Markt Channel

D

ecisions about marketing channels, which help producers deliver goods and services to their target markets, are among the most critical facing management—because the channels that are chosen intimately affect all of the other marketing deci-sions. For example, the company’s pricing depends on whether it uses a direct Webpresence, discount merchants, or high-quality boutiques. Also, the firm’s sales force andadvertising decisions depend on how much training and motivation its dealers need. Another reason why these decisions are so critical is that they involve relatively long-term commitments to other firms. When an automaker signs up independent dealers to sell its vehicles, the automaker cannot simply buy them out the next day andreplace them with company-owned outlets. As Corey observed, “A distribution system... is a key external resource. Normally it takes years to build, and it is not easily changed. It ranks in importance with key internal resources such as manufacturing,research, engineering, and field sales personnel and facilities. It represents a signifi-cant corporate commitment to large numbers of independent companies whose busi-ness is distribution—and to the particular markets they serve. It represents, as well, acommitment to a set of policies and practices that constitute the basic fabric on whichis woven an extensive set of long-term relationships.”

1

Technology is, of course, having a profound effect on channel decisions and man-agement. In an era when buyers and sellers alike seek speedier sales transactions,marketing-channel technologies (including automated inventory and storage systems)

235

Selecting andManagingMarketingChannels

In this chapter,we will address the following questions:

I

What work is performed by marketing channels?

I

What decisions do companies face in designing, managing, evaluating, and modifyingtheir channels?

I

What trends are taking place in channel dynamics?

I

How can channel conﬂict be managed?

Chapter 13

236

C

HAPTER

13 S

ELECTING AND

M

ANAGING

M

ARKETING

C

HANNELS

and the Internet are adding value by expediting the ﬂow of physical goods, ownership,payment, information, and promotion. In this chapter, we explore the selection and man-agement of marketing channels from the viewpoint of producers of goods and services; inChapter 14, we examine marketing-channel issues from the perspective of the retailers, wholesalers, and physical-distribution agencies that serve as channel intermediaries.

WHAT WORK IS PERFORMED BY MARKETING CHANNELS?

Most producers do not sell their goods directly to the ﬁnal users. Between them standsa set of intermediaries that perform a variety of functions. These intermediaries con-stitute a marketing channel (also called a trade channel or distribution channel).

Marketing channels

are sets of interdependent organizations involved in theprocess of making a product or service available for use or consumption.

2

Why woulda producer delegate some of the selling job to intermediaries? Although delegationmeans relinquishing some control over how and to whom the products are sold, pro-ducers gain several advantages by using channel intermediaries:

➤

Many producers lack the ﬁnancial resources to carry out direct marketing. Forexample, General Motors sells its cars through more than 8,100 dealer outlets inNorth America alone. Even General Motors would be hard-pressed to raise the cashto buy out its dealers.

➤

Direct marketing simply is not feasible for some products. The William Wrigley Jr.Company would not ﬁnd it practical to establish retail gum shops or sell gum by mail order. It would have to sell gum along with many other small products, and would end up in the drugstore and grocery store business. Wrigley ﬁnds it easier to work through a network of privately owned distribution organizations.

➤

Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business. If a company earns a 20 percent rate of return on manufacturing and only a 10 percent return on retailing, it doesnot make sense to undertake its own retailing.

Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target markets. Through their contacts, experience, spe-cialization, and scale of operation, these specialists usually offer the ﬁrm more than it can achieve on its own. According to Stern and El-Ansary, “Intermediaries smooth theﬂow of goods and services... . This procedure is necessary in order to bridge the dis-crepancy between the assortment of goods and services generated by the producerand the assortment demanded by the consumer. The discrepancy results from thefact that manufacturers typically produce a large quantity of a limited variety of goods, whereas consumers usually desire only a limited quantity of a wide variety of goods.”

3

As shown in Figure 13.1, working through a distributor as intermediary cuts thenumber of contacts that manufacturers must have with customers. Part (a)showsthree producers, each using direct marketing to reach three customers, for a total of nine contacts. Part (b)shows the three producers working through one distributor, who contacts the three customers, for a total of only six contacts. Clearly, workingthrough a distributor is more efﬁcient in such situations.

Channel Functions and Flows

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

M=ManufacturerC=CustomerD=DistributorMMDMCCC143625(b) Number of contactsM+C=3+3=6MMMCCC123456789(a) Number of contactsMxC=3x3=9

What Work is Performed by Marketing Channels?

237

vices from those who need or want them. Members of the marketing channel performa number of key functions:

➤

They gather information about potential and current customers, competitors, andother 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 orpossession can be effected.

➤

They place orders with manufacturers.

➤

They acquire the funds to ﬁnance inventories at different levels in the marketingchannel.

➤

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 ﬁnancialinstitutions.

➤

They oversee actual transfer of ownership from one organization or person toanother.

Some functions (physical, title, promotion) constitute a

forward ﬂow

of activity from the company to the customer; other functions (ordering and payment) consti-tute a

backward ﬂow

from customers to the company. Still others (information, negoti-ation, finance, and risk taking) occur in both directions. Five flows are illustrated inFigure 13.2 for the marketing of forklift trucks. If these flows were superimposed inone diagram, the tremendous complexity of even simple marketing channels wouldbe 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 thingsin common: They use up scarce resources; they can often be performed betterthrough specialization; and they can be shifted among channel members. If a manu-

Figure 13.1

How a Distributor Effects Economy of Effort