CHAPTER

S I XT E E N

MARKETING CHANNELS AND WHOLESALING

Irwin/McGraw-Hill

MARKETING, 6/e MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 2000

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

• Explain what is meant by a marketing channel of distribution and why intermediaries are needed. • Recognize differences between marketing channels for consumer and industrial products and services. • Describe the types and functions of firms that perform wholesaling activities.
MARKETING, 6/e MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 2000

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

• Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems. • Describe factors considered by marketing executives when selecting and managing a marketing channel, including channel conflict and legal restrictions.
MARKETING, 6/e MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 2000

PP16-AAa Gateway: Adding high touch to high tech marketing channels

• Just when conventional wisdom says that virtual stores will replace the brick-andmortar kind, the world’s second largest direct marketer of personal computers, Gateway, is investing in real, not electronic storefronts! • Gateway plans to operate a total of 400 showrooms, as Gateway has found that many personal computer buyers still prefer browsing in a store and talking with a salesperson.
MARKETING, 6/e MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

© The McGraw-Hill Companies, Inc., 2000

• 80% of Gateway’s growth can be attributed to its showrooms. Inc. 6/e MARKETING. which will custom build the system to the customer’s specifications at its factories..PP16-AAb Gateway: Adding high touch to high tech marketing channels • However. 2000 . Customers who want to buy must still order from Gateway. and ship it directly to the customer’s home or business. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Gateway does not stock personal computers at its showrooms. MARKETING.

2000 . .. users.. Inc. . A Marketing Channel is consists of individuals and firms consists of individuals and firms involved in the process of making a involved in the process of making a product or service available for use or product or service available for use or consumption by consumers or industrial consumption by consumers or industrial users. . 6/e MARKETING.. MARKETING.PP16-BB Definition of Marketing Channel A Marketing Channel is .. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies..

Inc. usually to retailers.PP16-1a Terms Used for Marketing Intermediaries TERM Middleman DESCRIPTION Any intermediary between manufacturer and enduser markets Any intermediary with legal authority to act on behalf of the manufacturer An intermediary who sells to other intermediaries. 2000 . 6/e © The McGraw-Hill Companies.. usually applies to consumer markets An intermediary who sells to consumers BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill Agent or Broker Wholesaler Retailer MARKETING. 6/e MARKETING.

retailer. 2000 . 6/e MARKETING. 6/e © The McGraw-Hill Companies. and so forth BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill Dealer MARKETING. usually used to describe intermediaries who perform a variety of distribution functions. a more common term in industrial markets but may also be used to refer to wholesalers An even more imprecise term that can mean the same as distributor. and so on.PP16-1b Terms Used for Marketing Intermediaries TERM Distributor DESCRIPTION An imprecise term. Inc. including selling. maintaining inventories. extending credit.. wholesaler.

PP16-2 How Intermediaries Minimize Transactions IBM Lynne IBM Lynne Apple Troy Apple Computer City Troy Compaq Todd Compaq Todd HP ® HewlettPackard Diane HewlettPackard Diane Contacts with no intermediaries 4 producer x 4 buyers=16 contacts Contacts with one intermediaries 4 producer + 4 buyers=8 contacts Irwin/McGraw-Hill MARKETING. Inc.. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS © The McGraw-Hill Companies. 6/e MARKETING. 2000 .

Inc. BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill MARKETING. Assembling and protecting products at a convenient location to offer better customer service. Purchasing products for resale or as an agent for supply of a product -Selling. promoting products. 6/e © The McGraw-Hill Companies. Purchasing in large quantities and breaking into smaller amounts desired by customers. and soliciting orders -Risk Taking. -Transporting.PP16-3a Marketing Channel Functions Performed by Intermediaries Transactional Function -Buying. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate. Physically moving a product to customers.. -Sorting. 6/e MARKETING. 2000 . Creating product assortments from Logistical Function several sources to serve customers -Storing. -Assorting. Contracting potential customers.

or judging products. testing. Providing information to customers and suppliers. including competitive conditions and trends Facilitating Function MARKETING. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Inspecting.PP16-3b Marketing Channel Functions Performed by Intermediaries -Financing. Inc. and assigning them quality grades -Marketing information and research.. 2000 . Extending credit to customers -Grading. 6/e MARKETING.

