Chapter 12

Marketing Channels - Delivering Customer Value

Principles of Marketing _ Lai Vinh Phuc, MBA

 Learning Outcomes
• Explain why companies use marketing channels
• Discuss how channel members interact and organize work
• Identify the major channel alternatives open to a company
• Explain how companies select, motivate, and evaluate channel
members
• Discuss the nature and importance of marketing logistics and
integrated supply chain management

Principles of Marketing _ Lai Vinh Phuc, MBA

 Content:
I. Supply Chains and the Value Delivery Network
The Nature and Importance of Marketing Channels
II. Channel Behavior and Organization
III. Channel Design Decisions
IV. Channel Management Decisions
V. Marketing Logistics & Supply Chain Management

Principles of Marketing _ Lai Vinh Phuc, MBA

I. Supply Chains & the Value Delivery
Network
1. Supply Chain 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

Principles of Marketing _ Lai Vinh Phuc, MBA

I. Supply Chains & the Value Delivery Network

Principles of Marketing _ Lai Vinh Phuc, MBA Figure: Nike’s Supply Chain
I. Supply Chains & the Value Delivery
Network
2. 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

• E.g: Pepsi “Live for Now” https://www.youtube.com/watch?

v=uwvAgDCOdU4

Principles of Marketing _ Lai Vinh Phuc, MBA

I. Supply Chains & the Value Delivery
Network
3. The Nature and Importance of Marketing Channels

a. How Channel Members Add Value:

• 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.

• How can we recognize an intermediary?

Principles of Marketing _ Lai Vinh Phuc, MBA
I. Supply Chains & the Value Delivery
Network
3. The Nature and Importance of Marketing Channels

Figure 12.1: How Distributor reduces the Number of Channel Transactions

Principles of Marketing _ Lai Vinh Phuc, MBA
I. Supply Chains & the Value Delivery
Network
3. The Nature and Importance of Marketing Channels
a. How Channel Members perform key functions:
• Information: Gathering and distributing marketing research and intelligence
information about actors and forces in the marketing environment needed for
planning and aiding exchange.
• Promotion: Developing and spreading persuasive communications about an
offer.
• Contact: Finding and communicating with prospective buyers.
• Matching: Shaping and fitting the offer to the buyer’s needs, including activities
such as manufacturing, grading, assembling, and packaging.
• Negotiation: Reaching an agreement on price and other terms of the offer so
that ownership or possession can be transferred.
=> Charging higher cost on products from operations
Principles of Marketing _ Lai Vinh Phuc, MBA
I. Supply Chains & the Value Delivery
Network
3. The Nature and Importance of Marketing Channels
b. Number of Channel Levels

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
1. Channel Behavior
• Channel conflict refers to disagreement over goals, roles, and rewards
by channel members
• Horizontal conflict: occurs among firms at the same level of channel.
E.g: Stealing sales from different dealers
• Vertical conflict: between different levels of same channel
E.g: Franchising achieve different benefits (McDonald’s vs McCafe’)

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
2. Vertical Marketing System
a. Conventional distribution systems:
• Consist of one or more independent producers, wholesalers, and
retailers. Each seeks to maximize its own profits, and there is little
control over the other members and no formal means for assigning roles
and resolving conflict.
=> Lack of leadership and power -> conflict, poor performance.

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
2. Vertical Marketing System
b. Vertical Marketing System (VMS): provide channel leadership and
consist of producers, wholesalers, and retailers acting as a unified
system
• Corporate marketing systems: distribution under single ownership
• Contractual marketing systems: through contracts
• Administered marketing systems: power and size of the parties

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
2. Vertical Marketing System

Figure 12.3: Conventional Distribution Channel vs VMS

Principles of Marketing _ Lai Vinh Phuc, MBA
II. Channel Behavior and Organization
2. Vertical Marketing System
c. Franchise Organization: links several stages in the production
distribution process. (by franchisor)
• Manufacturer-sponsored retailer franchise system
E.g: Ford and its independent franchised dealers
• Manufacturer-sponsored wholesaler franchise system
E.g: Coca Coal allows local production licensing
• Service firm-sponsored retailer franchise system
E.g: KFC franchisee-operated restaurant

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
3. Horizontal Marketing System
• Horizontal marketing systems are when two or more companies at one
level join together to follow a new marketing opportunity and operate
distribution. Companies combine financial, production, or marketing
resources to accomplish more than any one company could alone.
• E.g: Fast-food Restaurant in Shopping Mall

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
4. Multichannel Distribution Systems:
• Multichannel Distribution systems (Hybrid marketing channels) are
when a single firm sets up two or more marketing channels to reach one
or more customer segments
• Which company use MDS?

