Place

Does it matter where you are sold?

What is a Marketing Channel?
A marketing channel system is the particular set of interdependent
organizations involved in the process of making a product or service
available for use or consumption.
 Supply Chains and the Value Delivery
Network

• This supply chain consists of upstream and downstream partners.

Upstream 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 marketing channel partners, such as wholesalers

and retailers, form a vital link between the firm and its
customers.
Nature and Importance of Marketing
Logistics
• Marketing logistics─also called physical distribution─involves
planning, implementing, and controlling the physical flow of
goods, services, and related information from points of origin
• to points
That is, it of consumption
involves to meet
entire supply customer requirements at a
chain
profit.
management─managing upstream and down stream value-
added flows of materials, final goods, and related information
• among suppliers,
Marketing logisticsthe company,
involves not resellers, and final
only outbound logistics
consumers.
(moving products from the factory to resellers and ultimately
to customers) but also inbound logistics (moving products
and materials from suppliers to the factory) and reverse
logistics (reusing, recycling, refurbishing, or disposing of
broken, unwanted, or excess products returned by consumers
or resellers).
Why companies need marketing channel??
• Many producers lack financial resources.
• Direct marketing is not possible for some products
• Can earn greater return by increasing investment in the main
business.
• Intermediaries normally achieve superior efficiency
How Channel Members Add Value
Why do producers give some of the selling
job to channel partners?
Matchi
ng
Physic
al Promo
distrib tion
ution
Risk Negoti Inform
taking
From economic system’s point ofation Marketing channel
ationmembers buy
view, the role of marketing
Financ large quantities from many
Contac
intermediaries is to transform
ing the producers and break them down
t
assortments of products made by into the smaller quantities and
producers into the assortments broader assortments desired by
wanted by consumers. consumers.
Marketing Channel Management Affects
Other Aspects of Marketing
Fulfilling delivery promises

Meeting customer expectations

Reliant on an efficient supply chain

Courtesy Zara International, Inc. Courtesy Zara International, Inc.

Number of Channel Levels
• Each layer
• Thisofshows
marketing intermediaries that performs some work in
some common
bringing business
the product and its owner ship closer to the final buyer is a
distribution
channel channels.
level.
• The business marketer
The remaining channels are
Channel
can use its own sales force1, called a direct
indirect marketing channels,
marketing
to sell directly to business channel, has no
containing one or more
customers. intermediary levels ─ the
intermediaries.
company sells directly to
• Or it can sell to various
consumers.
types of intermediaries,
who in turn sell to these
customers.
Vertical Marketing Systems
• A conventional distribution
channel
Corporate VMSconsists of one or
more independent producers, Administered
wholesalers,
It integrates and retailers.
successive stages of
The franchise VMS
organization is a
• Each is and
production a separate business
distribution under single
contractual vertical marketing system in
owner seeking
ship. to maximize which • Leadership
its owna channel is assumed
member, called a not
profits, perhaps evenfranchisor, through
at the • links common
several stagesownership
in the or
A vertical marketing
contractual ties but systemthe
through
expense of the system as a
production-distribution process.
Contractual VMS
whole. size and power ofofone
(VMS) consists producers,
or a few
wholesalers,
dominant and retailers
channel members.
It consists of independent firms at acting as a unified system.
• Manufacturers of a top brand can
different levels of production and • One channel member owns
obtain strong trade cooperation
distribution who join together through thesupport
others, from
has contracts
and resellers.with
contracts to obtain more economies or them, or wields so much
sales impact than each could achieve power that they must all
alone. cooperate.
Horizontal Marketing Systems
• Another channel development is the horizontal marketing system, 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.
Multichannel Distribution Systems
• Multichannel distribution system is a distribution system in which a
single firm sets up two or more marketing channels to reach one or
more customer segments.
• Multichannel distribution systems offer many advantages to
companies facing large and complex markets.
Power

Power

Reward Coercive Referent Expertise Information Legitimate

Channel Design Decisions
• Marketing channel design calls for analyzing consumer needs, setting
channel objectives, identifying major channel alternatives, and
evaluating those alternatives.

