functions like promotion, financing, and collection of accounts receivablesand provision of market feedback. They serve the principals aswell as the retailers under them. In some cases, they also assumea part of the risk associated with product failures, price changesand bad debts. : Wholesalers basically belong to two types: Agent wholesalersand merchant wholesalers usually, merchant wholesalersparticipate in all the flows that characterise the distribution process while agent wholesalers do so only in some of the flows. Semi-wholesalers Semi-wholesalers are intermediaries who buy products eitherfrom producers wholesalers, bulk, break the bulk and resell thegoods (mostly) to retailers in assortments needed by the Likethe wholesalers, semi-wholesalers too perform the variouswholesaling functions that. part of the distribution process. Insome cases, they may also perform the retailing function Their strength is specialisation by region . They assist the producer inreaching a large number of retailers efficiently. They spread thedistribution cost over the products of several producers, as theyusually handle the products of a number of producers. Retailer Dealer Retailers sell to the household/ultimate consumers. They are atthe bottom of the distributors hierarchy, working underwholesalers/stockiest/distributors/semi-wholesalers, as the case may be. In cases where the company operates a singletier distribution system, they operate directly under the company.The retailers are also sometimes referred to as dealers or authorised representatives. They operate in a relatively smaller territory or at a specific location; they not normally performstock-holding and sub-distribution functions. The stocks they keep operational stocks necessary for immediate sale at the retail outlet. Conventional Wholesale-retail Trade Continues Todominate the Scene In total contrast with the western countries, where formats likesupermarkets/retail chains dominate the distribution system,conventional wholesale-retail trade dominates the scene in India. Again, unlike the West where a handful of apex distributionchains service the millions of retail shops, in India,stand-alone wholesalers/retailers dominate the scene. Some experts believe that before long, India too will see the massivegrowth of distributing companies/retail chains. Many

others,however, feel that in India, large distribution outfits will notreplace traditional distributors in the near future. Image of the Trade is Changing Till recently, the image of a stockiest/distributor in India wasone of a cash-rich trader interested in quick profits. Such animage was a concomitant to the prevailing marketing environment.Many products enjoyed a premium, often in black, in view of the all-round shortages and the system of pricecontrols. The distributive trade was making merry at the cost ofthe consumer. The situation has changed considerably in recent years. With the increased availability of products, removal ofprice controls, increased competition and increased choices tothe consumer, the environment in which the distributive tradewas operating has changed significantly; the distributor of today has to put in harder effort to sell his products and he has toservice the customer properly.Naturally; his image has undergonea change. Companies too are now keen to present to thepublic/consumers a cleaner image of their distributors. Contemporary Channel Scenario in India 1. Conventional wholesale-retailtrade continues to dominate thescene, though formats likesupermarkets, retail chains andshopping malls are making a mark. 2. Image of channels/distributivetrade undergoes a change. 3. Profiles of distributors toolundergo a change. 4. Trade margins escalate as costs ofdistribution keep growing. 5. Expectations of distributors in thematter profits also change. 6. The power equation among thedistribution triumvirate principals, distributors andretailersshifts in favour of thelower levels. 7. Distributors are becoming choosy. 8. IT greatly influences the waymarketing channels operate. 9. Firms go in for different kinds ofnon-traditional channelarrangements. 10. Outsourcing of channeltask/ marketing logistic Exclusive retailing Exclusive dealers without franchisingarrangement Exclusive retailing throughshowrooms Exclusive retiling through shop-inshopFranchising A. Firm go in for non-storeretailing methods. Direct selling /home selling Multi-levelmarketing/Networking Marketing Marketing by vending machinesConsumer fairs. B. Firms go in for directmarketing methods. Mail order Marketing/catalogue Marketing Direct mail marketing Direct response marketing Database marketing Tele marketing Tele shopping (Home

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shopping) Online marketing/Marketing on the web C. Equally radical changes aretaking place on the retailing side Firms Go in for Non-traditional Channel Arrangements In recent times, firms have been taking to different kinds ofnontraditional channel arrangements such as:

Outsourcing of channel arrangement/marketing logistics Exclusive retailing

after some time, thecompanies concerned voted for a policy of semi-exclusiveness.They opened the door to multi-brand textile shops. They alsoadopted the shop-within-shop concept.In the matter of size, exclusive retail networks can range fromvery small to very huge depending on the nature and class ofthe product/brand. Pierre Cardin, for example, markets itsproducts through just eight exclusive shops in India. Reliance(Vimal), against this, has a network of over 2,000 odd exclusiveVimal showrooms. Shop-in-Shop Today; many super stores reserve special areas in their shopsexclusively for particular brand. These are called shopswithinshops.The Louis Philippe line, for example, is sold through the shop-in-shop in the super store Shoppers Stop.
Philips Corners

