A lot of manufacturers do not trade their products directly to the end-users; there are a series of mediators conducting their various functions. These mediators develop a marketing channel, also known as a trade channel or distribution channel.
The basic objective of any channel of distribution is to connect the manufacturer of a product to the consumer. The channel comprises various companies that promote the selling of the product.
Some mediators acquire products, give it their own identity and resell the merchandise for profits.
Businesses in channels fall into three categories
1. Product manufacturer.
2.Intermediaries at the Wholesale or Retail Level.
3.End-user of the product.
A channel performs three essential functions
1. Transactional functions: include purchasing, selling, and risk hypothesis.
2. Logistical functions: include collection, warehousing, segregation and shipping.
3. Facilitating functions: that include after-sale services, maintenance, financing, information diffusion and channel control.
Consumer and Industrial Marketing Channels. The manufacturer and the end-consumer are a component of every channel.
It is also named as a direct marketing channel and comprises a manufacturer directly selling to the end-consumer. It involves mail orders, online selling, TV selling, telephone marketing, door-to-door sales, home parties and manufacturer-owned stores.
2. Tupperware is classically sold at Home Parties.
3. Nike has an Online Store.
4. Apple owns its Stores.
One Level to Three Level
- A 1-level channel consists of one selling mediator like a retailer.
- A 2-level channel consists of two mediators that generally are wholesalers and retailers, and
- A 3-level channel consists of three mediators that are a wholesaler, jobber and retailer.
- It is ordinarily used in B2B type of marketing where an industrial producer uses
- It’s sales force to sell to industrial customers directly or Sell to industrial distributors who sell to industrial customers, or
- To sell via producer’s spokespeople or Its own sales branches straight to industrial customers or obliquely to industrial customers via industrial distributors.
Channels typically represent a forward movement of commodities from its manufacturer to its end-user, but a reverse flow channel allows reusing commodities or containers just like refillable chemical-carrying drums.
It also allows refurbishing products for resale like circuit boards or computers, or recycling commodities and dispatching products and packaging. Reverse-flow mediators consist of manufacturer’s redemption centres, community clubs, trash-collection experts, recycling centres, trash-recycling agents, and central processing warehousing.
Example – Apple (Own Store & Online Store Success)
Apple has been following the retail strategy of making significant direct purchases from customers with the help of both Apple Stores and its website, which accounts for 31% of cumulative revenue in 2019.
It has enhanced from 29% in the financial year 2018 and 28% in 2017. Direct distribution income surged 5% every year to $81 billion for the year, whereas indirect distribution income through other retailers and sales sources came around $180 billion.
Retail Experience – Apple in August 2015, reconstructed the online storefront by eliminating the assigned “Store” tab and making the whole website a retail experience.
Winning over Criticism
The primary Apple Stores were opened as two locations in May 2001 by then-CEO Steve Jobs, after years of trying but failing store-within-a-store concepts.
Numerous publications and analysts foretold the collapse of the first
Apple Stores. Nevertheless, sales from Apple stores bypassed the sales-per-square-foot of competing versus nearby stores and in 2004 reached $1 billion in annual sales becoming the fastest of any retailer in history.
Nevertheless, sales from Apple stores bypassed the sales-per-square-foot of competing versus nearby stores and in 2004 reached $1 billion in annual sales becoming the fastest of any retailer in history.
As stated by CEO Steve Jobs “People haven’t been willing to invest this much time and money or engineering in a store before. It’s not important if the customer knows that. They just feel it. They feel something’s a little different.”
Store Openings and Hype
Apple Store openings have always been known for the buzz it creates and new product releases could at times attract groups of hundreds, with a few waiting in line as much as a day before the opening.
The inauguration of New York City’s Fifth Avenue Cube store in 2006 became the framework of a marriage proposal having guests from Europe that flew in just for the event. In June 2017, a newlywed duo captured their wedding photographs inside the then-recently inaugurated Orchard Road Apple Store in Singapore.
Example – Tesla (Direct Sales)
Tesla practices direct sales, unlike other manufacturers that sell through franchised dealerships.
It has formed a global network of company-owned showrooms and studios that are mostly located in famous urban centres around the world.
Tesla has an advantage in the speed of its product development as it owns its sales channels, and it also enhances the customer’s buying experience; as a result, their showrooms have no clash of interest.
Tesla houses 429 locations across the globe as of the end of Q4 2019, having the showrooms, Service Plus centres (that are a mixture of retail and service centre), and service facilities.
The brand also makes wholesome use of Internet sales where buyers can customize and purchase a Tesla online.
Case Study – Nike
(Direct Selling through Own Stores and Digital Platforms)
Nike, as a brand had been investing a lot of bills in growing its Nike Direct operations. Which includes Nike-owned retail stores as well as digital platforms. Nike’s revenues in 2019 from its Nike Direct Operations summed to $11.8 billion which was approximately 30% of its total revenue.
It was fuelled by a 35% hike in online sales and same-store sales growth of 6%. To push online sales, Nike launched Nike Fit in 2019, a modern scanning technology that applies computer perception and machine learning to prompt the customer’s shoe size.
This feature is added to the company’s mobile app where buyers will be asked to use a smartphone camera to scan their foot, and the technology recommends the perfect size range for that customer. The data stored with that customer’s Nike+ profile is used to recommend sizes when customers shop for shoes online or in-store.