Figure 12.4: Multichannel Distribution System

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization
5. Changing Channel Organization
• Disintermediation occurs when product or service producers cut out
intermediaries and go directly to final buyers, or when radically new
types of channel intermediaries displace traditional ones.
• E.g: VNA, Vietjet, Bamboo, Pacific Airline cut brick-and-mortar retailers.
Online music (iTunes) cuts the traditional music store retailers.

Principles of Marketing _ Lai Vinh Phuc, MBA

II. Channel Behavior and Organization

Management Information System _ Lai Vinh Phuc, MBA

Discussion Question
• What are the opportunities and problems of “Disintermediation”
ANSWER:
Opportunities: profit, wide range of access, efficiency
Problems: losing existing customers
III. Channel Design Decisions

Analyzing Setting
consumer channel
needs objectives

Identifying
major
Evaluation
channel
alternatives

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
1. Analyzing Consumer Needs
• Finding out what target consumers want from the channel
• What segments to serve
• Best channels to use
• Minimizing the cost of meeting customer service requirements

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
2. Setting Channel Objectives
• Targeted levels of customer service
• Balance consumer needs not only against the feasibility and costs of
meeting these needs but also against customer price preferences.
• Direct marketing to avoid delays and too much handling
=> To distribute their goods in the most economical way

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
3. Identifying Major Alternatives
• Types of intermediaries: channel members available to carry out
channel work (company sales force, industrial distributor)
• Number of marketing intermediaries
• Responsibilities of channel members
If a company has both retailers and value-added resellers channel, is it
good or not?

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
3. Identifying Major Alternatives
Number of marketing intermediaries
• Intensive Distribution: Stocking products as many outlets as possible
E.g: Candy, toothpaste (Supermarket)
• Exclusive Distribution: giving limited number of dealers the exclusive
right to distribute the company’s products in territories
E.g: Luxury Automobile, prestige clothing
• Selective Distribution: fewer intermediaries will carry the product
E.g: Television, home appliances

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
3. Identifying Major Alternatives
Responsibilities of Channel Members
• The producer and the intermediaries need to agree on the terms and
responsibilities of each channel member (policies, conditions of sale,
territory rights, and the specific services)
• Franchising store required to meet the standard requirements

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
4. Evaluating the Major Alternatives
Company has several channel alternatives -> choose the best for long-run
• Each alternative should be evaluated against:
- Economic criteria
- Control
- Adaptive criteria

Principles of Marketing _ Lai Vinh Phuc, MBA

III. Channel Design Decisions
5. Designing International Distribution Channels
• Channel systems can vary from country to country
• Must be able to adapt channel strategies to the existing structures
within each country

Principles of Marketing _ Lai Vinh Phuc, MBA

IV. Channel Management Decisions

Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members

Figure 12.5: Channel Management Process

Principles of Marketing _ Lai Vinh Phuc, MBA

IV. Channel Management Decisions
Public Policy and Distribution Decisions
• Exclusive distribution is when the seller allows only certain outlets to
carry its products
• Exclusive dealing is when the seller requires that the sellers not
handle competitor’s products
• Exclusive territorial agreements are where producer or seller limit
territory
• Tying agreements are agreements where the dealer must take most
or all of the line
V. Marketing Logistics and Supply Chain
Management
1. Nature and Importance of Marketing Logistics
a. Marketing logistics (physical distribution) involves planning,
implementing, and controlling the physical flow of goods, services, and
related information from points of origin to points of consumption to
meet consumer requirements at a profit

Figure 12.6: Supply Chain Management

Principles of Marketing _ Lai Vinh Phuc, MBA
V. Marketing Logistics and Supply Chain
Management
1. Nature and Importance of Marketing Logistics
b. Supply chain management is the process of managing upstream and
downstream value-added flows of materials, final goods, and related
information among suppliers, the company, resellers, and final
consumers (https://www.youtube.com/watch?v=gBRrG0-SA1I&t=64s)

Figure 12.6: Supply Chain Management

Principles of Marketing _ Lai Vinh Phuc, MBA
V. Marketing Logistics and Supply Chain
Management
2. Major Function of Logistics
a. Warehouse Decision: How many, What types, Where to locate, Warehouses,
Distribution centers.
b. Inventory Management: Just-in-time systems, RFID (Knowing exact product
location), Smart shelves (Placing orders automatically)
c. Transportation: affects the pricing of products, delivery performance, and
condition of the goods when they arrive (truck, rail, pipeline, air, water,
Internet)
d. Logistics information management is the management of the flow of
information, including customer orders, billing, inventory levels, and customer
data.
 Recap
 Supply Chains and the Value Delivery Network
 Channel Behavior and Organization
 Channel Design Decisions
 Channel Management Decisions
 Marketing Logistics & Supply Chain Management

Principles of Marketing _ Lai Vinh Phuc, MBA

 Next Week
Chapter 14: Communicating Customer Value: Integrated Marketing
Communications Strategy

Principles of Marketing _ Lai Vinh Phuc, MBA