Chapter 12:Marketing Channels

Delivering Customer Value

INSTRUCTOR: FATIMA
AKHUND
Marketing Channels
Delivering Customer Value
Topic Outline

1. Supply Chains and the Value Delivery Network

2. The Nature and Importance of Marketing Channels
1. Supply Chain Partners

The supply chain consists of two types of 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
Supply Chains and the Value Delivery
Network
Supply Chain Views

From supply chain to demand chain…

Supply chain “make and sell” view includes the firm’s 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
Supply Chains and the Value Delivery
Network
Value Delivery Network

Value delivery network is the firm’s suppliers, distributors, and ultimately

customers who partner with each other to improve the performance of
the entire system
2. The Nature and Importance of
Marketing Channels
2.1. How Channel Members Add Value

a. Intermediaries offer producers greater

efficiency in making goods available to target
markets. Through their contacts, experience,
specialization, and scale of operations,
intermediaries usually offer the firm more than
it can achieve on its own.
b. Using intermediaries reduces number of
channel transactions.
The Nature and Importance of
Marketing Channels
How Channel Members Add Value
c. From an economic view, intermediaries transform the assortment of
products into assortments wanted by consumers

d. Channel members add value by bridging the major time, place, and
possession gaps that separate goods and services from those who
would use them
The Nature and Importance of
Marketing Channels
2.2. Functions performed by channel members

Information Promotion Contact

Physical
Matching Negotiation
distribution

Financing Risk Taking

The Nature and Importance of
Marketing Channels
3. Channel structure and levels

Channel Level: A layer of intermediaries that performs some work in

bringing the product & its ownership closer to the final buyer
a) Direct Marketing Channel: is a marketing channel that has no
intermediary Levels
b) Indirect Marketing Channel: is a channel containing one or more
intermediary levels
The Nature and Importance of
Marketing Channels
3. Channel structure and levels

Producer Producer Producer

Wholesaler

Retailer
Retailer

Consumer Customer Customer

DIRECT CHANNEL INDIRECT CHANNEL

Customer Marketing Channels
The Nature and Importance of
Marketing Channels
3. Channel structure and levels

Producer Producer Producer

Manufacturer’s
representatives or
sales branch

Business Business
Distributor Distributor

Business Business Business

Consumer Customer Customer
Business Marketing Channels
 Channel Behavior & Organization
1. Channel Behavior

The success of individual channel members depend upon the overall channel
success & all channel firms should work smoothly together.
However, this seldom happens & channels often act alone in their short-run
best interests resulting in CHANNEL CONFLICTS
Channel Conflict: is the disagreement among marketing channel members on
goals & roles – who should do what and for what rewards.
a) Horizontal Conflict: occurs among firms at the same level of the channel.
b) Vertical Conflict: is a conflict between different levels of the channel.
 Channel Behavior & Organization
2. Vertical Marketing Channels
Conventional Distribution
Channel:
A channel consisting of one or
more independent producers,
wholesalers, & retailers, each a
separate business seeking to
maximise its own profits, even
at the expense of profits for the
system as a whole
Vertical Marketing System
(VMS):
A distribution channel structure
in which producers,
wholesalers, & retailers act as a
unified system. One channel
member owns the others, has
contracts with them, or has so
much power that they all
cooperate.
 Channel Behavior & Organization
2. Vertical Marketing Channels
Conventional Distribution Channel Vertical Marketing System

Producer Producer

Wholesaler Retailer
Wholesaler

Retailer

Producers, Wholesalers, & Retailers act as a unified

system
Consumer Consumer

Independent producers, wholesalers, & retailers

 Channel Behavior & Organization
2. Vertical Marketing Channels
Types of VMS:
a) Corporate VMS: combines successive stages of production & distribution under
single ownership – channel leadership is established through common ownership
e.g. Zara
b) Contractual VMS: independent firms at different levels of production &
distribution join together through contracts to obtain more economies or sales
impact than they could achieve alone – Franchise organization
c) Administered VMS: coordinates successive stages of production & distribution,
not through common ownership or contractual ties but through the size & power
of one of the parties. E.g. P&G control over retailers and shelfspace
 TYPES OF CONTRACTUAL VMS

Manufacturer sponsored retailer franchise

Is a contractual relationship between the manufacturer & the retailer. The franchisee must
follow rules of the franchise and is granted rights to sells goods services in their specific
area. Franchise obtains distribution at the retail level and through their dealers but
manufacturer maintains control over how the service will be merchandised. E.g. Car
Manufacturers such as Toyota license dealers to sell their cars. The dealers are independent
businessmen who agree to meet certain standards & conditions of sales and services.

Manufacturer-sponsored wholesale franchise system transfers the right of manufacturing

to wholesaler. The example is soft-drink industry, where franchiser, instead of final product,
sells concentrates to wholesaler, so the wholesaler is responsible for carbonating, bottling,
promoting, and distributing of soft drinks.

