CH 10 Marketing Channels

BUSI 2208 Dr. Irene Lu

 Learning Objectives

1. What are the functions offered by marketing

intermediaries?
2. Types of channels
3. Channel design decision
4. Supply chain management

BUSI 2208 Dr. Irene Lu

What is a Distribution Channel?

• Marketing _intermediaries_______
• A set of interdependent organizations involved in
the process of making a product or service available
for use or consumption by the consumer or
business users.
• Marketing mix: Place

BUSI 2208 Dr. Irene Lu

Terms used for marketing intermediaries

BUSI 2208 Dr. Irene Lu

 Topic 1:

What are the functions offered by

marketing intermediaries?

BUSI 2208 Dr. Irene Lu

Icon Acoustics

BUSI 2208 Dr. Irene Lu

 Distribution Channel Functions

• If Icon Acoustics uses a traditional stereo dealers (e.g., Best

Buy) to sell its speakers, what functions could the dealer
perform for Icon Acoustics?
• In other words, what are the advantages for Icon Acoustics to
use stereo dealers to sell its speakers?

BUSI 2208 Dr. Irene Lu

Key Functions Performed by Channel
Members
Help to complete transactions
•

Help to fulfill the completed transactions

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 Topic 2:

Types of Channels

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 Number of Channel Levels

Channel level: a layer of intermediaries that

performs some work in bringing the Suppliers
product and its ownership closer to the
final buyer.

Producers

Distributor/Retailers

Customers

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_direct______ marketing channel: No intermediary
levels
_indirect______marketing channels: One or more
intermediary levels

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Consumer and Business Marketing Channels

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Distribution Channel Structure:
Direct & Indirect

Direct Channel

Indirect Channel

Indirect Channel

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 Topic 3:

Channel Behavior

BUSI 2208 Dr. Irene Lu

 Challenge

• If Icon Acoustics uses Distinctive Audio and Stereo Passion to

sell its speakers, is there any conflict that may arise between
Distinctive Audio and Stereo Passion?

BUSI 2208 Dr. Irene Lu

Channel Behaviour

Channel conflict: disagreement between channel

members over goals and roles, who should do what and
for what rewards
– _Horizontal conflict_ : conflict between firms on the
same level

BUSI 2208 Dr. Irene Lu

 Challenge

• If Icon Acoustics sells speakers directly to consumers, and at

the same, it uses Distinctive Audio and Stereo Passion as
intermediaries, is there any conflict that may arise between Icon
and Distinctive Audio (or and Stereo Passion)?

BUSI 2208 Dr. Irene Lu

Channel Behaviour

Channel conflict: disagreement between channel

members over goals and roles, who should do what and
for what rewards
– _Vertical conflict: conflict between firms on different
levels

BUSI 2208 Dr. Irene Lu

Types of Marketing Channel Systems

1. Conventional channel
Channel members independently owned.
2. Vertical channel
Channel members act as a unified system.
3. Horizontal channel
Two or more companies on the same level join together for
mutual gain.
4. Hybrid channel
Combination to serve different segments.

BUSI 2208 Dr. Irene Lu

1. Conventional Marketing Channel
2. Vertical Marketing System

BUSI 2208 Dr. Irene Lu

Types of Vertical Marketing Systems

• A _vertical_____ marketing system (VMS) consists

of producers, wholesalers, and retailers acting as a
unified system.
• There are three types of VMSs:
– Corporate
– Contractual
– Administered

BUSI 2208 Dr. Irene Lu

 Vertical Marketing Systems Focus on Final Customers

Type of channel

Characteristics Vertical marketing systems

Traditional
Administered Contractual Corporate

Amount of Little or Some to Fairly good

Complete
cooperation none good to good

Economic One
Control maintained None power and Contracts company
by leadership ownership

Typical General
Examples “inde- McDonald’s Apple
Electric
pendents”

BUSI 2208 Dr. Irene Lu

 3. _Horizontal___ Marketing System

• Two or more companies on the same level join

together for mutual gain

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 4. Hybrid Marketing System
(Multichannel Distribution System)

• A single firm sets up two or more marketing channels

to reach one or more customer segments

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 LO3

Distribution Channel Structure:

Multichannel

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__Disintermediation_______

• Occurs when product or service producers cut out

marketing channel intermediaries or when radically
new types of channel intermediaries displace
traditional ones

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 Topic 4:

Channel Design Decision

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Factors Affecting Channel Choice

Product
Produce
Market r

Factors

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Market Factors

What When
• Consumers • Geographic • Large or
or location and small
• Product, size of the • Seasonal quantities
industrial quantity or not
buyers market

Who Where How

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Product Factors

Complexity • Complex, customized, and expensive use more

direct

Product • Choice of channel may change over the life cycle

• As the product gains acceptance channel may
Life Cycle become more complex

Delicacy of • Perishables require shorter channels

the Product
BUSI 2208 Dr. Irene Lu
Producer Factors

More resources
Resources - financial, More Direct
managerial

More control desired

Control - Exclusive brand More Direct
image

Customer More that

manufacturer wishes More Direct
support to provide

BUSI 2208 Dr. Irene Lu

Levels of Distribution Intensity

Exclusive
• Only one or a
Selective few dealers in
• Eliminate all any given area
Intensive but a few in
• Maximum any single area
market
coverage

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Get your customers to use the right channel

What do businesses do when they want to get

customers to use the right channels?

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 Objective 5:

Supply Chain Management

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Supply Chain Management

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Logistics and Supply-Chain Management

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 The automotive supply chain

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© 2008 McGraw-Hill Ryerson Ltd. All rights reserved.