Download Marketing Channels

Marketing Channels
Chapter 12, 13
Marketing Channels
Sets of interdependent organizations
involved in the process of making a
product or service available for use
or consumption.
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Why do they need the marketing
channel?
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Many producers lack the financial resources to
carry out direct marketing.
Producers who do establish their own channels
can often earn a greater return by increasing
investment in their main business.
In some cases direct marketing simply is not
feasible.
Intermediaries normally achieve superior
efficiency in making goods widely available and
accessible to target markets.
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Increasing Efficiency
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Nature & Importance of
Marketing Channels
• Channel choices affect other decisions in
the marketing mix
– Pricing, Marketing communications
• A strong distribution system can be a
competitive advantage
• Channel decisions involve long-term
commitments to other firms
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Nature & Importance of
Marketing Channels
• How Channel Members Add Value
– Intermediaries require fewer contacts to move
the product to the final purchaser.
– Intermediaries help match product assortment
demand with supply.
– Intermediaries help bridge major time, place,
and possession gaps that separate products
from those who would use them.
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Channel Member Functions
• Gather information
• Develop and disseminate persuasive
communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
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Marketing Channel Flows
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Consumer Marketing Channels
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Channel Design Decisions
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Step 1: Analyzing Consumer Needs
Lot size.
Waiting and delivery time.
Spatial convenience.
Product variety.
Service backup.
– Cost and feasibility of meeting needs must be
considered
• Step 2: Setting Channel Objectives
– Set channel objectives in terms of targeted level of
customer service
– Serving which segment by using which channel?
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Channel Design Decisions
• Step 3: Identifying Major Alternatives
– Types of intermediaries
• Company sales force, manufacturer’s
agency, industrial distributors
– Number of marketing intermediaries
• Intensive, selective, and exclusive
distribution
– Responsibilities of channel members
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Channel Design Decisions
• Step 4: Evaluating Major Alternatives
– Economic criteria
– Control issues
– Adaptive criteria
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The Value-Adds Versus Costs of Different
Channels
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Break-Even Chart for the Choice Between A
Company Sales Force and Manufacturer’s
Sales Agency
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Channel Management
Decisions
• Selecting Channel Members
– Identify characteristics
that distinguish the
best channel members
Years in business, Lines
carried, Growth and profit
record, Cooperativeness
and reputation, Type of
customer, location
• Evaluating Channel Members
– Performance should be
checked against
standards
– Channel members
should be rewarded or
replaced as dictated by
performance
• Managing and Motivating
Channel Members
– Partner relationship
management (PRM) is
key
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Retailing
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•Retailers Are
Classified By:
• Self-service retailers
Amount of service
Product lines
Relative prices
Organizational
approach
• Limited-service retailers
– Customers are willing to selfserve to save money
– Convenience stores and fast
moving shopping goods
– Most department stores
• Full-service retailers
– Salespeople assist customers
in every aspect of shopping
experience
– High-end department stores
and specialty stores
•Goal 2: Know the major types of retailers
Retailing
•Retailers Are
Classified By:
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Specialty stores
– Narrow product lines with deep
assortments
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Department stores
– Wide variety of product lines
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Amount of service
Product lines
Relative prices
Organizational
approach
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Supermarkets
Convenience stores
– Limited line
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Superstores
– Food, nonfood, and services
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Category killers
– Giant specialty stores
•Goal 2: Know the major types of retailers
Retailing
•Retailers Are
Classified By:
• Discount stores
– Low margins are offset by
high volume
• Off-price retailers
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Amount of service
Product lines
Relative prices
Organizational
approach
– Independent off-price retailers
• TJ Maxx, Marshall’s
– Factory outlets
• Levi Strauss, Reebok
– Warehouse clubs
• Sam’s Club, Costco
•Goal 2: Know the major types of retailers
Retailing
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•Retailers Are
Classified By:
– Commonly owned / controlled
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Amount of service
Product lines
Relative prices
Organizational
approach
Voluntary chains
– Wholesaler-sponsored groups of
independent retailers
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Corporate chain stores
Retailer cooperatives
– Groups of independent retailers
who buy in bulk
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Franchise organizations
– Based on something unique
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Merchandising conglomerates
– Diversified retailing lines and
forms under central ownership
•Goal 2: Know the major types of retailers
Definitions
• Wholesaling
– All activities involved in selling goods and
services to those buying for resale or
business use.