Service-Firm-Sponsored Retailer Franchise: A system of service product delivery in which an

organisation producing a service (eg. car rental, restaurants, financial services, etc.) sets up a
number of independently-owned franchised outlets in locations convenient to its customers.
Here, a service firm organizes a complete system for bringing its service effectively to
consumers.
Channel Behavior & Organization
3. Horizontal Marketing Systems
Horizontal Marketing System is a Channel arrangement in which two or
more companies at one level join together to follow a new marketing
opportunity. This can either be temporary or permanent.
By working together, companies can combine their financial,
production, or marketing resources to accomplish more than any one
company could alone.
e.g. McDonalds now places ‘express’ versions of its restaurants in Wal-
Mart stores.
McDonalds to place drive-through restaurants at gas stations.
Channel Behavior & Organization
4. Multi-Channel Distribution Systems/ Hybrid Marketing Channel

Multi-Channel Distribution System is a distribution system in which a

single firm sets up two or more marketing channels to reach one or
more customer segments.
Channel Behavior & Organization
4. Multi-Channel Distribution Systems/ Hybrid Marketing Channel

PRODUCER

Catalogs,
internet Sales
Distributors Force

Retailers
Dealers

Consumer Consumer Business Business

Segment 1 Segment 2 Segment 1 Segment 2
Channel Behavior & Organization
5. Changing Channel Organization
Due to:
- Changes in Technology &
- Explosive growth of direct & online marketing

There is a growing trend of Disintermediation.

It is the cutting out of marketing channel intermediaries by product or service
producers, or the displacement of traditional resellers by radical new types of
intermediaries.
e.g. Airlines using Internet for sales, Amazon.com, Hotel bookings etc.
 Channel Design Decisions
(Pg.: 300)* book

Marketing Channel Design: Designing effective marketing

channels by analysing consumer needs, setting channel
objectives, identifying major channel alternatives, and
evaluating them.

Designing
Analysing Setting Identifying Evaluating Internationa
Consumer Channel Major Major l
Needs Objectives Alternatives Alternatives Distribution
Channels
 Channel Design Decisions
Identifying major alternatives
After defining channel objectives, a company should identify its major channel
alternatives in terms of types of intermediaries, number of intermediaries &
responsibilities of each channel member
Number of Marketing Intermediaries:
a) Intensive Distribution: stocking product in as many outlets as possible. E.g.
Toothpaste
b) Selective Distribution: the use of more than one, but fewer than all of the
intermediaries who are willing to carry the company’s products.
E.g. most home appliance brands do this.
c) Exclusive Distribution: Giving a limited number of dealers the exclusive right to
distribute company products in their territories e.g. Rolex Watches
 Channel Management Decisions
Pg. 303**

Marketing Channel Management: includes Selecting, managing &

motivating individual channel members & evaluating their performance
over time.

Selecting Channel Members

Managing & Motivating Channel Members – (practice) Partner

Relationship Management

Evaluating Channel Members

Public Policy & Distribution Decisions
Most channel laws deal with mutual rights & duties of the channel
members once they have formed a relationship.
- Exclusive Distribution: When the seller allows only certain outlets to
carry its products
- Exclusive Dealing: When the sellers require that these dealers not
handle competitor products
Exclusive Arrangements are beneficial for both parties. They are legal till
they do not create monopolies.
Public Policy & Distribution
Decisions
- Exclusive Territorial Agreements: The producer may agree not to sell to
other dealers in a given area (common in franchises), or the buyer may
agree to sell only in its own territory

- Tying Agreements: This includes full-line forcing; when the producers of

a strong brand sometimes sell it to dealers only if the dealer will take
some or all of the rest of the line.

Producers are free to select their dealers, but their right to terminate
dealers is restricted. Dealers can be dropped ‘For Cause’.
 Marketing Logistics & Supply
Chain Management
Nature & Importance of Marketing Logistics
Marketing Logistics (or physical distribution): is the planning,
implementing, and controlling the physical flow of materials, final
goods & related information from points of origin to points of
consumption to meet customer requirements at a profit.
-Trend towards customer-centered logistics thinking, which starts
with the marketplace & works backward to the factory or even to
sources of supply.
-It involves both; Outbound Distribution (moving products from
factory to resellers & ultimately to customers) & Inbound
Distribution (moving broken, unwanted, or express products
returned by consumers or resellers) i.e. it involves entire SUPPLY
CHAIN MANAGEMENT
Marketing Logistics & Supply
Chain Management
Nature & Importance of Marketing Logistics
Supply Chain Management includes managing upstream &
downstream value-added flow of materials , final goods, and related
information among suppliers, the company, resellers & final consumers.

inbound logistics outbound logistics

Suppliers Company Resellers Customers

Marketing Logistics & Supply
Chain Management
Goals of Logistics System
Ideal Goal: to maximise customer Service at the least cost.
However this is not possible as both are inversely proportional
Achievable Goal should be:
To Provide a targeted level of customer service at the least cost
The procedure is to research the importance of various distribution
services to customers & then set desired service levels for each
segment.
OBJECTIVE: to maximise profits & Sales
Marketing Logistics & Supply
Chain Management
Major Logistics Functions

Warehousing – warehouses & distribution centers

Distribution Centers are large automated warehouses designed to receive goods from various
plants & suppliers, take orders, fill them efficiently & deliver goods to customers as quickly as
possible.

Inventory Management
Stock Management, Just in time

Transportation
truck, rail, water, pipeline, air
Intermodal Transportation: Combining 2 or more modes e.g. Piggyback (rail+ truck), fishyback
(water + truck), trainship, airtruck

Logistics Information Management

electronic data interchange, vendor managed inventory
 Marketing Logistics & Supply
Chain Management
Integrated Logistics Management
Integrated Logistics Management: Logistic concept that emphasizes
teamwork, both inside the company and among all the marketing channel
organizations to maximise the performance of the entire distribution system

Cross-Functional Teamwork inside the company

Building Logistics Partnerships

Including Cross-company teams

Third-Party Logistics
An independent logistics provider that performs any or all of the functions
required to get its client’s product to market