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The Nature of Marketing Channels • Distribution –The activities that make products available to customers when and where they want to purchase them • Marketing Channel –A group of individuals and organizations directing products from producers to customers –Producer to –Sams Club to –Consumer Copyright © Houghton Mifflin Company. All rights reserved. 14–1 Copyright © Houghton Mifflin Company. All rights reserved. 14–2 The Nature of Marketing Channels (cont’d) • Marketing Intermediary –A middleman(person!) linking producers to other middlemen(people!) or to ultimate consumers through contractual arrangements or through the purchase and resale of products Producer Direct Channel Customer Indirect Channel Producer Intermediary Copyright © Houghton Mifflin Company. All rights reserved. Customer 14–3 The Nature of Marketing Channels (cont’d) • Marketing Channels Create Utility –Time utility: have products available when the customer wants them (newspaper delivery). –Place utility: making products available in locations where the customers wish to purchase them (convenience stores). –Possession utility: the customer has access to the product to use or to store for future use (raincoats). Copyright © Houghton Mifflin Company. All rights reserved. 14–4 The Nature of Marketing Channels (cont’d) • Marketing Channels Facilitate Exchange Efficiencies –Reduce the overall costs of market exchanges • Is direct or intermediary cheaper? Hmmmm. –Reduce search costs for customers • Look at several laptops at Best Buy –Maintain order in the marketplace See next slide! Copyright © Houghton Mifflin Company. All rights reserved. 14–5 Efficiency in Exchanges Provided by an Intermediary FIGURE 14.1 Copyright © Houghton Mifflin Company. All rights reserved. 14–6 Marketing Channels Form a Supply Chain • Supply Chain Management (big buzzword) –Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers –Table 14.2: • Planning • Sourcing • Facilitating • Relationship building Copyright © Houghton Mifflin Company. All rights reserved. 14–7 Typical Marketing Channels for Consumer Products FIGURE 14.2 Copyright © Houghton Mifflin Company. All rights reserved. 14–8 Typical Marketing Channels for Business Products FIGURE 14.3 Copyright © Houghton Mifflin Company. All rights reserved. 14–9 Multiple Marketing Channels and Channel Alliances • Dual Distribution –The use of two or more channels to distribute the same product to the same target market –Gateway computers direct to consumer –Gateway to Gateway Country Stores to consumer • Strategic Channel Alliance –An agreement whereby the products of one organization are distributed through the marketing channels of another –Distributing bottled water via soft drink channels Copyright © Houghton Mifflin Company. All rights reserved. 14–10 Intensity of Market Coverage • Intensive Distribution –Using all available outlets to distribute a product. • Convenience products with high replacement rates –Provides availability and reduces search time –Availability is more important than outlet type Copyright © Houghton Mifflin Company. All rights reserved. 14–11 Intensity of Market Coverage (cont’d) • Selective Distribution –Using only some available outlets to distribute a product • Shopping products and durable goods with low replacement rates –High qualification requirements for intermediaries to distribute, sell, service, and support products Tuscaloosa’s Only Authorized Dealer • Car dealerships Copyright © Houghton Mifflin Company. All rights reserved. 14–12 Intensity of Market Coverage (cont’d) • Exclusive Distribution –Using a single outlet in a fairly large geographic area to distribute a product • Expensive, high-quality products purchased infrequently –Exclusive outlets provide an incentive to sellers in limited markets. –Dealers carry complete inventory and have trained staff for sales and service. • Harley Davidson Copyright © Houghton Mifflin Company. All rights reserved. 14–13 Supply Chain Management: Channel Leadership • Channel Captain –The dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain • Establishes channel policies and coordinates development of the marketing mix • Walmart (used to be P&G) • Channel Power –The ability of one channel member to influence another member’s goal achievement Copyright © Houghton Mifflin Company. All rights reserved. 14–14 Supply Chain Management: Channel Cooperation • Benefits of Cooperation –Speeds up inventory replacement • Capitalize on fast-selling fashion trends –Improves customer service –Reduces distribution costs Copyright © Houghton Mifflin Company. All rights reserved. 14–15 Supply Chain Management: Channel Conflict • Sources of Channel Conflict –Disagreements arising among channel members –Communication difficulties jeopardizing coordination –Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers • Wine distributors vs. direct! –Intermediaries diversifying into and offering competing products –Producers attempting to circumvent intermediaries and dealing directly with retailers • Offering Goodyear tires at Sears Copyright © Houghton Mifflin Company. All rights reserved. 14–16 Supply Chain Management: Channel Integration • Vertical Channel Integration –Two or more stages of the marketing channel are under one management. • Sherwin-Williams –Channel members coordinate their efforts to reach a target market. • Vertical Marketing System (VMS) –A marketing channel managed by a single channel member to achieve efficient, low-cost distribution Copyright © Houghton Mifflin Company. All rights reserved. 14–17 Legal Issues in Channel Management • Restricted Sales Territories –Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade. • Tying Arrangements –Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier Copyright © Houghton Mifflin Company. All rights reserved. 14–18 Legal Issues in Channel Management (cont’d) • Full-Line Forcing –Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products • Exclusive Dealing –Forbidding an intermediary to carry products of a competing manufacturer –Is anticompetitive if • blocking competitors from 10% of the market • sales revenues are sizable • the manufacturer is larger than the dealer Copyright © Houghton Mifflin Company. All rights reserved. 14–19