6/e MARKETING. What is meant by a marketing channel? What are the three basic functions performed by marketing intermediaries? MARKETING.. 2000 . Inc. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.PP16-CC Concept Check 1. 2.

2000 .. 6/e MARKETING. • Indirect Channel: when intermediaries are inserted between the producer and consumers and perform numerous channel functions. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. MARKETING.PP16-DD Direct and Indirect Channels • Direct Channel: when a producer and ultimate consumer deal directly with each other. Inc.

2000 . 6/e MARKETING.. Inc. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill Wholesaler Wholesaler Retailer Retailer Industrial Industrial distributor distributor © The McGraw-Hill Companies.PP16-A Structure of marketing channels Producer of consumer products and services Producer of consumer products and services Agent Agent Wholesaler Wholesaler Retailer Retailer Retailer Retailer Ultimate consumers Ultimate consumers Producer of industrial products and services Producer of industrial products and services Agent Agent Industrial Industrial distributor distributor Agent Agent Industrial users Industrial users MARKETING.

PP16-4 Common marketing channels for consumer goods and services A. 2000 . Producer Mansar Products General Motors World Book Mars agent wholesaler wholesaler retailer retailer retailer consumer MARKETING. 6/e consumer BERKOWITZ KERIN HARTLEY consumer RUDELIUS consumer Irwin/McGraw-Hill © The McGraw-Hill Companies. 6/e MARKETING. Inc. Producer B.. Producer C. Producer D.

stocking. industrial distributors are like wholesalers in consumer channels. Inc. In many ways..PP16-EE Industrial Distributor An industrial distributor performs a variety of marketing channel functions. and delivering a full product assortment and financing. MARKETING. 2000 . 6/e MARKETING. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. including selling.

Producer IBM B.PP16-5 Common marketing channels for industrial goods and services A. 2000 . 6/e MARKETING. Inc.. Producer Harkman Electric agent Industrial Distributor agent Industrial distributor Industrial user MARKETING. Producer Caterpillar C. 6/e Industrial user BERKOWITZ KERIN HARTLEY Industrial user RUDELIUS Industrial user Irwin/McGraw-Hill © The McGraw-Hill Companies. Producer Stake Fastener Company D.

place. MARKETING. 2000 . 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. and possession utility for buyers. which employ the Internet to make goods and services available for consumption or use by consumers or industrial buyers.PP16-FF Electronic Marketing Channels • Interactive electronic technology has made possible electronic marketing channels. form. 6/e MARKETING. Inc. • A unique feature of electronic marketing channels is that they combine electronic and traditional intermediaries to create time..

.com Travelocity.com Dell computer Commercial airline Travelocity virtual retailer consumer RUDELIUS consumer Irwin/McGraw-Hill © The McGraw-Hill Companies. 6/e MARKETING.PP16-6 Representative electronic marketing channels Amazon.com virtual retailer consumer MARKETING. Inc. 6/e Autobytel. 2000 .com Book Publisher Book wholesaler Amazon.com Auto manufacturer Auto dealer Auto-by-Tel virtual broker consumer BERKOWITZ KERIN HARTLEY Dell.

sales revenue attributed to direct marketing exceeds $1. MARKETING.. directmail sales.S. catalog sales. telemarketing. • U. 2000 . and televised home shopping.4 trillion.PP16-GG Direct Marketing Channels • Direct marketing allows consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson. interactive media. • Direct marketing includes mail-order selling. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Inc. 6/e MARKETING.

• Strategic channel alliances are a recent innovation in marketing channels.. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. 2000 . whereby one firm’s channel is used to sell another firm’s products. 6/e MARKETING. MARKETING.PP16-HH Multiple Channels and Strategic Alliances • Dual Distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. Inc.

6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Inc.PP16-7 Types of Wholesaling Intermediaries Wholesaling intermediaries Merchant wholesalers FullLimitedservice service wholesaler wholesaler Agents & brokers Manufacturer’s branches and offices agents brokers Branch offices Sales offices MARKETING. 2000 .. 6/e MARKETING.

