DM

CHAPTER 1

channel may be defined as: the external contactual organization that management operates to achieve
its distribution objectives.

Four terms in this definition should be especially noted:

EXTENSION- means that the marketing channel exists outside the firm. interorganizational management
(managing more than one firm) rather than intraorganizational management (managing one firm).

CONTACTUAL ORGANIZATION- refers to those firms or parties who are involved in negotiatory functions
as a product or service moves from the producer to its ultimate user.

OPERATES- suggests involvement by management in the affairs of the channel.

DISTRIBUTION OBJECTIVES- the fourth key term in the definition, means that management has certain
distribution goals in mind.

channel manager to refer to anyone in a firm or organization who is involved in marketing channel
decision making.

channel strategy, one of the major strategic areas of marketing management, fits under the distribution
(place) variable in the marketing mix

product flow refers to the actual physical movement of the product from the manufacturer (MillerCoors)
through all of the parties who take physical possession of the product, from its point of production to
final consumers. In the case of Coors beer, for example, the product comes from breweries and
packaging plants in Colorado, Tennessee, and Virginia by way of company trucks or common carrier
(transportation company) to beer distributors (wholesalers), who in turn shop the product (usually in
their own trucks) to liquor stores, supermarkets, convenience stores, restaurants, and bars (retailers),
where it is finally purchased by consumers.

negotiation flow represents the interplay of the buying and selling functions associated with the transfer
of title (right of ownership) to MillerCoors products.

information flow, we see that the transportation firm has reappeared in this flow and that all of the
arrows showing the flow of information from the manufacturer to consumers are two-directional.

promotion flow refers to the flow of persuasive communication in the form of advertising, personal
selling, sales promotion, and publicity.

disintermediation, a fancy way of saying “eliminate the middleman”, has become popular jargon in the
business lexicon.

specialization and division of labor principle is generally attributed to Adam Smith s classic book The
Wealth of Nations, published in 1776. He noted that when the production operations necessary in the
manufacture of pins were allocated among a group of workers so that each worker specialized in
performing only one operation, a vast increase in output resulted over what was possible when this
same number of workers individually performed all of the operations.
The only difference in the application of the specialization and division of labor concept, as applied to
production versus distribution in this figure, is that the production tasks have been allocated
intraorganizationally whereas the distribution tasks have been allocated interorganizationally.

Distribution tasks- buying, selling, transferring the title, transportation, storage, processing orders and
providing information

Distribution task allocated to intermediaries specializing in performing task- manufacturer,

agents ,wholesalers, retailers, consumers

Contactual Efficiency The second concept on which the framework for deciding whether to use
intermediaries’ rests is contactual efficiency.

channel structure is one that often is not explicitly defined in the marketing literature.

Two-level

Manufacturer-consumer

Three-level

Manufacturer-retailer-consumer

Four-level

Manufacturer-wholesaler-retailer-consumer

Five level

Manufacturer-agent-wholesaler-retailer-consumer

channel structure as: The group of channel members to which a set of distribution tasks has been
allocated.

Ancillary Structure We have defined the marketing channel as including only those participants who
perform the negotiatory functions of buying, selling, and transferring title, and hence it follows that
those who do not perform these functions are not members of the channel structure.

ancillary structure as: The group of institutions (facilitating agencies) that assists channel members in
performing distribution tasks.

Marketing Channels for Services

Services Producers

Agents or Brokers Services Retailers

Consumers Businesses Institutions Governments

CHAPTER 2

A. OVERVIEW OF CHANNEL PARTICIPANTS- illustrates the basic dichotomy between channel

membership based on performance or nonperformance of the negotiatory functions (buying,
selling and transferring title). (1) producers and manufacturers; (2) intermediaries; and (3) final
users.
B. PRODUCERS AND MANUFACTURERS- For the purpose of this text, producers and manufacturers
consist of firms that are involved in extracting, growing or making products. But even with all this
diversity, a thread of commonality runs through producing and manufacturing firms: all exist to
offer products that satisfy the needs of customers.

C. INTERMEDIARIES

Intermediaries, or middlemen, are independent businesses that assist producers and manufacturers
(and final users) in the performance of negotiatory functions and other distribution tasks.

Wholesale Intermediaries- Wholesalers consist of businesses that are engaged in selling goods for
resale or business use to retail, industrial, commercial, institutional, professional or agricultural firms, as
well as to other wholesalers.