• Wholesaler
– A firm engaged primarily in wholesaling
activity.
•Goal 3: Know the major types of wholesalers
Wholesaling
• Wholesalers add value by performing the
following functions:
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Selling and promoting
Buying and assortment building
Bulk-breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and advice
•Goal 3: Know the major types of wholesalers
Wholesaling
• Trends in Wholesaling
– Price competition is still intense
– Successful wholesalers must add value by increasing
efficiency and effectiveness
– The distinction between large retailers and wholesalers
continues to blur
– More services will be provided to retailers
– Many wholesalers are going global
•Goal 3: Know the major types of wholesalers
Channel Integration and
System
• Channel Conflict
– Occurs when channel members disagree
on roles, activities, or rewards.
– Types of Conflict:
• Horizontal conflict: occurs among firms at
the same channel level
• Vertical conflict: occurs among firms at
different channel levels
Goal 1: Know why companies use channels and understand their functions
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Channel Integration and
System
• Conventional Distribution Channels
– Consists of one or more independent channel
members
– Lack leadership and power
– Often result in poor performance
• Vertical Marketing Systems
– Consists of members acting as a unified
system
– Use contracts, ownership or power
Goal 1: Know why companies use channels and understand their functions
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Channel Behavior
and Organization
Conventional
Marketing
Channel
Vertical
Marketing
System
Manufacturer
VS
Wholesaler
Retailer
Consumer
Wholesaler
Manufacturer
Retailer
Consumer
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Channel Behavior and
Organization
Vertical Marketing
Systems
• Corporate VMS
• Contractual VMS
• Administered VMS
• Corporation owns
production and
distribution
• Coordination and
conflict through
regular organizational
channels
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Channel Behavior and
Organization
Vertical Marketing
Systems
• Corporate VMS
• Contractual VMS
• Administered VMS
• Individual firms who join
through contracts
• Franchise organizations
– Manufacturersponsored retailer
franchise system
– Manufacturersponsored wholesaler
franchise system
– Service-firm-sponsored
retailer franchise
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system
Channel Behavior and
Organization
Vertical Marketing
Systems
• Corporate VMS
• Contractual VMS
• Administered VMS
• Leadership through
the size and power of
dominant channel
members
• Leadership could be
manufacturer or
retailer
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E-commerce
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E-commerce means that the company or
site offers to transact or facilitate the
selling of products and services online.
We can distinguish between pure-click
companies and brick-and-click
companies.
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Pure-Click Companies
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Search engines.
Internet Service Providers (ISPs).
Commerce sites.
Transaction sites.
The Internet is most useful for products and services when
the shopper seeks:
– Greater ordering convenience.
– Lower cost.
– When buyers need information about product features
and prices.
The Internet is less useful for:
Products that must be touched or examined in advance.
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Brick-and-Click Companies
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Adding an e-commerce channel creates the treat of a
backlash from retailers, brokers, agents, or other
intermediaries. ->channel conflict
There are at least three strategies for trying to gain
acceptance from intermediaries:
– Offer different brands or products on the Internet.
– Offer the off-line partners higher commissions to
cushion the negative impact on sales.
– Take orders on the Web site but have retailers
deliver and collect payment.
Some pure or predominately online companies have
invested in brick-and-mortar sites.
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Brick and Mortar stores’
response to the E-tailers.
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Exercise its power over manufacturers.
Focus on the natural advantages over etailers.
1) Products that consumers can actually see, touch, and
test.
2) Real-life customer service.
3) No delivery lag time.
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Unique and interesting shopping
experience.
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Private Labels
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A private label (also called reseller, store, house, or
distributor brands) is one retailer’s and wholesalers
develop.
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In the confrontation
between
manufacturers’ and
private label brands,
retailers have many
advantages and
increasing market
power.
Response of National
brand?
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