Sometimes. . 6/e MARKETING. MARKETING. 2000 . Yes. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.PP16-8 Functions Performed by Independent Wholesaler Types MERCHANT WHOLESALERS FULL SERVICE FUNCTIONS PERFORMED GENERAL MERCHANDISE SPECIALTY MERCHANDISE RACK JOBBERS LIMITED SERVICE CASH AND CARRY DROP SHIPPERS TRUCK JOBBERS AGENTS AND BROKERS MANUFACTURER'S AGENTS SELLING AGENTS BROKERS TRANSACTIONAL FUNCTIONS Buying Sales calls on customers Risk taking (taking title to products) LOGISTICAL FUNCTIONS Creates product assortments Stores products (maintains inventory) Sorts products Transports products FACILITATING FUNCTIONS Provides financing (credit) Provides market information and research Grading Key: . No. Inc.. .

6/e MARKETING. 6/e Irwin/McGraw-Hill BERKOWITZ KERIN HARTLEY RUDELIUS © The McGraw-Hill Companies.PP16-II Vertical Marketing Systems • Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. Inc. • Major types of vertical marketing systems: – corporate – contractual – administered MARKETING. 2000 ..

Inc..PP16-9 Types of vertical marketing systems Vertical marketing Vertical marketing system system Corporate vertical Corporate vertical marketing system marketing system (Polo/Ralph Lauren) (Polo/Ralph Lauren) Contractual vertical Contractual vertical marketing system marketing system Administered vertical Administered vertical marketing system marketing system Procter & Gamble Procter & Gamble Wholesaler-sponsored Wholesaler-sponsored voluntary chains voluntary chains (Western Auto) (Western Auto) Wholesaler-sponsored Wholesaler-sponsored voluntary chains voluntary chains (Western Auto) (Western Auto) Wholesaler-sponsored Wholesaler-sponsored voluntary chains voluntary chains (Western Auto) (Western Auto) ManufacturerManufacturersponsored retail sponsored retail franchise system franchise system (Ford) (Ford) ManufacturerManufacturersponsored wholesale sponsored wholesale franchise system franchise system (Coca-Cola) (Coca-Cola) BERKOWITZ KERIN HARTLEY ServiceServicesponsored retail sponsored retail franchise system franchise system (Holiday Inn) (Holiday Inn) RUDELIUS Service Service sponsored sponsored franchise system franchise system (H&R Block) (H&R Block) Irwin/McGraw-Hill MARKETING. 6/e MARKETING. 6/e © The McGraw-Hill Companies. 2000 .

. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.PP16-JJ Corporate Vertical Marketing System • The combination of successive stages of production and distribution under a single ownership is a corporate vertical marketing system. • These types of marketing systems can develop via either forward integration or backward integration. 2000 . MARKETING. 6/e MARKETING. Inc.

2000 . Inc. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone.PP16-KK Contractual Vertical Marketing System • Under a contractual vertical marketing system.. accounting for about 40% of all retail sales. 6/e MARKETING. • Contractual systems are the most popular among the three types of vertical marketing systems. MARKETING.

. 6/e MARKETING.000 franchise outlets in the U. MARKETING.PP16-LL Franchising • Franchising is a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name according to specific rules. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. with sales of about $1 trillion..S. • There are 700. Inc. 2000 .

6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Inc.. 6/e MARKETING. 2000 . MARKETING.PP16-MM Administered Vertical Marketing System Administered vertical marketing systems achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.

• A central feature of channel partnerships is the collaborative use of modern information and communication technology to better serve customers and reduce the time and cost of performing channel functions. Inc..PP16-NN Channel Partnerships • A channel partnership consists of agreements and procedures among channel members for order and physically distributing a producer’s products through the channel to the ultimate consumer. 2000 . 6/e MARKETING. MARKETING. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.

2000 . 6/e MARKETING. 6/e © The McGraw-Hill Companies.PP16-OO Concept Check 1. 2. Inc. What is the difference between a direct and an indirect channel? Why are channels for industrial products typically shorter than channels for consumer products? What is the principal distinction between a corporate vertical marketing system and an administered vertical marketing system? BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill 3. MARKETING..

