Marketing Channels: Delivering Customer Value

Chapter 10

Marketing Channels
• Set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users • Marketing channel decisions:
• Affect other marketing decisions, such as pricing or product design • Can lead to competitive advantage
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Figure 10.1 - How Adding a Distributor Reduces the Number of Channel Transactions

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4 .How Channel Members Add Value • The use of intermediaries results from their greater efficiency in making goods available to target markets • Channel members can offer • Contacts and experience • Specialization • Scale of operation 10 .

Key Functions Performed by Channel Members • Transaction completion: • • • • • Information Promotion Contact Matching Negotiation • Transaction fulfillment: • Physical distribution • Financing • Risk taking 10 .5 .

• Break bulk and reassemble… .Economic Role of Intermediaries • Transforms the assortment of products made by producers into assortments wanted by consumers.

Channel level • A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer Direct marketing channel • A marketing channel that has no intermediary levels Indirect marketing channel • A marketing channel containing one or more intermediary levels 10 .7 .

Figure 10.Customer and Business Marketing Channels 10 .2 .8 .

9 .Channel Behavior and Organization • The channel will be most effective when: • Each member is assigned tasks it can do best • All members cooperate to attain overall channel goals • The success of individual channel members depends on the overall channel’s success 10 .

between different dealers of the same brand) • Vertical conflict occurs between different levels of the same channel (e.g.Channel Behavior and Organization • Horizontal conflict occurs among firms at the same level of the channel (e. between a brand and its franchisee) 10 .g...10 .

Channel Conflict • Disagreements among marketing channel members on goals. roles.11 . Burger King has had a steady stream of conflicts with its franchised dealers over everything from advertising content to the price of its cheeseburgers 10 . and rewards—who should do what and for what rewards In recent years.

Conventional distribution channel • A channel consisting of one or more independent producers. wholesalers. perhaps even at the expense of profits for the system as a whole . each a separate business seeking to maximize its own profits. and retailers.

and retailers act as a unified system.Vertical marketing system (VMS) • A channel structure in which producers. One channel member owns the others. has contracts with them. or has so much power that they all cooperate . wholesalers.

3 .Figure 10.Comparison of Conventional Distribution Channel with Vertical Marketing System 10 .14 .

Types of Vertical Marketing Systems Corporate VMS • A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership Contractual VMS • A vertical marketing system in which independent firms at different levels of production and distribution jointogether through contracts Administered VMS • A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties 10 .15 .

16 .Horizontal Marketing Systems (Symbiotic Marketing Systems) • Two or more companies at one level join together to follow a new marketing opportunity McDonald’s now places “express” versions of their stores in Walmart stores 10 .

4 .Multichannel Distribution System (Hybrid Systems) 10 .17 .Figure 10.

18 .Multichannel Distribution Systems • A single firm sets up two or more marketing channels to reach one or more customer segments • Each new channel expands sales and marketing coverage • Helps tailor its products and services to specific needs of diverse customer segments • Hard to control. can generate conflicts 10 .

Disintermediation • Occurs when product and service producers cut out intermediaries or displace traditional resellers with radical new types of intermediaries Avoiding disintermediation problems: Fender’s Web site provides detailed product information refers them to its resellers’ Web sites and stores 10 .19 .

identifying major alternatives. and evaluating them Meeting customers’ channel service needs: A local hardware store probably provides more personalized service. setting channel objectives.20 . and less hassle than a huge Home Depot. But it may also charge higher prices 10 .Marketing Channel Design • Designing effective marketing channels by analyzing consumer needs. a more convenient location.

Setting channel objectives • Stated in terms of targeted levels of customer service 10 .21 .Channel Design Decisions • 1. Analyzing consumer needs • Finding out what target consumers want from the channel • Balance needs against costs and consumer price preferences • 2.

conditions of sale. Identifying major alternatives: • Types of intermediaries: Retailers.Channel Design Decisions • 3. dealers • Number of marketing intermediaries: Intensive. and selective distribution • Responsibilities of channel members: Price policies. value-added retailers. territory rights and specific services to be performed 10 .22 . exclusive. independent distributors.

Number of Marketing Intermediaries Intensive distribution • Stocking the product in as many outlets as possible Exclusive distribution • Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories Selective distribution • The use of more than one but fewer than all of the intermediaries who are willing to carry the company’s products .

Evaluating the major alternatives involves comparing each alternative to: • Economic criteria • Control issues • Adaptive criteria 10 .24 .Channel Design Decisions • 4.

Channel Management Decisions • 5.25 . Selecting channel members • Managing and motivating channel members: Caterpillar works closely with its worldwide network of independent dealers to find better ways to bring value to customers • Partner relationship management • Evaluating channel members 10 .

26 . if they lessen competition 10 .Public Policy and Distribution Decisions • Laws affecting channels seek to prevent the exclusionary tactics of some firms that might keep another from using a desired channel • Some dealing contracts may come under the Clayton Act.

27 .Marketing logistics • Planning. and related information from points of origin to points of consumption to meet customer requirements at a profit 10 . final goods. and controlling the physical flow of materials. implementing.

Supply Chain Management 10 .5 .28 .Figure 10.

29 . the company. final goods. resellers. and related information among suppliers.Supply chain management • Managing upstream and downstream value-added flows of materials. and final consumers 10 .

Marketing Logistics and Supply Chain Management • Goals of the logistics system: • Deliver a targeted level of customer service at the least cost • Major logistics functions: • • • • Warehousing Inventory management Transportation Logistics information management 10 .30 .

what types. and where? • Storage warehouses • Distribution centers • Inventory management: • Balance between too much and too little inventory • Just-in-time logistics systems • RFID or smart tag technology 10 .Marketing Logistics and Supply Chain Management • Warehousing: • How many.31 .

Distribution Center • An automated warehouse that receives goods from various suppliers. takes orders. fills them. and delivers goods to customers as quickly as possible Staples employs a team of super-retrievers—in day-glo orange—to keep its warehouse humming .

airtruck 10 . trainship.33 . fishyback.Transportation • Trucks • Railroads • Water carriers • Pipelines • Air carriers • Internet • Intermodal transportation • Piggyback.

34 .Logistics Information Management • Channel partners often link up to share information and make better joint logistics decisions • Information can be shared and managed through • Electronic data interchange (EDI) • Vendor-managed inventory (VMI) systems 10 .

35 .Integrated Logistics Management • Logistics concept that emphasizes teamwork. both inside the company and among all the marketing channel organizations • To maximize the performance of the entire distribution system 10 .

Integrated Logistics Management • Requires: • Cross-functional teamwork inside the company • Building logistics partnerships • Outsourcing to third-party logistics providers Many companies now employ sophisticated.36 . system-wide supply chain management software. available from companies such as Logility 10 .

Third-party logistics (3PL) provider • An independent logistics provider that performs any or all of the functions required to get a client’s product to market .