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Outsourcing of Channel Arrangement Complete outsourcing of channel arrangement is the moststriking of the non-conventionalattempts. Firms contractoutside logistics specialists to operate as their marketing channel. Exclusive Retailing In India, many firms have been practicing exclusive retailing forthe past several years. In recent years, however, the idea hasproliferated fast. More and more companies are now recognizingthe inadequacy of the traditional wholesaler-retailer tradechannels and are going in for exclusive retail networks. Acrossindustries, it is becoming a trend, partly displacing and partly coexistingwith the traditional wholesaler-retailer set-up.
Firms Pursue Exclusive Retailing in Different forms such as
Exclusive dealers without franchising arrangement Exclusive retailing through showrooms Exclusive retailing through shop-in-shop Franchising

Philips is another good example of acompany using the shopin-shop concept. It has established itsshops-within-shops in many stores, and named them thePhilips Comers. In fact, Philips overcame the problem of nothaving exclusive showrooms by voting for the shop-in-shopconcept. It gained good visibility for its products in multi-brandoutlets. Philips Comers helped in keeping a good presence inoutlets where consumers went to compare various brands. Theinternationally standardised colours, shelves and displaywindows of the Corners helped Philips to cut across theclutter. Advantages of Exclusive Retailing 1. Helps the firm getbest locations. A. With exclusiveoutlets, the firm canavoid margin wars. 2. Superior store image. B. Superior store image. 3. Uniform storeimage. C. Facilitates building store loyalty. 4. Spreading awareness about the companyand its brand. 5. More appealing visual merchandising. D. Creates special enthusiasm for thecompanys brand at the retail level; multibrandoutlets cannotcreate such enthusiasm for aparticular brand. 6. Full product rangeof the company canbe stocked anddisplayed in alloutlets. E. Enables bettercontrol of theoutlets. Showrooms Showrooms are one type of exclusive outlets. There are actuallytwo kinds of showrooms:
Own Franchised

Exclusive Dealers without Franchising Arrangement Exclusive retail networks have been in existence in India formany years now. In the earlier days, businesses like textiles. footwear were the ones in which this concept was widelyprevalent. In textiles for example, Reliance (Vimal) achievedphenomenal success by setting up a network of exclusive retail shops. Garden Silks too has taken to this route. It has over 150exclusive retail outlets, of which seven are company-owned.Bombay Dyeing is another example. Readymade garment brands like Louis Philippe and Van Heusen, have also taken toexclusive retailing. In footwear, Bata runs a network of 1,200exclusive shops and is expanding it further. It also has a parallel network of BSC stores, which are also exclusive shop to a largeextent. Liberty Shoes, Batas challenger, has also gone in forexclusive shops. It now has over 150 such shops. Degree of Exclusiveness can Vary A scrutiny of practices prevailing in the market shows that afirm can practise exclusive retailing to varying degrees ofexclusiveness and in combination with non-exclusive retailing. Bata, for example, has 900 company-owned exclusive shops,120 franchisee exclusive shops and 600 market extensionprogramme dealers, who are semi-exclusive. In addition, it has a separate, non-exclusive wholesaler-retailer system, consistingof 200 wholesalers and 12000 dealers.Ready-made garment brands like Louis Philippe, Van Heusen,and Allen Solley were, to start with, marketed through exclusiveoutlets/franchisee showrooms. But,

Titan Watches is a good example of a company putting theconcept to fine use. The two kinds of showrooms have certaincommonalities as well as certain differences. Advantages of Own and Franchised Showrooms
Own showrooms
Help the firm to be more close to the customers and indirect

touch with time.

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 Help the firm get market feedback directly from

customers;with franchisee showrooms, this advantage may not beavailable to the same extent.
Own showrooms can be controlled better and used morefor

