2a Marketing Channels

MARKETING CHANNELS
Learning Objectives
After studying this chapter, you should be able to:
1.
Explain how companies use marketing channels
and discuss the functions these channels perform
2.
Discuss how channel members interact and how
they organize to perform the work of the channel
3.
Identify the major channel alternatives open to a
company
4.
Explain how companies select, motivate, and
evaluate channel members
5.
Discuss the nature and importance of marketing
logistics and integrated supply chain management
12-2
Chapter Outline
1.
2.
3.
4.
5.
6.
7.
Supply Chains and the Value Delivery

Network
The Nature and Importance of Marketing
Channels
Channel Behavior and Organization
Channel Design Decisions
Channel Management Decisions
Public Policy and Distribution Decisions
Marketing Logistics and Supply Chain
Management
12-3
Supply Chains and

the Value Delivery
Network
Supply Chain Partners
Upstream partners include raw material

suppliers, components, parts,
information, finances, and expertise to
create a product or service
Downstream partners include the
marketing channels or distribution
channels that look toward the customer
12-4
Supply Chains and

the Value Delivery
Network
Supply Chain Views
Supply chain make and sell view includes the

firms raw materials, productive inputs, and
factory capacity
Demand chain sense and respond view suggests
that planning starts with the needs of the target
customer and the firm responds to these needs
by organizing a chain of resources and activities
with the goal of creating customer value
12-5
Supply Chains and

the Value Delivery
Network
Value Delivery Network
The value delivery network is the
firms suppliers, distributors, and
ultimately customers who partner
with each other to improve the
performance of the entire system
12-6
Supply Chains and

the Value Delivery
Network
Marketing Channel Questions
What is the nature of marketing

channels and why are they important?
How do channel firms interact and
organize to do the work of the channel?
What role do physical distribution and
supply chain management play in
attracting customers?
12-7
The Nature and Importance of

Marketing Channels
Marketing Channel Defined
Marketing channel is a set of
independent organizations that help
make a product or service available for
use or consumption by the consumer
or business users
12-8

Marketing Channels
How Channel Members Add Value
Channel members add value by bridging

the major time, place, and possession
gaps that separate goods and services
from those who would use them
12-9

Marketing Channels
Producers use intermediaries
because they create greater
efficiency in making goods
available to target markets.
12-10

Marketing Channels
Intermediaries offer the firm more than
it can achieve on its own through their
contacts, experience, specialization,
and scale of operations
12-11

Marketing Channels
From an economic view,
intermediaries transform the
assortment of products into
assortments wanted by consumers
12-12

Marketing Channels
Information refers to the gathering and distributing
research and intelligence information about actors
and forces in the marketing environment needed
for planning and aiding exchange
Promotion refers to the development and spreading
persuasive communications about an offer
Contacts refers to finding and communicating with
prospective buyers
12-13

Marketing Channels
Matching refers to shaping and fitting the
offer to the buyers needs, including
activities such as manufacturing, grading,
assembling, and packaging
Negotiation refers to reaching an
agreement on price and other terms of
the offer so that ownership or possession
can be transferred
12-14

Marketing Channels
Physical distribution refers to transporting and
storing goods
Financing refers to acquiring and using funds to
cover the costs or carrying out the channel
work
Risk taking refers to assuming the risks of
carrying out the channel work
12-15

Marketing Channels
Number of Channel Members
Channel level refers to each layer of marketing
intermediaries that performs some work in
bringing the product and its ownership closer
to the final buyer
Direct marketing channel has no intermediary
levels; the company sells directly to consumers
Indirect marketing channels contain one or
more intermediaries
12-16

Marketing Channels
Number of Channel Members
Connected by types of flows:
Physical flow of products
Flow of ownership
Payment flow
Information flow
Promotion flow
12-17
Channel Behavior and

Organization
Channel Behavior
Marketing channel consists of firms that
have partnered for their common good
with each member playing a
specialized role
12-18

Organization
Channel Behavior
Channel conflict refers to disagreement
over goals, roles, and rewards by
channel members
Horizontal conflict
Vertical conflict
12-19

Organization
Channel Behavior
Horizontal conflict is conflict among
members at the same channel level
Vertical conflict is conflict between
different levels of the same channel
12-20

Organization
Conventional Distribution Systems
Conventional distribution systems
consist of one or more independent
producers, wholesalers, and retailers.
Each seeks to maximize its own profits
and there is little control over the other
members and no formal means for
assigning roles and resolving conflict.
12-21

Organization
Vertical Marketing Systems
Vertical marketing systems (VMS)
provide channel leadership and consist of
producers, wholesalers, and retailers
acting as a unified system and consist of:
Corporate marketing systems
Contractual marketing systems
Administered marketing systems

12-22

Organization
Corporate vertical marketing
system integrates successive stages
of production and distribution under
single ownership
12-23

