Channel Functions and Flows

A marketing channel performs the work of moving goods from producers to consumers, overcoming the time, place, and possession gaps that separate goods and ser-

Figure 5-1 How a Distributor Effects Economy of Effort vices from those who need or want them. Members of the marketing channel perform a number of key functions:

^ They gather information about potential and current customers, competitors, and other actors and forces in the marketing environment.

^ They develop and disseminate persuasive communications to stimulate purchasing.

^ They reach agreement on price and other terms so that transfer of ownership or possession can be effected.

^ They place orders with manufacturers.

^ They acquire the funds to finance inventories at different levels in the marketing channel.

^ They assume risks connected with carrying out channel work.

^ They provide for the successive storage and movement of physical products.

^ They provide for buyers' payment of their bills through banks and other financial institutions.

^ They oversee actual transfer of ownership from one organization or person to another.

Some functions (physical, title, promotion) constitute a forward flow of activity from the company to the customer; other functions (ordering and payment) constitute a backward flow from customers to the company. Still others (information, negotiation, finance, and risk taking) occur in both directions. Five flows are illustrated in Figure 5-2 for the marketing of forklift trucks. If these flows were superimposed in one diagram, the tremendous complexity of even simple marketing channels would be apparent.

The question is not whether these channel functions need to be performed—they must be—but rather who is to perform them. All channel functions have three things in common: They use up scarce resources; they can often be performed better through specialization; and they can be shifted among channel members. If a manu-

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Figure 5-2 Five Marketing Flows in the Marketing Channel for Forklift Trucks facturer shifts some functions to intermediaries, its costs and prices go down, but the intermediaries will charge more to cover their increased responsibilities. Still, if the intermediaries are more efficient than the manufacturer, the prices to consumers should be lower. If consumers perform some functions themselves, they should enjoy still lower prices. In general, changes in channel institutions tend to reflect the discovery of more efficient ways to combine or separate the economic functions that provide assortments of products to target customers.

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