Week 6 – Marketing Principles

Place
Marketing Channels: Delivering Customer Value

What is Place/Marketing Channel/Distribution Channel?

●Supply Chain

A system of efficiently and effectively producing, making and getting products to end-users.

A 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

Value Delivery Network: The network made up of the marketing organization, suppliers, distributors and
ultimately, customers who partner with each other to improve the performance of the entire system in
delivering customer value.

●Marketing channels

A network of interdependent organizations - intermediaries - involved in the process of making goods

and services available for use or consumption by the consumer or business user.

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.

A company’s channel decisions directly affect every other marketing decision.

-Pricing depends on whether the company works with national discount chains, uses high-quality
specialty stores, or sells directly to consumers via the Web.

-The firm’s sales force and communications decisions also depend on how much persuasion, training,
motivation, and support its channel partners need.

-Dislike other marketing mix elements, Distribution channel (or Place) decisions often involve long-term
commitments to other firms.

●How marketing channels add values

The role of marketing intermediaries is to transform the assortments of products made by producers
into the assortments wanted by consumers.

Functions of marketing channel members: Information – Promotion – Contact - Matching - Negotiation

-Facilitating the completion of transactions - Physical distribution - Financing-Risk taking

●Number of Channel Levels

Channel level is a layer of intermediaries who perform some work in bringing the product and its
ownership closer to the final buyer. The number of intermediary levels indicates the length of a channel.

Types of distribution channels of different lengths:

-A direct marketing channel has no intermediary levels. It consists of a manufacturer selling directly to
consumers.

-An indirect marketing channel contains one or more intermediaries.

From the producer’s point of view, a greater number of levels mean less control and greater channel
complexity. 

Channel Behavior and Channel Organization

●Channel Behaviors

Channel Conflict: Disagreements among marketing channel members on goals, roles and rewards - that
is, on who should do what and for what rewards

-Horizontal conflicts occur among firms at the same level of the channel.

-Vertical conflicts occur between different levels of the same channel.

●Channel Organization

Conventional Vertical Marketing Horizontal Marketing Multichannel

Marketing Channels Networks (VMNS) Networks Distribution Networks
Corporate VMN
Contractual VMN
Administered VMN

●Conventional Marketing Channel

A Conventional Marketing Channel consists of one or more independent producers, wholesalers and
retailers, each channel member is a separate business seeking to maximize its own profits, perhaps even
at the expense of profits for the system as a whole.

Historically, conventional distribution channels have lacked such leadership and power, often resulting
in damaging conflict and poor performance.

●Vertical Marketing Network (VMN)

Vertical Marketing Network (VMN) a distribution channel structure in which producers, wholesalers and
retailers act as a unified network; one channel member owns the others, has contracts with them or
wields so much power that all channel members cooperate.

-In a Corporate VMN, coordination and conflict management are attained through common ownership
at different levels of the channel

-In a Contractual VMN, they are attained through contractual agreements among channel members.

-In an Administered VMN, leadership is assumed by one or a few dominant channel members.

Corporate VMN: A vertical marketing network that combines successive stages of production and
distribution under single ownership; channel leadership is established through common ownership.

Contractual VMN:

Consists of independent firms at different levels of production and distribution who join together
through contracts to obtain more economies or sales impact than each could achieve alone.

The most common form is the franchise organization. In this type of network, a channel member, called
a franchisor, links several stages in the production – distribution process. There are different forms of
franchises, such as:

-Manufacturer-sponsored retailer franchise networks

-Service-firm-sponsored retailer franchise networks, in which a service firm licenses a network of

retailers to bring its service to consumers

Administered VMN: A vertical marketing network that coordinates successive stages of production and
distribution - not through common ownership or contractual ties but through the size and power of one
of the dominant channel members.

●Horizontal Marketing Network

Happens when two or more companies at one level join together to follow a new marketing
opportunity. By working together, companies can combine their financial, production, or marketing
resources to accomplish more than any one company could alone.

●Multichannel Distribution Network

A multichannel distribution system in which a single firm sets up two or more marketing channels to
reach one or more marketing segments.

●Changing Channel Organization

Changes in technology and the explosive growth of direct and online marketing are having a profound
impact on the nature and design of marketing channels. One major trend is towards disintermediation. 

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.
Channel Design and Management Decisions
●Marketing Channel Design

Marketing channel design calls for:

1.Analyzing consumer needs

2.Setting channel objectives

3.Identifying major channel alternatives

4.Evaluating those alternatives

●Setting Channel Objectives

Companies should state their marketing channel objectives in terms of targeted levels of customer
service

The company should decide which segments to serve and the best channels to use in each case.

The company’s channel objectives are influenced by the nature of the company, its products, its
marketing intermediaries, its competitors, and the environment.

Environmental factors such as economic conditions and legal constraints may affect channel objectives
and design.

●Identifying Major Alternatives

Types of Intermediaries: A firm should identify the types of channel members available to carry out its
channel work.

Number of Marketing Intermediaries: Companies must also determine the number of channel members
to use at each level.

●Distribution Strategies

Intensive distribution: Ideal for producers of convenience products and common raw materials. It is a
strategy in which they stock their products in as many outlets as possible.

Exclusive distribution: when producers purposely limit the number of intermediaries handling their
products. The producer gives only a limited number of dealers the exclusive right to distribute its
products in their territories.

Selective distribution: the use of more than one, but fewer than all, of the intermediaries who are willing
to carry a company’s products.