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Chapter 13

Marketing Channels

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McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 After
After studying
studying this
this chapter,
chapter, you
you
should
should be
be able
able to:
to:
• Explain the functions and key
activities of marketing channels.

• Discuss the role of intermediaries in

marketing channels.

• Distinguish between direct and

indirect marketing channels.

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 After
After studying
studying this
this chapter,
chapter, you
you
should
should be
be able
able to:
to:
• Illustrate how some firms use multiple channels
successfully.

• See how marketing-channel decisions are related to

other key marketing decision variables.

• Understand how power, conflict, and cooperation affect

the operation of a marketing channel.

• Give examples of ethical and legal issues encountered

in the operations of marketing channels.

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 Consumer and Business-to-Business
Marketing Channels

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 The Importance of Marketing Channels

• Marketing channels determine how

and where customers buy.

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 Key Functions Performed in Marketing
Channels

Marketing
MarketingCommunications
Communications
••Advertising
Advertisingthe
theProduct
Product
••Providing
ProvidingP-O-P
P-O-PDisplays
Displays
••Providing
Providingaasalesforce
salesforcethat
thatoffers
offersinformation
information&&service
serviceto
tocustomers
customers

Inventory
InventoryManagement
Management
••Ordering
Orderingappropriate
appropriatemerchandise
merchandiseassortment
assortment
••Maintaining
Maintainingadequate
adequatestock
stockto
tomeet
meetcustomer
customerdemand
demand
••Storing
Storingmerchandise
merchandisein
inan
anappropriate
appropriatefacility
facility

Physical
PhysicalDistribution
Distribution
••Delivering
Deliveringproducts
products
••Coordinating
Coordinatingdelivery
deliveryschedules
schedulestotomeet
meetcustomer
customerexpectations
expectations
••Arranging
Arrangingfor
forthe
thereturn
returnof
ofdefective
defectivemerchandise
merchandise

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 Key Functions Performed in Marketing
Channels

Market
MarketFeedback
Feedback
••Serving
Servingononmanufacturer
manufactureradvisory
advisoryboards
boards
••Informing
Informingother
otherchannel
channelmembers
membersof ofcompetitive
competitiveactivity
activity
••Participating
Participatingin
intest
testmarket
marketevaluations
evaluations

Financial
FinancialRisk
Risk
••Offering
Offeringcredit
credit
••Managing
Managingrisks
risksrelated
relatedto
toproduct
productloss
lossor
ordeterioration
deterioration
••Managing
Managingrisks
risksrelated
relatedto
toproduct
productsafety
safetyand
andliability
liability

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 Contributions of Intermediries

•• Provide Economic
Provide Economic Value
Value
•• Provide Social
Provide Social Value
Value
•• Provide Marketing
Provide Marketing Support
Support
•• Impact Supply-chain
Impact Supply-chain Management
Management
•• Add Value
Add Value to
to the
the Market
Market Offering
Offering

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 Types of Marketing Channels

• Direct Channels
• Indirect Channels
• Single Marketing Channels
• Multiple Marketing Channels
• Vertical Marketing Systems

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 Companies Using Direct Marketing
Channels

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 Companies Using Indirect Marketing
Channels

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 Companies Using Vertical Marketing
Systems

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 Managing Marketing Channels

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 Formulating Marketing Objectives and
Strategies
• Marketing channel objectives and
strategies must be compatible
with overall marketing strategy.

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 Developing Channel Objectives and
Strategy
•• The
The development
development of of
channel
channel strategies
strategies
requires
requires decisions
decisions in
in
three
three key
key areas:
areas:
1.
1. Buyer
BuyerPreferences
Preferences
2.
2. Relationship
Relationship
Orientation
Orientation
3.
3. Degree
Degreeof of Market
Market
Coverage
Coverage

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 Evaluating Channel Alternatives

• Evaluation of Capabilities
and Costs

• Evaluation of Channel
Compatibility:
– Product Considerations
– Pricing Considerations
– Marketing Communications
Considerations

• Evaluation of Availability

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 Determining Channel Structure

• The key question is “What channel

structure is best for us to use?”

Direct of Indirect Channels?

Single or Multiple Channels?

Vertical Marketing Systems?

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 Implementing Channel Strategy

•• Run
Run aa Trial
Trial Period
Period

•• Set
Set Performance
Performance Expectations
Expectations

•• Create
Create Communication
Communication Networks
Networks

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 Evaluating Channel Performance

1. Financial Evaluation

2. Evaluate Working Relationships

3. Evaluate Legal and Ethical Issues

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 Financial Evaluation

In the short run channel members

will accept low levels of
financial performance

In the long run channel members

must have positive financial
results to sustain channel relationships

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 Evaluating Working Relationships

 Channel Power
• Reward Power
• Legitimate Power
• Expert Power
• Referent Power
• Coercive Power
• Channel Leader Power

 Channel Conflict
 Channel Cooperation
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 Evaluate Legal and Ethical Issues

•• Are
Areany
any laws
lawsbeing
beingviolated?
violated?

•• Are
Areany
any exclusive
exclusiveterritories
territoriesset
set up?
up?

•• Are
Areany
any exclusive
exclusivedealing
dealingarrangements
arrangements
being
beingmade?
made?

•• Are
Areresellers
resellersbeing
beingbound
boundto
totying
tying
contracts?
contracts?
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 Future Considerations for Channel
Management

• Firms must always ask “How well can this channel be

expected to perform in the future?”

• Companies will be forced to alter their channels

because of:

– Changing consumer preferences

– Intense competition

– Innovation in information technology

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