6/e MARKETING.. 2000 . Inc.PP16-PP Factors affecting Channel Choice & Management • environmental factors • consumer factors • product factors • company factors I B M MARKETING. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.

Total revenue b. Buyer requirements 3. Intensive distribution a. Target market coverage 2. Selective distribution b.PP16-B Factors affecting channel choice and management Environmental Environmental factors factors Consumer Consumer factors factors Product Product factors factors Company Company factors factors Channel choice considerations Channel choice considerations 1. Exclusive distribution c. Profitability 1. Convenience b. Intensive distribution a. Buyer requirements 3. Variety d. 2000 . Profitability a. Inc. Attendant services MARKETING. Total revenue a. Exclusive distribution c. 6/e MARKETING. Attendant services d. Selective distribution b.. Information a. Variety c. Total costs c. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Target market coverage 2. Total costs b. Convenience b. Information a.

Inc.PP16-QQ Channel Design Considerations Marketing executives typically consider three questions when choosing a marketing channel and intermediaries: 1. 6/e MARKETING.. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. 2000 . Which channel and intermediaries will provide the best coverage of the target market? 2. MARKETING. Which channel and intermediaries will best satisfy the buying requirements of the target market? 3. Which channel and intermediaries will be the most profitable.

6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.. Inc. Intensive distribution 2. Selective distribution MARKETING. 2000 . 6/e MARKETING.PP16-RR Three degrees of Distribution Density 1. Exclusive distribution 3.

Inc. geography.PP16-SS Global Dimensions of Marketing Channels • Basic marketing channel functions must be performed around the world. MARKETING. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. but within the context of the traditions. and the economic history of the individual countries and societies. • Understanding the marketing channels in global markets is often a prerequisite to successful marketing.. 6/e MARKETING. 2000 . customs.

000 population RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. 6/e BERKOWITZ KERIN HARTLEY Japan United States Great Britain Wholesalers per 1. Japan. 2000 . Inc.PP16-C Retailer and wholesaler density in the United States.000 population MARKETING.. 6/e MARKETING. and Great Britain 14 12 10 8 6 4 2 Retail stores per 1.

.PP16-TT Conflict in Marketing Channels 1. 6/e MARKETING. Inc. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. Vertical Conflict 2. Horizontal Conflict MARKETING. 2000 .

PP16-D Horizontal and vertical conflict in marketing channels Vertical conflict Coca-Cola Coca-Cola Pepsi-Cola Pepsi-Cola Coca-Cola bottler Coca-Cola bottler Pepsi-Cola bottler Pepsi-Cola bottler Safeway supermarket Safeway supermarket Kroger supermarket Kroger supermarket Horizontal conflict MARKETING. Inc. 6/e MARKETING.. 2000 . 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies.

.. or retailers.. and supports other channel directs. 6/e MARKETING. Channel captains can be producers. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill © The McGraw-Hill Companies. wholesalers.PP16-UU Definition of a Channel Captain A Channel Captain is ... or retailers. Inc. wholesalers. Channel captains can be members. A Channel Captain is a channel member that coordinates. a channel member that coordinates. . MARKETING. 2000 . directs. and supports other channel members. . producers..

. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill Influence Influence sources sources © The McGraw-Hill Companies.PP16-E Sources of Influence for a Channel Captain Economic Economic Expertise Expertise Identification Identification Legitimate Legitimate MARKETING. 6/e MARKETING. 2000 . Inc.

.PP16–10 Channel strategies and practices affected by legal restrictions Clayton Act Clayton Act Sherman Act Sherman Act Vertical Vertical integration integration Exclusive Exclusive dealing dealing Dual Dual distribution distribution Resale Resale restrictions restrictions Tying Tying arrangements arrangements Refusal Refusal to deal to deal Irwin/McGraw-Hill MARKETING. 2000 . 6/e MARKETING. Inc. 6/e BERKOWITZ KERIN HARTLEY RUDELIUS © The McGraw-Hill Companies.

What are the three degrees of distribution density? What are the three questions marketing executives consider when choosing a marketing channel and intermediaries? What is meant by exclusive dealing? BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill 3.. 6/e MARKETING. MARKETING.PP16-VV Concept Check 1. 6/e © The McGraw-Hill Companies. 2. Inc. 2000 .