Marketing channel is defined as sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

The economic impacts of marketing and logistics can affect individual consumers. These impacts can be explained through the concept of economic utility, which is the value or usefulness of a product in meeting customer needs and wants. In making goods and services available to customers, marketing and logistics channel members add value by creating the place, time, possession, and information utilities. Place utility is created by making the product and/or service available for customers in a location that is suitable to potential customers. Closely related to place utility is time utility, which refers to having goods and services when they are needed by customers. Form utility refers to product’s being in a form that can be used by customer, and is of value to customer. Possession utility is the value consumers put on buying a product and having the freedom to use the product. Having a variety of easy payment methods is part of facilitating possession as is the physical location of the product and how it is delivered to the customer. Information utility refers to the availability of replies to questions and general communication about useful product features and benefits.

Intermediaries in a marketing channel perform the function of sorting goods. The sorting function undertaken by intermediaries covers the functions of sorting, accumulation, allocation, and assorting. Sorting means breaking down a heterogeneous supply into separate stocks that are relatively homogeneous. Accumulation refers to bringing together similar inventory from a number of sources into a larger homogeneous supply. Allocation accounts for breaking down a homogeneous supply into smaller lots. Assorting stands for building up of an assortment of products for reselling in association with each other.

The ownership channel includes transferring of the title to the goods. The party owning the good almost always has the right to trade or sell it and takes the risks and bears the costs associated with having it in inventory. In the ownership channel, a common intermediary is the bank or financial institutions, which may assume temporary or partial ownership of goods as part of an ongoing transaction. The negotiation channel is the one in which buying and selling agreements are made. This could include transactions face to face or by telephone, e-mail, or almost any other form of communication. Brokers are associated with this channel. They are independent intermediary and paid to arrange a particular transaction. The financial channel carries out payment for goods and handles the company’s credit. Banks and finance companies are prominent intermediaries inthis channel, and they provide credit necessary for a deal to be completed. The promotions channel is involved in promoting a new or an existing good or service, and it can be related to the financial channel since monetary allowances are generally part of the promotion effort. Intermediaries in this channel aid promotions. For example, advertising agencies can handle the preparation and media placement of advertising materials. The logistic channel is related to the sorting function, which bridges the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer. Commonly used intermediaries in this channel are the logistics companies such as freight forwarder, whose function is to provide logistics services.

A direct marketing channel, also named as a zero-level channel, is the shortest and simplest of distribution channels, and it does not contain any intermediary manufacturer and consumer.

Distribution channel system produces five main service outputs:

• Lot size: The number of units the channel permits a typical customer. In another words, it is ability of channel to procure small quantities.
• Waiting and delivery time: The average time customers wait for receiving goods
• Spatial convenience: The degree to which the marketing channel makes it easy for customer to buy the product. It includes proximity of goods to buyer and associated convenience.
• Product variety: The assortment provided by the channel. Normally, customers prefer a greater assortment since more choices increase the chance of finding what they need.
• Service back-up: Add-on services such as credit, delivery, installation, repairs, etc. are provided by the channel. Th e greater the service backs up, the greater the channel performs the work.

In the third stage of channel design, the major channel alternatives need to be identified by the company in terms of types of intermediaries, the number of intermediaries, and the terms and responsibilities of each channel member.

The number of intermediaries to be used in each distribution stage depends on the company’s desired market coverage and market segment, but in some cases intermediary imposes this number on the manufacturer. Three main levels of market coverage are intensive, selective, and exclusive distribution. 

Intensive distribution means placing the products or services in as many outlets as possible considering the customers buying habits and preferences.

Exclusive distribution refers to utilizing only a limited number of intermediaries within a given market.

Selective distribution stands somewhere between intensive and special distribution in terms of number of intermediaries utilized.

Each channel alternative has unique advantages and disadvantages and produces a different level of sale and cost for the producers. Therefore, producers should evaluate the channel alternatives against economic, control, and adaptive criteria.

Economic criteria used in the evaluation of major channel alternatives include the likely sales, costs, and profitability of different channel alternatives since each channel alternative produces a different level of sales and costs.

Control and adaptive criteria are also used in the evaluation of major channel alternatives.

Intermediaries vary according to their availability, suitability, type, and the quality of service they can provide. Marketing managers must consider certain characteristics of channel members in selecting qualified intermediaries. In general, intermediaries are selected by means of considering the number of years in business, locations, other lines carried, growth and profit record, financial strength, reputation, and cooperativeness. If the intermediary is a sales agent, the producer also looks at the number and types of other product lines carried, inventory turnover rate, and the adequacy of the staff.

Manufacturers can use five types of power to ensure cooperation:

Coercive power is used if the intermediary fails to cooperate.

Reward power is the ability to influence others’ actions with the promise of a reward such as funds at the end. 

Legitimate power enables manufacturers to make the intermediary perform its duty as stated in the contract.

Expert power comes from manufacturers’ specific knowledge and know-how; however, as the expertise is transferred to the intermediaries, this power may lose its strength.

Referent power comes from manufacturer’s reputation in the market, and the distribution channel members are proud to be associated with the manufacturer and use this affiliation as a reference to obtain other sources, gain trust, show case success or get new customers.

The manufacturer’s integration with wholesalers and retailers, is termed as forward integration.

The notion of “vertical marketing systems” involves involves producer, wholesalers, and retailers acting as a unified system.

Horizontal marketing system is the marketing system created by two or more unrelated companies at the same channel level, which put together resources and programs temporarily or permanently to capture marketing opportunities.

Multichannel marketing provides companies with three important benefits: Increased
market coverage, lower channel costs, and opportunity to provide more customized selling.

Three types of conflict can be seen in the distribution channels: horizontal, vertical, and multichannel conflict.

Horizontal channel conflict takes place between channel members at the same level.

Vertical channel conflict refers to the conflict in the distribution channel at different levels.

Multichannel conflict is a kind of channel conflict originating from the competition at the same channel level that sells to the same market, but between different types of intermediaries.

Bowersox and Cooper defines retailing as the business of selling goods and services to the consumers for their own use and benefit. Retailing consists of the activities involved in selling goods and services to end consumers for personal consumption.

Logistics is defined as “the process of planning, implementing and controlling the efficient, costeffective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements

Physical distribution - also called market or marketing logistics - involves planning, implementing, and controlling the physical flow of goods, services, and related information from the point of origin to the points of consumption.

Given a set of logistics objectives, the company designs a logistics system that will minimize the reaching at these objectives. Companies must make certain major decisions related to their logistics activities. The major logistics functions, and therefore decisions to be made with regard to logistics, include order processing, warehousing, inventory management, and transportation.