Identifyin Analyzing
g major consumer
alternativ needs
es

Setting
channel
objectives
Analyzing Consumer Needs
Designing a
Marketing Channel System
Step 1: Analyze customer need
• Lot size
• Waiting/delivery time
• Spatial convenience
• Product variety
• Service backup
Setting Channel Objectives
• In some cases, a company may
• want tochannel
The company’s compete inobjectives
or near the are also influenced by the following
things: same outlets that carry
competitors’ products.
• In other cases, companies may
avoid the channels used by
competitors.
The nature of the Marketing
Products
company intermediaries

• Finally, environmental factors

Competitors such Environment
as economic conditions and
legal constraints may affect
channel objectives and design.
Identifying Major Alternatives
• Three major channel alternatives:

Responsibil
Types of Number of ities of
intermedia intermedia each
ries ries channel
member
Types• Until
of recently,
Intermediaries
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 and Apple, Dell now sells indirectly through retailers such
Best Buy, Staples, and Walmart.

• It also sells indirectly through value-added resellers, independent

distributors and dealers who develop computer systems and
applications tailored to the special needs of small- and medium-
sized business customers.
• For example, by selling through retailers and value-added
resellers in addition to its own direct channels, Dell can reach
more and different kinds of buyers.
Number of Marketing Intermediaries

• A strategy in which they stock their products in

Intensive as many outlets as possible.
• These products must be available where and
Distribution when consumers want them.

• The producer gives only a limited number of

Exclusive dealers the exclusive right to distribute its
products in their territories.
Distribution • It’s often found in the distribution of luxury
brands.

• The use of more than one but fewer than all of

Selective the intermediaries who are willing to carry a
company’s products.
Distribution • Most television, furniture, and home appliance
brands are distributed in this manner.
 Responsibilities of Channel Members

• The producer and the intermediaries need to agree on the terms and
responsibilities of each channel member.
• They should agree on price policies, conditions of sale, territory rights,
and the specific services to be performed by each party.
Evaluating the Major Alternatives
• Suppose a company has identified several channel alternatives and
wants to select the one that will best satisfy its long-run objectives.
• Each alternative should be evaluated against economic, control, and
adaptability criteria.

• Finally, the company must apply adaptability criteria.

• Channels often involve long-term commitments, yet the company
wants to keep the channel flexible so that it can adapt to
environmental changes.
• Thus, to be considered, a channel involving long-term commitments
should be greatly superior on economic and control grounds.
Channel Management Decisions
• Marketing channel management calls for selecting, managing, and
Marketing
motivating individual channel members
channel and evaluating their
performance over time. management

Managing and Evaluating

Selecting
motivating their
members
members performance
Goals of the Logistics System
• Some companies state their logistics objective as providing maximum customer
service at the least cost.
• Unfortunately, no logistics system can both maximize customer service and
minimize distribution costs.
The goal of marketing
logistics should be to A company must first research
provide a targeted level of the importance of various
customer service at the distribution services to
least cost. customers and then set desired
service levels for each
segment.
Major Logistics Functions

Inventory
Warehousing
Management

Logistics
Transportation Information
Management
Warehousing
• A company must decide on how many and what types of warehouses it needs
and where they will be located.
• Storage warehouses store goods for moderate to long periods.
• In contrast, distribution center are designed to move goods rather than just store
them.
• They are large and highly automated warehouses designed to receive goods from
various plants and suppliers, take orders, fill them efficiently, and deliver goods to
customers as quickly as possible.
Inventory Management
• Inventory management also affects customer satisfaction.
• Here, managers must maintain the delicate balance
between carrying too little inventory and carrying too much.
• Thus, in managing inventory, firms must balance the costs
• of carrying larger
Companies using inventories
RFID know, against resulting
at any time, sales
exactly and a
where
profits.
product is located physically within the supply chain.
•• Many
“Smartcompanies have greatly
shelves” would not onlyreduced their
tell them inventories
when it’s timeand
to
related
reordercosts through
but also placejust-in-time logistics systems.
the order automatically with their
suppliers.
• Such exciting new information technology are
revolutionizing distribution as we know it.
• Many large and resourceful marketing companies, such as
Walmart, P&G, Kraft, IBM, and HP are investing heavily to
make the full use of RFID technology a reality.
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.
• The company can choose five main transportation modes:

