Channel Formats
By
Faizah Qamar Khan

Reference Books
• Marketing Channels (7th Edition), Anne Coughlan (Author), Erin
Anderson (Author), Louis W. Stern (Author), Adel El-Ansary
• Marketing Channel Management: People, Products, Programs, and
Markets, Russell W. McCauley, (Latest Edition)
• Marketing 4.0 by Kotler
• HBR Articles

Learning Objectives
• Be familiar with the channel formats
• Retail
• Wholesale
• Franchise

Retailing Defined
• Retailing consists of the activities involved in selling goods and
services to ultimate customers for personal consumption
• Thus a retail sale is one in which buyer is am ultimate consumer
• Wholesale sales for resale or for business purpose, industrial or
institutional use
• Buying motives are therefore critical in segmenting markets for both
store and non-store sales

Choosing A Retail Positioning Strategy
• Retailer choice of positioning itself in the marketplace has the
significant effects on its competitiveness and performance
• Choices are Cost Side (Focus on Margin and Inventory Turnover goals)
and Demand Side (Focus on Service Outputs to be provided to
Shoppers)

Financial And Cost-Side Positioning Margin &
Inventory Turnover Goals
• Turnover refers to the number of times per year inventory turns on
the retail shelf
• High-Service retailing systems have been categorized as high margin,
low-turnover operations offering numerous personal services
Contrasted with
• Low-Price retailing system characterized by low margin, high
inventory turnover and minimal services

Financial And Cost-Side Positioning Margin &
Inventory Turnover Goals
• Low margins, high turn over and excellent customers are the
techniques adopted by giant retailers
• Lowering the cost of operating a retail company does not mean
lowering its services Like the clothing retailer ZARA (Vertically
integrated)
• The appropriate choice is using the Strategic Profit Model (SPM) ,
SPM can be stated as
SPM = Net Profit / Net worth

Wholesaling
• Wholesaling (Wholesale trade, wholesale distribution) refers to
business establishments that don’t sell products to a significant
degree to ultimate household consumers
• These businesses sell products primarily to other business retailers,
merchants, contractors, industrial users, institutional users and
commercial users
• Wholesaling is closely associated with tangible goods; however,
creates value by adding services

Wholesale-Distributors
• Wholesale-Distribution are independently owned and operated firms
that buy and sell products to which they have taken ownership
• Generally, they operate one or more warehouse in which they receive
and inventory goods for later reshipping
• There is a distinction between the wholesalers and distributors,
typically wholesaler refers to the company that resells product to
another intermediary while distributor refers to the company that
resells products to the consumers

Master Distributors

Difference Between Distributor And Master
Distributors
• Master Distributor is a type of Super-Wholesaler
• This is a distributor only to other distributors
• For a given manufacturer’s products, master distributor is only one
contact point for all other distributors
• Distributors need many services from manufacturers. Master
distributor provides those services
• Master distributor keeps huge assortment and distributor can use this
master distributor as an invisible warehouse for required SKU

Difference Between Distributor And Master
Distributors
• Master distributors consolidate orders from all their manufacturer,
allowing manufacturer’s customers to avoid minimum quantity orders
• Master distributors also assume a role of a franchisor, that is help
their customers to improve their business processes
• Master distributors give their distributors economies of scope and
scale
• Master distributors can help manufacturers expand into new channels

What Is Franchising
• Franchising is a marketing channel structure intended to convince
end-users they are buying from a vertically integrated manufacturer,
when in fact, they may be buying from a separately owned company
• Franchise systems masquerade as a company subsidiaries
• In reality, they are a category within classic marketing channel
structure where Upstream is supplier or manufacturers and
downstream is the franchisees

What Is Franchising
• End-users should believe they are dealing with franchisor’s subsidiary,
means franchisee assumes the identity of the franchisor
• This deliberate loss of separate identity is a hallmark of franchising
• To accomplish this, franchisee awards the franchisor Category
Exclusivity (No Competitor’s goods)

What Is Franchising
• To further the projection of the franchisor’s identity, franchisee
purchases via contracts and by, the payment of fees, the rights to
market the franchisor brand, using the name, the product, the
trademarks, know-how, production techniques , marketing practices
developed by the franchisor
• By paying fees and signing a contract, the franchisee assumes the
right to exploit a broad license and obligation to follow the
franchisor’s methods

What Is Franchising
• It must be cleared that franchisee is a separate business with its own
balance sheet and income statement
• Franchising is inherently a contradictory channel. It is technically two
independent businesses joining forces to perform marketing flows to
their mutual benefits

Multiunit Franchising
• Multi-unit franchising is when a franchisor awards a franchisee the
right to operate more than one outlet within a defined territory. If run
successfully, a multi-unit operation can be a lucrative partnership
between a franchisee and franchisor. Example KFC has more than
3500 outlets in USA and more than half of them are owned by only
seventeen people
• Advantages are candid communication and that customer base is
likely to be served by the same owner. This curbs free riding

The Franchise Contract
(Three Sections Of Contract)
• The payment System. Particularly the lump-sum fee to enter the
system, the royalty fee and the initial investment
• The franchisee usually pays a fixed fee or lump-sum to start up
• The franchisee also makes an initial investment that covers acquiring
inventory, obtaining and adapting the facility and , advertising the
opening of the outlet

The Franchise Contract
The payment System
• The upfront fee and the unrecoverable part of initial investment are
at a risk of a franchisee. They are hostages if the franchisee does not
perform, loses the hostages
• Franchisor also hostages in terms of a royalty on sales. If the
franchisor does not support franchisee, sales suffer and eventually
the franchisor gets suffered from being paid low royalty

The Franchise Contract
The Real State
• Financing details like who will hold the lease
• An issue of particular interest to the regulators is who collects the
rent of the franchisee’s premises
• Many franchisors ensure that they are the landlords Or they lease
with the property owner and then sublet to franchisee

The Franchise Contract
Termination
• Franchise arrangements anticipate a possible ending of the
relationship and spell out how it would be conducted
• Franchisors who are landlords have a potent way to enforce
termination of a franchisee

Export Distribution Channels
• When a manufacturer exports to a foreign market, new complications
such as market strategy, product suit is not fitted there
• Other issues including language, currency, customs regulation are
inevitable
• Profitable sales and strategic advantages emerge from a strategy of
supporting a channel member responsible for exported goods

Export Distribution Channels
• One type of channel members for exports is the export intermediary
• This is an independent firm located in the exporter’s country also
called Export Management
• They have abilities that they master the products they sell by taking
training from manufacturers and then train the foreign customers
And Secondly they are well versed about export process and foreign
market

Online Reverse Auctions
• A reverse auction (also called procurement auction, e-auction,
sourcing event, e-sourcing) is a tool used in business-to-business
procurement. In this process, the role of the buyer and seller is
reversed, with the primary objective to compete purchase prices
downwards. In an ordinary auction (also known as a forward auction),
buyers compete to obtain a product or service. In a reverse auction,
sellers compete to obtain business.