What is Channel Marketing? An In-depth Guide

Producers or manufacturers usually do not sell their products directly to consumers. The products are sold through a channel partner. Channel marketing is what facilitates the movement of products from the manufacturer to the consumer.

Also referred to as intermediaries, channel partners ensure that the products reach their intended audience.
Such business partnerships help to reduce the cost of delivery and improve efficiency. They allow manufacturers to expand their capabilities resulting in business growth.

Value-added resellers, distributors, alliance partners and wholesalers are some of the best examples of channel partners.

I. What is Channel Marketing?

Channel marketing is the means of distribution of products and services from the manufacturer to the consumer. It is the set of people, activities, and intermediary organizations that play a role in transferring the ownership of goods from the point of production to the point of consumption.

Let’s take the example of breakfast cereal. The channel begins on a field of wheat, to a grain dispensary, to the cereal factory. Then through a grocery distributor, it reaches the shelves of a store. The channel is complete once the cereal is in a bowl on someone’s dining table.

II. Types of Marketing Channels

• Manufacturer to Consumer

The goods reach consumers directly from the manufacturer. This channel is cost-effective and profitable for both the parties as there is no involvement of middlemen such as retailers, wholesalers and agents who charge a commission, increasing the overall price of the products.

Example: Bakers selling their confections directly to consumers who place their orders on the bakery’s website.

• Manufacturer to Retailer to Consumer

Retailer purchases from the manufacturer and then sell the merchandise to the consumer. This is one of the highly adopted and preferred channels in the retail industry.

Example: An outlet buying clothes from designers and selling to consumers.

• Manufacturer to Wholesaler to Consumer

Consumers looking for bulk purchases of specific items adopt this channel. The wholesaler reduces the cost to the consumer, such as service cost or sales force cost making the items available to the consumer at cheaper rates.

Example: Wholesalers, like Costco, buy the products from the manufacturer and sell them to the consumer.

• Manufacturer to Distributor to Reseller to Consumer

In this channel, the manufacturer uses the service of a distributor for the initial dispersion of goods.The products travel from the manufacturer to one or multiple distributors to resellers and finally to consumers.

This sales channel is widely seen in the distribution of perishables as the goods need to reach consumers in a short time frame.

Value-added reselling is a variant of this channel of distribution. The reseller adds a service or other compatibles to make one complete turn-key solution for the consumer. The IT and office supply industry works on this method.

Example: Dell partners with distributors like Ingram Micro, Tech Data, etc. to distribute their laptops. Resellers buy from these distributors, add software or bundle compatibles like a printer, mouse, etc. The customers get a complete product ready-to-use.

III. Benefits of channel marketing

• Reach customers without a strong intent to buy

Through a sales channel, manufacturers can extend their reach through the marketing initiatives of the resellers.

An HR executive searching online for ways to engage employees isn’t actively looking for a product, but for content to solve a problem.

If that person were to come across a reseller’s post mentioning your employee engagement and reward platform, it may result in a sale which you may have missed without that sales partner’s marketing initiative.

Resellers also run various promotional or discount offers and special product display. This bodes well for manufacturers as it takes the onus of marketing from them to the resellers.

• Get in-depth information on your customers

A channel partner gets you information on your customer’s experience.

For example, people purchasing laptops and getting added software will freely give their feedback on what they like or a new competitor product they prefer to the reseller, such information is not available to you directly.

Retail chains know which products sell well in their specific areas of operation. Their feedback can prove valuable in making a product which suits the customer’s needs and wants.

• Leverage the power of trust to make more sales

A new brand entering the market won’t garner the interest of your target audience as much as a brand that’s known and trusted.

To tap into that segment, you use sites and stores that your customer’s trust. Run joint marketing or promotional campaigns with such brands to drive more foot traffic to the retail outlets that sell your products. You can use a retailer selling on Amazon or social media and leverage the marketplace’s trust factor.

• Resellers provide valuable information

Resellers provide information which helps to improve the product and increase sales. The manufacturer also gets valuable customer feedback and sakes data from resellers.

• Reduced costs

Including a new location to your distribution map involves a lot of time, money and human resources. Using an existing distribution network extends your company’s geographical reach easily and quickly.

You don’t incur additional stocking and delivery expenses because retailers stock their shelves with your products and customers go to the store to purchase them.

• A tighter focus on your core competencies

To successfully expand in unfamiliar territory, you need local expertise – a thorough understanding of what the people in the area need and want.

Wholesalers, retailers, and dealers take care of the groundwork involved in the product distribution process, order and inventory management, management of retailer and customer relationships, etc.

This leaves you hassle-free and gives enough time to concentrate your energy on operations like product designing, research and development etc.

• Wider customer reach

You can distribute your products in larger geographic areas, as established distributors readily tap into an established network of retailers to gain market coverage without expending time, efforts or capital to build those relationships from scratch.

International agents specialize in distributing products in various areas of the world, use their expertise to put your product in front of a customer base you may not reach yourself.

IV. The rise of the affiliate marketing channels.

Affiliate marketing is when you identify a popular affiliate to market your products. The affiliate earns a commission on every product sold through them. The reward or commission is based on specific metrics (actual sales or virtual clicks) when the outcome is due to the affiliate’s marketing efforts.

This sector has grown in complexity, resulting in an additional channel tier of specialized ‘affiliate management agencies’. 80% of affiliate programs use PPS (pay per sale) as a compensation method, 19% use CPA (cost per action) and the rest use other ways, mostly CPC (cost per click) or CPM (cost per thousand views).

V. What to consider when selecting marketing channels

Choosing the right marketing channel is of utmost important to reach customers at various brand touchpoints and maximize lifetime value.