Types and Kinds of Wholesalers

1. Merchant wholesalers- are firms engaged primarily in buying, taking title to, usually storing and
physically handling products in relatively large quantities.

2. Agents, brokers, and commission merchants- are also independent middlemen who do not, for all or
most of their business, take title to the goods in which they deal.

3. Manufacturers’ sales branches and offices- are owned and operated by manufacturers but are
physically separated from manufacturing plants.

The Census of Wholesale Trade further classifies wholesalers by kind of business—of which there are 18
different categories.
Distribution Tasks Performed by Merchant Wholesalers

Merchant wholesalers- serve manufacturers as well as retailers and other customers.

1. Providing market coverage

2. Making sales contacts

3. Holding inventory

4. Processing orders

5. Gathering market information 6. Offering customer support

1. Market coverage is provided by merchant wholesalers to manufacturers because the markets for the
products of most manufacturers consist of many customers spread over large geographical areas.

2. Sales contact is a valuable service provided by merchant wholesalers. For manufacturers, the cost of
maintaining an outside sales force is high.

3. Holding inventory is another crucial task performed by wholesalers for manufacturers.

4. Order processing performed by wholesalers is very helpful to manufacturers because many customers
buy in small quantities.

5. Gathering market information is another task of substantial benefit to manufacturers.

6. Customer support is the final distribution task that wholesalers provide for manufacturers. This extra
support by wholesalers, often referred to as value added services, plays a crucial role in making
wholesalers vital members of the marketing channel from the standpoints of both the manufacturers
who supply them and the customers to whom they sell.

In addition to performing the six distribution tasks for manufacturers merchant wholesalers are equally
well suited to perform the following distribution tasks for their customers:

1. Assuring product availability 2. Providing customer service 3. Extending credit and financial
assistance 4. Offering assortment convenience 5. Breaking bulk 6. Helping customers with
advice and technical support.

1.Product availability, providing for the ready availability of products, is probably perhaps the most basic
distribution task performed by wholesalers for customers.

2. Customer service is another valuable distribution task performed by wholesalers.

3. Credit and financial assistance is provided by wholesalers in two ways. First, by extending open
account credit to its customers on products sold, wholesalers allow customers to use products in their
business before having to pay for them.
4. Assortment convenience refers to the wholesaler’s ability to bring together an assortment of
products from a variety of manufacturers, greatly simplifying customers’ ordering tasks.

5. Breaking bulk is important because customers do not often need large quantities of products, or they
may prefer to order only a small quantity at a time.

6. Advice and technical support is the final distribution task wholesalers are called on to perform for
their customers.

DISTRIBUTION TASKS PERFORMED BY AGENT WHOLESALERS

As mentioned earlier in the chapter, agent wholesalers (defined by the Census of Wholesale Trade as
agents, brokers, and commission merchants) do not take title to the products they sell.

Manufacturers’ agents (also referred to as manufacturers’ representatives or reps), for example,

specialize mainly in performing the market coverage and sales contact distribution tasks for
manufacturers.

Selling agents, another type of agent wholesaler, usually perform more distribution tasks than
manufacturers’ representatives.

Brokers, the second major category of nontitle-taking wholesalers defined in the Census of Wholesale
Trade, offer another example of the wide deviation between definitions based on the performance of
distribution tasks presented in the marketing literature and performance in actual practice

Commission merchants perform a wide range of distribution tasks, including physically holding inventory
(though not taking title), providing market coverage, sales contact, breaking bulk, credit and order
processing.

DISTRIBUTION TASKS PERFORMED BY RETAILERS

Retailers consist of business firms engaged primarily in selling merchandise for personal or household
consumption and rendering services incidental to the sale of goods.

D. FACILITATING AGENCIES

Facilitating Agencies are business firms that assist in the performance of distribution tasks other than
buying, selling and transferring title.

Transportation agencies include all firms offering transportation services on a public basis, such as
United Parcel Service (UPS) and Federal Express as well as the U.S. Post Offices

Storage agencies consist mainly of public warehouses that specialize in the storage of goods on a fee
basis.
Order processing agencies are firms that specialize in order fulfillment tasks.

Third party logistics providers, sometimes referred to as “3PLs” or “TPLs,” are firms that specialize in
providing logistics services to companies or organizations that are not capable or who find it more
convenient and efficient to let an outside firm perform most or all of the distribution tasks involved in
supply chain management.

Financial agencies consist of firms such as banks, finance companies, and factors that specialize in
discounting accounts receivable.