Truck Rail Water Pipeline Air Internet

Logistics Information Management
• Information can be shared and managed in many ways, but most sharing takes
place through electronic data interchange (EDI), the digital exchange of data
between organizations, which primarily is transmitted via the Internet.
• Many large retailers work closely with major suppliers to set up vendor-managed
inventory (VMI) systems or continuous inventory replenishment systems.
Channel Behavior
Such disagreements over
goals, roles, and rewards
• A marketing channel consists of firms
generate channel that have partnered for their
conflict.
common goal.
• Each channel member depends on the others.
• Although channel members depend on one another, they often act
alone in their own short-run best interests.
• They often disagree on who should do what and for what rewards.

Vertical conflict, conflict

Horizontal conflict, occurs
between different levels of
among firms at the same
the same channel, is even
level of the channel.
more common.
Causes of Channel Conflict
Goal incompatibility

Unclear roles and rights

Differences in perception

Intermediaries’ dependence
on the manufacturer
Strategies for Managing Channel Conflict

• Adoption of superordinate goals

• Exchange
Diplomacyof employees
• Joint membership in trade associations
Mediation
• Arbitration
• Legal recourse
Managing Marketing Channels and Supply Chains Through
Strategic Relationships

Common Goals

Open Interdependenc
Communications e

Strategic Credible
Mutual Trust
Relationships Commitments
RETAILING AND OMNICHANNEL MARKETING
Factors for Establishing
a Relationship with Retailers

Choosing Identifying Developing a Managing a

retailing types of retail omnichannel
partners Retailers strategy strategy
Choosing Retail Partners
Channel Structure

Degree of vertical
integration

Manufacturers brand

Power of
manufacturer and
retailer
©M Hruby
Choosing Retail Partners
Channel Member Characteristics

Larger firms

Less likely to use

supply chain
intermediaries

Can gain more

control, be more
efficient, and save
money.
Choosing Retail Partners
Distribution Intensity

©Jeff Greenberg/PhotoEdit
Intensive

Exclusive

©Susan Van Etten/PhotoEdit

Selective
Types of Retailers
Food Retailers
Warehouse Convenience
Supermarket Supercenter Club Store

Includes discount Limited

Limited nonfood Limited variety
store assortment

Differentiates Little service

Wal-Mart, Meijer,
different types of Includes: Good locations
K-Mart, Target
foods Costco, Sams, BJ’s
General Merchandise Retailers
Department Stores • Broad variety and deep assortment

Full-line Discount • Broad variety at low prices

Specialty • Limited merchandise with service in small store

Drugstores • Specialty for pharmaceutical and heath

Category Specialist • Discount with narrow but deep assortment

Extreme value • Full line, limited, very low prices

Off-Price • Inconsistent assortment of brand name at low prices

Services Retailers

Firms that primarily sell

services rather than
merchandise, are a large
and growing part of the
retail industry

Ryan McVay/Getty Images

Developing a Retail Strategy
Using the Four P’s: Product

AP Photo/David Kohl

Providing the right mix of merchandise and services

Price

Price defines the

value of both the
merchandise and
the service
provided

Courtesy DDB - London

Walmart’s
Profits Drop
Promotion

AP Photo/MarkHumphrey
Retailers use a wide variety
Courtesy Bass Pro Shops

of promotions, both within

their retail environment and
through mass media
Place

©M Hruby

Convenience is a key
ingredient to success The McGraw-Hill Companies, Inc/
Jill Braaten, photographer
Benefits of Stores for Consumers
Browsing

Touching and Feeling

Personal Service

Cash and Credit

Entertainment and Social Interaction

Instant Gratification

Risk Reduction
Benefits of the Internet and
Omnichannel Retailing
Deeper and Broader Selection

Personalization
• Gain Insights into Consumer Shopping Behavior
• Increase Customer Satisfaction and Loyalty

Expand Market Presence

Effective Omnichannel Retailing

Integrated Brand
CRM Image

Supply
Pricing
Chain