Organization
Contractual vertical marketing system
consists of independent firms at different
levels of production and distribution who
join together through contracts to obtain
more economies or sales impact than each
could achieve alone. The most common
form is the franchise organization.
12-24

Organization
Franchise organization links several stages
in the production distribution process
Manufacturer-sponsored retailer franchise

system
Manufacturer-sponsored wholesaler franchise
system
Service firm-sponsored retailer franchise
system
12-25

Organization
Administered vertical marketing
system has a few dominant channel
members without common
ownership. Leadership comes from
size and power.
12-26

Organization
Horizontal Marketing Systems
Horizontal marketing systems include
two or more companies at one level that
join together to follow a new marketing
opportunity. Companies combine
financial, production, or marketing
resources to accomplish more than any
one company could alone.
12-27

Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Hybrid marketing channels exist

when a single firm sets up two or
more marketing channels to reach
one or more customer segments
12-28

Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Advantages
Increased sales and market coverage

New opportunities to tailor products and
services to specific needs of diverse customer
segments
Challenges
Hard to control
Create channel conflict
12-29

Organization
Changing Channel Organization
Disintermediation occurs when product
or service producers cut out
intermediaries and go directly to final
buyers, or when radically new types of
channel intermediaries displace
traditional ones
12-30

Analyzing Consumer Needs
Designing a channel system requires:
Analyzing consumer needs
Setting channel objectives
Identifying major channel alternatives
Evaluation
12-31

Analyzing Consumer Needs
Designing a marketing channel starts with
finding out what target customers want
from the channel
12-32

Setting Channel Objectives
In terms of:
Targeted levels of customer service
What segments to serve
Best channels to use
Minimizing the cost of meeting

customer service requirements
12-33

Setting Channel Objectives
Objectives are influenced by:
Nature of the company
Marketing intermediaries
Competitors
Environment
12-34

Identifying Major Alternatives
In terms of:
Types of intermediaries
Number of intermediaries
Responsibilities of each channel

member
12-35

Types of intermediaries refers to
channel members available to carry
out channel work. Examples include:
Company sales force
Manufacturers agency
Industrial distributors
12-36

Company sales force strategies
Expand direct sales force
Assign outside salespeople to

territories
Develop a separate sales force
Telesales
12-37

Manufacturers agencies are
independent firms whose sales forces
handle related products from many
companies in different regions or
industries
12-38

Industrial distributors
Find distributors in different regions or

industries
Exclusive distribution
Margin opportunities
Training
Support
12-39

Number of marketing intermediaries to
use at each level
Strategies:
Intensive distribution
Exclusive distribution
Selective distribution
12-40

Intensive distribution is a strategy
used by producers of convenience
products and common raw materials in
which they stock their products in as
many outlets as possible
12-41

Exclusive distribution is a strategy in
which the producer gives only a limited
number of dealers the exclusive right
to distribute its products in their
territories
Luxury automobiles
High-end apparel
12-42

Selective distribution is a strategy
when a producer uses more than one
but fewer than all of the intermediaries
willing to carry the producers products
Televisions
Appliances
12-43

Responsibilities of Channel Members
Producers and intermediaries need to
agree on:
Price policies
Conditions of sale
Territorial rights
Services provided by each party

12-44

Evaluating the Major Alternatives
Each alternative should be evaluated
against:
Economic criteria
Control
Adaptive criteria
12-45

Evaluating the Major Alternatives
Economic criteria compares the likely sales costs
and profitability of different channel members
Control refers to channel members control over
the marketing of the product
Adaptive criteria refers to the ability to remain
flexible to adapt to environmental changes
12-46

Designing International Distribution Channels
Channel systems can vary from country to
country
Must be able to adapt channel strategies
to the existing structures within each
country
12-47

Channel management involves:
Selecting channel members
Managing channel members
Motivating channel members
Evaluating channel members
12-48

Selecting Channel Members
Selecting channel members involves
determining the characteristics that
distinguish the better ones by evaluating
channel members
Years in business
Lines carried
Profit record
12-49

Selecting intermediaries that are sales
agents involves evaluating:
Number and character of other lines

carried
Size and quality of sales force
12-50

Selecting intermediaries that are retail
stores that want exclusive or selective
distribution involves evaluating:
Stores customers
Locations
Growth potential
12-51

Managing and Motivating Channel Members
Partner relationship management (PRM)
and supply chain management (SCM)
software are used to forge long-term
partnerships with channel members
and to recruit, train, organize, manage,
motivate, and evaluate channel
members
12-52
Public Policy and Distribution

Decisions
Exclusive distribution is when the seller
allows only certain outlets to carry its
products
Exclusive dealing is when the seller
requires that the sellers not handle
competitors products
12-53