Insurance companies provide the channel manager with a means for shifting some of the risks inherent
in any business venture, such as fire and theft losses, in-transit damage of goods and, in some cases,
inclement weather.

Marketing research firms have grown substantially in the past 20 years. Most large cities now have a
number of marketing research firms offering a wide range of skills.

E. MARKETING CHANNEL AND THE ENVIRONMENT

 Economic environment

 Competitive environment

 Socio-cultural environment

 Technological environment

 Legal environment

THE ECONOMIC ENVIRONMENT

The economy is probably the most obvious and pervasive category of environmental variables affecting
all members of the marketing channel.

For example, in the supermarket industry during inflationary periods, consumer buying patterns
increasingly reflected such tactics as:

• Going to the supermarket without bringing along extra money

• Putting items back before checking out

• Buying only the amount needed

• Buying less meat

• Stocking up on bargains

• Buying lower-quality brands

• Buying unplanned items only if they are on special sale.

THE COMPETITIVE ENVIRONMENT

Competition is always a critical factor to consider for all members of the marketing channel. This is
especially the case in recent years as competition has become global in scope.

Types of Competition

1. Horizontal competition is competition between firms of the same type, For example, an
automobile manufacturer versus another automobile manufacturer, a plumbing supply
wholesaler versus another plumbing supply wholesaler, or one supermarket versus another.
2. Intertype competition is competition between different types of firms at the same channel level,
such as the off-price store versus the department store or the merchant wholesaler versus
agents and brokers.
3. Vertical competition refers to competition between channel members at different levels in the
channel, such as retailer versus wholesaler, wholesaler versus manufacturer or manufacturer
versus retailer.
4. channel system competition refers to complete channels competing with other complete
channels. In order for channels to compete as complete units, they must be organized, cohesive
organizations. Such channels have been referred to as vertical marketing systems and are
classified into three types: (1) corporate; (2) contractual and (3) administered.

THE SOCIOCULTURAL ENVIRONMENT

The sociocultural environment pervades virtually all aspects of a society.

Other Sociocultural Forces

1. Globalization -this term is most commonly used to describe the interconnectedness and
interdependencies of countries around the world.

2. Consumer mobility and connectedness Mobility and Connectedness—To say that people do a great
deal of running around today, whether for business or personal pursuits, is to state the obvious.

3. Social networking- This term refers to interaction in networks comprised of individuals or

organizations that are linked together based on some type of common interest, such as friendship,
beliefs, hobbies, professional pursuits, special knowledge and many others.

4. The Green Movement-This is a term that has often been used to refer to a focus on preserving the
environment and human health.
THE TECHNOLOGICAL ENVIRONMENT

Technology is the most continuously and rapidly changing aspect of the environment. Everyone could
probably recite long lists of technological advances that have occurred in his or her lifetime or even just
during the past decade.

1.Electronic Data Interchange. Electronic data interchange (EDI) refers to the linking together of channel
member information systems to provide real-time responses to communication between channel
members.

2. Scanners, Computerized Inventory Management, and Handheld Computers. Electronic scanning and
computerized inventory management, enhanced by portable computers, cellular phone technology and
the Internet, have created a new world in retailing and wholesaling.

3.The Digital Revolution and Smartphones. The digital revolution is the term commonly used to describe
the huge transformation that has taken place over the past three decades from analog and mechanical
technology to digital technology.

4. RFID (Radio Frequency Identification). This is a relatively new technology that uses a device called an
RFID tag attached to a person or object, such as a product, that enables that person or product to be
identified and tracked using radio waves.

5.Cloud computing is an Internet-based technology that enables both large and small businesses and
organizations to utilize highly sophisticated computer applications without having to have their own
hardware, software, office computing space and staff.

THE LEGAL ENVIRONMENT

The legal environment refers to the set of laws that impact marketing channels. The legal structure
resulting from these laws is not a static code.

Legislation Affecting Marketing Channels While there are many federal, state, local, and even
international laws that can affect marketing channels, five pieces of federal legislation underlie most of
the major channel management legal issues we will discuss later in this chapter. They are: (1) the
Sherman Antitrust Act; (2) the Clayton Act; (3) the Federal Trade Commission Act; (4) the Robinson-
Patman Act and (5) the Celler-Kefauver Act.

While there are many ways to categorize the myriad of environmental variables, the following five-
category taxonomy was used in this chapter: (1) economic environment; (2) competitive environment;
(3) sociocultural environment; (4) technological environment and (5) legal environment.