Direct selling/home selling, also known as door-to-door selling is one of the major non-store retailing methods. Of course, itis the most ancient method of marketing known to man. Before marketing channels came into being, the producer wasselling his product to the user directly: However, direct selling in the context of modern mass marketing of branded productsneeds to be explained specifically: Direct Selling and Home Selling are Almost Synonymous Let us first clarify the terminology: The two terms direct selling and home selling, which have emerged concurrently, denote thesame thing. Both of them are person-to-person selling andboth take place away from and without the help of any retailstore. Some experts make out a minor distinction between the two, byreferring to direct selling by employee-salespersons as homeselling, and direct selling by independent salespersonscumdistributorsas direct selling. There does not seem to be anylogic in this approach. On the contrary; we can think of one ortwo more meaningful distinctions between the two. Whilehome selling invariably takes place at customers home, directselling can take place either at the customers home or her workplace. Second, while home selling is always one-to-one,directselling can at times be to a group. The latter method is referredto as party selling or one- to-many direct sellingIt is, however, safer and more logical to treat them as one and the same. Direct Selling Catches up in India In recent years, direct selling has been catching up in Indiarapidly: Avon, Amway, Oriflame are all now present in India. Sois Tupperware, which is in the business of plastics food containers. Modicare has been using the method for quite sometime now for selling its homecare and personal care products. Multi-level Marketing (MLM) Multi-level Marketing (MLM) is a modified version of directselling. Only a few firms, who do not mind experimenting inreaching out to the consumers, practise it. Avon, Amway, Oriflame, ModiCare: Avon, Amway,Orif1ame International are among the largest MLM outfits inthe world. The Indian firm, ModiCare of the K.K. ModiGroup also sells its range of household and personal careproducts through a large MLM network.MLM utilises a multi-tiered, non-employee sales personscumdistributorsto sell the products. We have seen the process to an extent in the Amway exhibit. The process begins with therecruitment of a core group of sales persons-roomdistributors,who have to be introduced to the company by a sponsor. Each of these distributors picks up products worth a certainsum, say Rs 1,000 at a time, and sells them directly to theconsumers. After they have sold their first consignment they are allowed to pick up their next lot.No distributor is expected to make all sales on her own. Instead, the system envisages the distributor recruiting a secondrung of distributors. The distributor earns commissions

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enhancing company image as compared to franchiseeshowrooms. Franchised Showrooms Franchised showrooms often do not the job moreeconomically; they incur lower overheads compared tocompany showrooms.
Often suitable space is not readily available at the

desiredlocations for setting up own showrooms; franchises bringin such space.

Help save set-up time Budget constraints also drive firms towards franchisee

showrooms..
Setting up own showrooms is usually an expensivebusiness.

Singer, for example has estimated that it cost Rs.4 lakh to set up one showroom of its own. Companies can at best have only a limited number of own showrooms coverage of the entire market will be prohibitively costlygiven the size of the country. Franchisee showroomsbecome the easy answer for quick growth withoutsacrificing the requirement of exclusive retailing. Titan Watches is a good example of a company using a mix of own and franchisee showrooms, leaning heavily on thelatter in view of their advantage. Franchising is one form of exclusive retailing. It, however,involves certain special features. Franchising, in fact, is not just amethod of retailing; it is a method of marketing, Here, the franchisee, who is an independent businessperson, abides bythe marketing plan of the franchiser and pays him a fee for theuse of his brand and know-how. In many cases, franchisingcovers manufacturing as well, wherein the franchisee uses theprocess/formula of the franchiser in addition to the brand andmarketing know-how. Example of Citihome Citibanks home loan division,Citihome is one example Citihome appoints franchisees underits Shelters scheme for generating customers for home loan. It has found that the franchisees carry out the task at much lowercost compared to the companys own branches. The franchiseespersonal knowledge of the customers is an added benefit. Inaddition, franchisees also ensure continuity. These factors are of special importance in home loan business.Firms Embrace Non-store Retailing So far, we have been discussing retailing methods whereinretailing takes place through a retail store Non-Store Retailing Methods Gain Ground
Direct selling/Home selling Multi-level marketing Network marketing Marketing by vending machines Consumer fairs

