MARKETING CHANNELS

Chapter 10
Prepared by: Cheryl Y. Dulay
A. MARKETING • Producing a product or service and making it
CHANNELS available to buyers requires building
relationships not only with customers but also
AND VALUE with key suppliers and resellers in the
NETWORKS company’s supply chain.
This supply chain consists:
Upstream partners from the
company is the set of firms that
supply the raw materials,
components, parts, information,
finances, and expertise needed
to create a product or service.
Downstream partners side of the
supply chain—on the marketing
channels (or distribution
channels) that look toward the
customer.
Ex. wholesalers and retailers
• Supply chain may be too limited—it takes a make-
and-sell view of the business.
• It suggests that raw materials, productive inputs,
and factory capacity should serve as the starting
point for market planning.
• A better term would be demand chain because it
suggests a sense-and-respond view of the market.
• Under this view, planning starts by identifying the
needs of target customers, to which the company
responds by organizing a chain of resources and
activities with the goal of creating customer value.
Value Delivery Network

is made up of the company,

suppliers, distributors, and,
ultimately, customers who
“partner” with each other to
improve the performance of
the entire system.
 The Nature and Importance
of
Marketing Channels

• a set of interdependent
organizations that help make
a product or service available
for use or consumption by the
consumer or business user
• firm’s sales force and
communications decisions
depend on how much
persuasion, training,
motivation, and support its
channel partners need
B. THE ROLE OF
How Channel Members Add Value

MARKETING • Information: Gathering and distributing

marketing research and intelligence

CHANNELS
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.
•
Number of Channel Levels
• companies can design their
distribution channels to make
products and services available
to customers in different ways.
• Each layer of marketing
intermediaries that performs
some work in bringing the
product and its ownership
closer to the final buyer is a
channel level. Because both
the producer and the final
consumer perform some work,
they are part of every channel.
C. CHANNEL INTEGRATION
AND SYSTEMS
• Channel Behavior and Organization
complex behavioral systems in which
people and companies interact to
accomplish individual, company, and
channel goals.
Some channel systems consist of only
informal interactions among loosely
organized firms.
Others consist of formal interactions
guided by strong organizational structures.
Moreover, channel systems do not stand
still; new types of intermediaries emerge,
and whole new channel systems evolve.
Channel Conflict

Disagreement among marketing

channel members on goals, roles, and
rewards— who should do what and for
what rewards.
 Channel Behavior
• Horizontal conflict occurs among firms
at the same level of the channel.
• Holiday Inn franchisees might complain
about other Holiday Inn operators
overcharging guests or giving poor
service, hurting the overall Holiday Inn
image.

• Vertical conflict, conflicts between

different levels of the same channel, is
even more common
• Burger King has had a steady stream of
conflicts with its franchised dealers over
everything from increased ad spending
and offensive ads to the prices it charges
for cheeseburgers. At issue is the chain’s
right to dictate policies to franchisees.
 Vertical Marketing
Systems (VMS)
• consists of producers,
wholesalers, and retailers acting
as a unified system. One channel
member owns the others, has
contracts with them, or wields so
much power that they must all
cooperate. The VMS can be
dominated by the producer, the
wholesaler, or the retailer.
• three major types of VMSs: corporate, contractual, and
administered. Each uses a different means for setting up
leadership and power in the channel.
Horizontal Marketing Systems
• in which 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.
• Companies might join forces with competitors
or non- competitors. They might work with
each other on a temporary or permanent
basis, or they may create a separate
company.
For example, McDonald’s places “express”
versions of its restaurants in Walmart stores.
McDonald’s benefits from Walmart’s heavy store
traffic, and Walmart keeps hungry shoppers from
needing to go elsewhere to eat.
Multichannel Distribution Systems
• occurs when a single firm sets up two or more marketing
channels to reach one or more customer 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 toward
disintermediation—a big term with a clear message and
important consequences. 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 Decisions

• designing marketing channels, manufacturers

struggle between what is ideal and what is
practical. A new firm with limited capital usually
starts by selling in a limited market area. Deciding
on the best channels might not be a problem: The
problem might simply be how to convince one or
a few good intermediaries to handle the line.
Identifying Major Alternatives

• channel alternatives in
terms of the types of
intermediaries, the number
of intermediaries, and the
responsibilities of each
channel member.
Types of Intermediaries

• Most companies face many channel

member choices. For example, until
recently, Dell sold directly to final
consumers and business buyers only
through its sophisticated phone and
Internet marketing channel.
• It also sold directly to large corporate,
institutional, and government buyers using
its direct sales force. However, to reach
more consumers and match competitors
such as HP, Dell now sells indirectly
through retailers such as Best Buy, Staples,
and Walmart.
Designing International
Distribution Channels