Decisions
Benefits of exclusive distribution include:
Seller obtains more loyal and

dependable dealers
Dealers obtain a steady and stronger

seller support
12-54

Decisions
Exclusive territorial agreement refers to an
agreement where the producer may agree not to
sell to other dealers in a given area or the buyer
may agree to sell only in its own territory
Tying agreements, while not necessarily illegal as
long as they do not substantially lessen
competition, are agreements where there is a
strong brand that producers sometimes sell to
dealers only if the dealers will take some or all
of the rest of the line
12-55
Marketing Logistics and

Supply Chain Management
Nature and importance of logistics

management in the supply chain
Goals of the logistics system
Major logistics functions
Need for integrated supply chain
management
12-56

Nature and Importance of Marketing Logistics
Marketing logistics (physical
distribution) involves planning,
implementing, and controlling the
physical flow of goods, services, and
related information from points of origin
to points of consumption to meet
consumer requirements at a profit
12-57

Marketing logistics involves:
Outbound distribution: Moving products from

the factory to resellers and consumers
Inbound distribution: Moving products and

materials from suppliers to the factory
Reverse distribution: Moving broken, unwanted,

or excess products returned by consumers or
resellers
12-58

Supply chain management is the
process of managing upstream and
downstream value-added flows of
materials, final goods, and related
information among suppliers, the
company, resellers, and final
consumers
12-59

Importance of logistics
Competitive advantage by giving customers

better service at lower prices
Cost savings to the company and its customers
Product variety requires improved logistics
Information technology has created

opportunities for distribution efficiency
12-60

Goals of the Logistics System
To provide a targeted level of customer
service at the least cost with the
objective to maximize profit, not sales
12-61

Major Logistics Functions
Warehousing
Inventory management
Transportation
Logistics information management
12-62

Warehousing is the storage function that
overcomes differences in need
quantities and timing, ensuring that
the products are available when
customers are ready to buy them
Storage warehouses
Distribution centers
12-63

Storage warehouses are designed to
store goods, not move them
Distribution centers are designed to
move goods, not store them
12-64

Inventory management balances
carrying too little and too much
inventory
Just-in-time logistics systems
RFID
12-65

Just-in-time logistics systems allow producers
and retailers to carry small amounts of
inventories of parts or merchandise
RFID (radio frequency identification devices) are
small transmitter chips embedded in or
placed on products or packages to provide
greater inventory control
12-66

Transportation affects the pricing of
products, delivery performance, and
condition of the goods when they arrive
Truck
Rail
Water
Pipeline
Air
Internet
12-67

Intermodal transportation combines
two or more modes of transportation
Piggyback uses rail and truck
Fishyback uses water and truck
Airtruck uses air and truck

12-68

Logistics Information Management
Logistics information management is
the management of the flow of
information, including customer orders,
billing, inventory levels, and customer
data
EDI (electronic data interchange)
VMI (vendor-managed inventory)

12-69

Integrated Logistics Management
Integrated logistics management is the
recognition that providing customer
service and trimming distribution costs
require teamwork internally and
externally
Cross-functional teamwork inside the

company
Building partner relationships

12-70

Cross-functional teamwork inside the
company refers to the interrelationship of different departments
within the company to achieve the
goals of integrated supply chain
management
12-71

Building partner relationships refers to the
understanding that one companys
distribution is another companys
supply system
12-72

Third-party logistics is the outsourcing of
logistics functions to third-party logistics
providers (3PLs)
Provide logistics functions more efficiently
Provide logistics functions at lower cost
Allow the company to focus on its core

business
Are more knowledgeable of complex logistics

12-73
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2a Marketing Channels

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MARKETING CHANNELS

Supply Chains and the Value Delivery

Supply Chains and

Upstream partners include raw material

Supply Chains and

Supply chain make and sell view includes the

Supply Chains and

Supply Chains and

What is the nature of marketing

The Nature and Importance of

The Nature and Importance of

Channel members add value by bridging

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

Physical flow of products

Channel Behavior and

Channel Behavior and

Channel Behavior and

Channel Behavior and

Channel Behavior and

Corporate marketing systems

Contractual marketing systems

Administered marketing systems

Channel Behavior and

Channel Behavior and

Channel Behavior and

Manufacturer-sponsored retailer franchise

Channel Behavior and

Channel Behavior and

Channel Behavior and

Hybrid marketing channels exist

Channel Behavior and

Increased sales and market coverage

Channel Behavior and

Channel Design Decisions

Analyzing consumer needs

Setting channel objectives

Identifying major channel alternatives

Channel Design Decisions

Channel Design Decisions

Targeted levels of customer service

What segments to serve

Best channels to use

Minimizing the cost of meeting

Channel Design Decisions

Nature of the company

Channel Design Decisions

Responsibilities of each channel

Channel Design Decisions

Company sales force

Channel Design Decisions

Expand direct sales force

Assign outside salespeople to

Develop a separate sales force

Channel Design Decisions

Channel Design Decisions

Find distributors in different regions or

Channel Design Decisions