Direct Selling/Home Selling

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at twolevels. The first is the commission that accrues to her on whatshe sells by herself, and is made up of the difference betweenthe distributor price and the consumer price. The second is theshare that accrues to her out of the commissions earned by thedistributors at the next lower level, whom she has recruited andtrained. The value of the products a distributor has sold isworked out in the form of point value (PV). Supposing a firstleveldistributor sells products worth 100 PV on her own and has recruited six second-rung distributors, each of whom sellsproducts worth 100 PV; she gets a commission that correspondsto 700 PV. The distributor can, if she so wishes, chargea lower price than the one suggested by the company, foregoinga part of her commission. MLMs plus Points The plus points of direct selling in generaldiscussed earlier, are plus points of MLM as well. Because ofthe unique multi-level nature of the distribution, an MLM distribution network grows rapidly; continuously; and automaticallyMultiplication and growth are inherent to networkmarketing. MLM is, therefore, a quick, and cost-effective, method of marketing. It is specially suited to fast-movingconsumer products such as special cosmetic or premiumfragrances, targeted at niche markets. MLMs Drawbacks Being basically a direct selling model, MLMshares all its d r a w b a c k s .I t ss u f f e r ss o mea d d i t i o n a ld r a w b a c on k saccount of its peculiarity. First, like the classic chain letter,MLM is a winner while the network keeps growing unbroken.But, should the link snap at many a place, the entire distribution-cum-sales pyramid will suffer a setback. Second, in theMLM system, the distributors are quite often perceived as anirritant by the prospect. Third, distributors are also customers inmost cases; losing distributors will amount to shrink-age of thecustomer base.One specific minus point is that in the MLM system, the sellercannot have control over the sales persons to the desired extentas they are not employees of the company Moreover, in theMLM system, the sales persons-cum-distributors often reduceprices arbitrarily in order to meet their sales targets. As a result,the equity of the brand suffers.Sometimes, some sales people use high-pressure tactics. Itspoils the reputation of brand. Many who joined Amway Network are buying Rs 1,500 worth of products just to reachthe required level and keep the Network going. They may be juststoring them.MLM lays excessive emphasis on meeting people and makingfriends, which creates an artificial behaviour.Sales forecasting is usually more difficult in the MLM method.So, incidence of mismatch between supplies and sales, and consequent piling up of inventories will be more in MLM.Finally, in India, the government too does not seem to be sofavourably disposed towards the MLM concept. Network Marketing The student may often come across the term network marketingin the direct selling context. It needs to be clarified that theterm is used in two different senses. Some use it to denote MLM; others use it to denote independent direct selling bythird-party outfits, which direct sell others products for acommission. To avoid confusion, we shall call the former
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MLM and the latter as independent direct selling. Independent Direct Selling Outfits Here, a third party-an external independent agency/service provider-enters the picture as direct selling service provider.There are many manufacturing firms, who prefer to keep awayfrom the marketing task. They entrust their marketing task with a suitable outside marketing agency; some among such firms arealso particular that their products should be marketed by thedirect selling method. In recent years, some help has becomeavailable to such firms in the form of independent direct-sellingoutfits. These outfits direct sell products of different companiesto consumers. The ET Bazaar
In recent years, the economic Times has been sponsoringand

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organizing the ET bazaars which are basicallyconsumer fairs.

The first ET bazaar orginised in 1994 in MumbaiManufactures

of many leading brands of consumerproducts participated in it.

The sellers were able to access thousand of consumers inan

enclosed. Carpeted area of over 1 lakh sq.ft.

Discounts premiums and other promos were an integralpart

of the bazaar. In fact, Good Prices, Great Prizes wasthe theme of the bazaar.
?Prize

given at an hourly contests boosted consumerparticipation. Over 2 lakh consumers have visited thebazaar and sales worth Rs. 10 crore have taken place.

The second ET Bazaar was organised in Mumbai

andAhmedabad by the close of 1995 for four days each ET and Mudra Diversified, the direct markeing andpromotion arm of Mudra communication, jointlyorganized the fair. They gave extensive publicity to the fair through the local media. Fresh Force The Bangalore-based Fresh Force is an exampleof an independent direct selling outfit. It has established acommercial, direct selling network, with a team of salespersons of its own and functions as a direct selling service provider toany company that wishes to sell its products through directselling but is wary of establishing a direct selling system of its own. Fresh Force compensates its sales persons with commission,which increases geometrically as the sales goes up. A tie-upwith outfits like Fresh Force confers some advantages on thefirms hiring their services. Without maintaining a direct selling system of their own, they are able to direct-sell their products. They also get the benefit of quicker sales and faster cashrecovery, as they can instantly offload their products on thedirect selling service provider. For the consumer too there is some benefit in this arrangement. She enjoys the convenienceof shop- ping at home, getting several products from the samedirect seller in this case. Marketing by Vending Machines (Automatic Vending) Retailing through vending machines also belongs to thecategory of channel-less marketing! non-store retailing techniques.It enables the principals to have the benefit of intensive and extensive retailing without any manned retail stores at all.This method also has been catching up of late in India,especially in
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urban centres and is bound to acquire increased importance in the coming years. Usually; products which belong to the buy on impulse category like soft drinks, cigarettes,candy, etc., and select articles of daily consumption such as milk,edible oils, etc., lend themselves to be marketed by this method. Consumer Fairs Selling through consumer fairs also belongs to the nonstoreretailing category; Exhibition- cum-sales is what happens here.Marketers often use this as an additional tool of retailing.Usually; independent promoters and trade associations organisethese fairs in which various manufacturers participate and sell their products. Conclusion In this lesson we have discussed that marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption.We have also explained various types of intermediaries its role and relevance in Indian market. Questions 1. Define marketing Channel? 2. Explain meaning and nature of marketing Channel ? 3. Discuss types of Intermediaries.

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Notes:

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