• The physical attributes of your product

The physical attributes of a product play a role in how manufacturers select a distribution channel. Not everything is easy to ship, and some items need to be handled with more care than others.

Perishables need a shorter distribution channel as the goods need to reach consumers quickly. A durable and easy to ship product can be distributed through a longer sales channel which will give you the advantage of a wider distribution area.

• The brand image you want to create

Your customers’ buying experience determines your brand’s overall image. If you want people to associate your brand with uniqueness or exclusivity, you will not sell your products at Walmart, even if that means reaching more customers. Rather, you’d target exclusive retailers and niche stores.

• How technical is your product?

A difficult to use or specialized product requires a short marketing channel or a direct sale. People are reluctant to take a risk if they are not comfortable operating a product or solution and feel intimidated by the technicalities involved unless they trust the business.

Customers must feel assured of help with setup and tech support if something goes wrong.

For example, if you sell specialized software, choose a partner who can deliver technical expertise and train consumers on your product.

• Are you selling to individuals or businesses?

Business to business (B2B) selling requires a different approach than a business to consumer (B2C) selling, choose retailing if your product is aimed at individuals.

B2B channel marketing requires building personal relationships, hence direct selling or selling through an agent or value-added reseller is your best bet. Retail will be too impersonal, and your product may not reach the right customers.

• How big and geographically diverse is your target market?

Look for marketing channels that accommodate the area you want to cover and the volume of customers you’re estimating. Consider who can cover a niche area where you want to sell your products? How many purchases are you expecting? To reach a wider market, the internet is a good option that’s accessible even to small and new businesses.

• Where and how does your target market like to shop?

Knowing your target market’s shopping habits makes it easier to position your product where buyers can find it. Do some market research. Figure out how your target audience prefers to shop based on statistical data.

Do they visit retail shops or place bulk orders online? Are they impulse buyers or do they research products carefully? Plan your channel marketing strategies accordingly.

• How much time and effort can you spend on distribution?

Do you have the time to manufacture and market your product? A small-scale business may be able to do it all, but as your business scales, it will get tougher to juggle everything.

• Which marketing channels do your competitors use?

Do some research to know how your competitors sell their products to customers. Either adopt similar marketing channels your competitors use. This strategy works well because you know that your competitors’ channels have a built-in market for the types of products you sell.

Or look for different channels where your rivals have no reach, and sell there. This is an effective way to cut down on competition. However, it can be difficult to find marketing channels that are both effective and untapped in your field.

• Which channels offer you the most advantages?

Ask yourself the questions below to find the most advantageous channel for you.

1. Will certain middlemen promote your product more and better than others?
2. How will your choice of middlemen affect your bottom line?
3. How can you maximize your profits?
4. Do any channels have any favorable or unfavorable policies? For instance, if a potential partner wants the exclusive rights to distribute your product, is that ok with you?
5. What kind of reputation does each channel have?
6. Are their businesses financially stable?
7. Are they known for being reliable and pleasant to work with?

VI. Tips for Developing a Successful Channel Marketing Strategy

Now that we know what channel distribution is, let’s explore a few tips to build a good channel marketing strategy.

• Select the right channel partner

Choosing the right partner is critical to developing a successful channel marketing strategy. An appropriate channel partner will increase your brand awareness and generate new revenue streams.

Evaluate whether your partner is a good fit for your business. Your potential partner should be committed to your brand and be ready to invest time in understanding your business.

Hit the ground running with a partner who knows how to strategize, scale and adapt. The partner network should be engaged and motivated. Their marketing efforts should be aligned closely with your company’s marketing channel strategic plan.

• Develop and nurture the relationship

Your potential channel partners will sell your products only when the partnership is mutually beneficial. The partnership should support the business goals of both parties. Let partners know the benefits of joining your channel partner program.

Demonstrate your support and equip them with all the necessary sales tools to make selling your products easier.

• Focus on your brand, not your vendors

Don’t let a vendor’s brand become more important than your own. Most resellers and distributors represent many brands, products and solutions.

Create goals in line with your corporate strategy, aiming at enhancing your messaging and brand identity in the marketplace. Look for channel partners whose strategy aligns with your brand.

Aim at your target market and not your vendors’ since they might be selling to a varied audience rather than just your niche.

For example, an IT reseller selling your product – headphones – could also be selling software, which has a different market. Their marketing and branding strategy, in this case, will not be very effective to cover all the products they sell.

• Put the customer first

Statically, 77% of channel marketing leaders agree that “providing a complete incentive customer experience helps generate positive brand awareness”.

Know your customer’s mindset by visualizing your ideal consumer, the places they shop and where they spend their time online. Consider what would generate brand awareness and most importantly, what would make them prefer your brand over any other.

• Be sincere on social media

Social media requires frequency, transparency and sincerity to be truly effective. Develop a social media strategy with the idea of engaging your audience and getting them to like and share your content.

Use Facebook, Twitter and LinkedIn to reach a wider audience and to connect with your existing customers. According to Campaign Monitor, email is the channel generating the highest ROI for marketers. For every $1 spent, email marketing generates $38 in ROI.

VII.The future of channel marketing

The software industry may see some changes in the distribution network but we don’t see much changing in the distribution of IT. The change will be in how your final channel ie the reseller or retailer adapts to ecommerce and keeping up with customer demands.

The future for marketing channel strategies does look a little disruptive, what with the advent of drone deliveries and driverless cars!

Many any products can now be digitalized downloadables, movies and music being prime examples. With the onset of 3D printers, consumers can quickly print a component with data from the manufacturer.

Conclusion

Identifying the right channel partner and nurturing that relationship is crucial to the growth of your business. This is especially true in an industry like IT reselling.

We would love to hear your thoughts on this topic. What has worked for you? Is there anything we have missed? Let us know in the comments below.