Marketing channels: delivering customer value

COURSE #10

Daniela Ionita,
Associate Professor - Marketing Department
Objectives
1. Explain why companies use marketing
channels and discuss the functions these
channels perform
2. Discuss how channel members interact and
how they organize to perform the work of the
channel
3. Explain the role of retailers in the distribution
channel and describe the major types of
retailers
The nature and importance of
marketing channels

Few producers sell their goods directly to final

users. Instead, most use intermediaries to bring
their products to market.

Marketing channel (or distribution channel) is a

set of interdependent organizations that help
make a product or service available for use or
consumption by the consumer or business user.
Value delivery network

Upstream partners Downstream

(firms that supply raw partners
materials, components,
parts, information, Company (firms that look toward
finances, and expertise the customer, including
needed to create a retailers and
product or service) wholesalers)
How channel members add value
How channel members add value
• Transform the For example, Unilever makes
millions of bars of Dove hand soap
assortment of products each week. However, you most
likely only want to buy a few bars at
into assortments a time. Therefore, big retailers buy
Dove by the truck-load and stock it
wanted by consumers on their stores’ shelves. In turn, you
can buy a single bar of soap along
• Bridge the major time, with a shopping cart full of small
quantities of toothpaste, shampoo,
place, and possession and other related products, as you
gaps that separate need them. Thus, intermediaries
play an important role in matching
goods and services from supply and demand.

users
Key functions performed by channel
members

Information Promotion Contact

Physical
Matching Negotiation
distribution

Financing Risk taking

Number of channel levels
Flows in a marketing channel
Channel behavior and organization

Marketing channels consist of firms that have

partnered for their common good with each
member playing a specialized role.
Channel conflict refers to disagreement among
channel members over goals, roles, and
rewards.
• Horizontal conflict
• Vertical conflict
Horizontal or vertical conflict?
 Channel organization: conventional vs
vertical marketing systems
Conventional distribution Vertical marketing systems
systems consist of one or provide channel leadership
more independent and consist of producers,
producers, wholesalers, wholesalers, and retailers
and retailers, each acting as a unified system.
separate business seeking  Corporate marketing
to maximize its own systems
profits, perhaps even at  Contractual marketing
the expense of profits for systems
the system as a whole.  Administered marketing
systems
 Conventional vs
vertical marketing
systems
Vertical marketing systems
Contractual vertical marketing
Corporate vertical marketing
systems
systems
consist of independent firms at
combine successive stages of
different levels of production
production and distribution
and distribution who join
under single ownership
together through contracts

An administered vertical
marketing system
coordinates successive stages of
production and distribution
through the size and power of
one of the parties.
Corporate, contractual or
administered VMS?
Horizontal marketing systems

Horizontal marketing
system - a channel
arrangement in which A great example of horizontal marketing systems is
two or more how Apple and Starbucks announced music
partnership in 2007. The purpose of this
companies at one level partnership was to allow Starbucks customers to
join together to follow wirelessly browse, search for, preview, buy, and
download music from iTunes Music Store onto their
a new marketing iPod touch, iPhone, or PC or Mac running iTunes.
opportunity. Apple’s leadership in digital music together with the
unique Starbucks experience synergized a
partnership to offer customers a world class digital
music experience.
Multichannel distribution systems are systems in
which a single firm sets up two or more marketing
channels to reach one or more customer segments.
Changing channel organization

• Disintermediation is
the cutting out of
marketing channel
intermediaries by
producers or the
displacement of
traditional resellers by
new intermediaries.
What is retailing?

Retailing includes all the activities in selling

goods or services directly to final consumers
for their personal, non-business use.
Many institutions—manufacturers, wholesalers,
and retailers—do retailing. But most retailing
is done by retailers, businesses whose sales
come primarily from retailing.
Shopper marketing – using in-
store promotions and advertising
to extend brand equity to “the last
mile” and encourage favourable
point-of-purchase decisions.
– 70% of brand selections are made at
stores
– 68% of buying decisions are
unplanned
– 5% are loyal to one brand of the
product group
– “First Moment of Truth”—the
critical three to seven seconds that a
shopper considers a product on a
store shelf.
Types of retailers

Amount of service

Product lines

Relative prices

Organization
 Amount of service classifications

Different types of Self-service retailers: serve customers

who are willing to perform their own locate-
customers and compare-select process to save money.
products require
different amounts
of service. To meet Limited service retailers provide
more sales assistance because they carry
these varying more shopping goods about which customers
need more information.
service needs,
retailers may offer Full service retailers assist customers
in every phase of the shopping process,
one of three resulting in higher costs that are passed on to
service levels. the customer as higher prices. Examples
include department stores and specialty
stores.
Product line classifications
Specialty stores

Department stores

Convenience stores

Superstores

Category killers
Major store retailer types
Galeries Lafayette
Mega Image
Parndorf, Designer Outlet