• Each country has its own

unique distribution system that
has evolved over time and
changes very slowly. These
channel systems can vary
widely from country to country.
Thus, global marketers must
usually adapt their channel
strategies to the existing
structures within each country.
Channel Management Decisions

• Once the company has

reviewed its channel
alternatives and determined the
best channel design, it must
implement and manage the
chosen channel.
• Marketing channel
management calls for selecting,
managing, and motivating
individual channel members
and evaluating their
performance over time.
Selecting Channel
Members
• Producers vary in their ability to
attract qualified marketing
intermediaries. Some producers
have no trouble signing up
channel members. For example,
when Toyota first introduced its
Lexus line in the United States, it
had no trouble attracting new
dealers. In fact, it had to turn
down many would-be resellers.
• At the other extreme are
producers who have to work
hard to line up enough qualified
intermediaries. For example,
when Timex first tried to sell its
inexpensive watches through
regular jewelry stores, most
jewelry stores refused to carry
them.
 Managing and Motivating Channel Members

• They practice strong partner relationship management

(PRM) to forge long-term partnerships with channel
members.
• This creates a value delivery system that meets the needs
of both the company and its marketing partners.
Public Policy and Distribution Decisions

• the laws affecting channels seek to prevent the exclusionary tactics of some
companies that might keep another company from using a desired channel. Most
channel law deals with the mutual rights and duties of channel members once they
have formed a relationship.
• Many producers and wholesalers like to develop exclusive channels for their
products. When the seller allows only certain outlets to carry its products, this strategy
is called exclusive distribution. When the seller requires that these dealers not handle
competitors’ products, its strategy is called exclusive dealing
D. E-COMMERCE
MARKETING PRACTICES
Marketing Logistics
and Supply Chain Management

Logistics effectiveness has a major impact on both

customer satisfaction and company costs. Here we
consider the nature and importance of logistics
management in the supply chain, the goals of the
logistics system, major logistics functions, and the need for
integrated supply chain management.
Nature and Importance of
Marketing Logistics

• planning, implementing, and controlling the physical

flow of goods, services, and related information from
points of origin to points of consumption to meet
customer requirements at a profit.
• In short, it involves getting the right product to the right
customer in the right place at the right time.
Goals of the Logistics System

• providing maximum customer service at the least cost. Maximum customer

service implies rapid delivery, large inventories, flexible assortments, liberal
returns policies, and other services—all of which raise distribution costs.
• In contrast, minimum distribution costs imply slower delivery, smaller inventories,
and larger shipping lots—which represent a lower level of overall customer
service.
• The goal of marketing logistics should be to provide a targeted level of customer
service at the least cost.
• A company must first research the importance of various distribution services to
customers and then set desired service levels for each segment.
• MAJOR LOGISTICS FUNCTIONS

• Given a set of logistics

objectives, the company is
ready to design a logistics
system that will minimize the
cost of attaining these
objectives.
• The major logistics functions
include warehousing, inventory
management, transportation,
and logistics information
management.
• Warehousing

• Production and consumption cycles

rarely match, so most companies
must store their goods while they wait
to be sold.
• The storage function overcomes
differences in needed quantities and
timing, ensuring that products are
available when customers are ready
to buy them.
• Inventory Management

• affects customer satisfaction.

• Here, managers must maintain the delicate

balance between carrying too little inventory and
carrying too much. With too little stock, the firm risks
not having products when customers want to buy.

• To remedy this, the firm may need costly

emergency shipments or production. Carrying too
much inventory results in higher-than-necessary
inventory-carrying costs and stock obsolescence.

• Thus, in managing inventory, firms must balance the

costs of carrying larger inventories against resulting
sales and profits.
• Transportation

• The choice of transportation carriers affects the

pricing of products, delivery performance, and
the condition of goods when they arrive—all of
which will affect customer satisfaction.

• In shipping goods to its warehouses, dealers,

and customers, the company can choose
among five main transportation modes: truck,
rail, water, pipeline, and air, along with an
alternative mode for digital products—the
Internet.
• Logistics Information Management

• Companies manage their supply chains through

information.

• Channel partners often link up to share

information and make better joint logistics
decisions.

• From a logistics perspective, flows of information,

such as customer transactions, billing, shipment
and inventory levels, and even customer data,
are closely linked to channel performance.
• Companies need simple, accessible, fast, and
accurate processes for capturing, processing, and
sharing channel information.
• End