Download Chapter 12 – Marketing Channels PPT

Chapter 12 – Marketing Channels PPT
CHANNELS
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Marketing channel first used to describe a trade channel bridging producers and users
The term “middleman” came into being as a result of this notion
Marketing channels serve as exchange facilitators
Distribution channel
Manufacturing  wholesaler  retailer  consumer
The growing importance of marketing channels
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more difficult to obtain a sustainable competitive advantage
distributors and retailers gaining power
focus on reducing distribution costs
increasing role of technology
Supply chains
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supply chain: “make and sell” view includes the firm’s raw materials, productive
inputs, and factory capacity
demand chain: “sense and respond” view suggests that planning starts with the needs
of the target customer
THE NATURE AND IMPORTANCE OF MARKETING CHANNELS
Marketing channel
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Is a set of interdependent organizations that help make a product or service available
for use or consumption by the consumer or business user
How channel members add value
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Transform the assortment of products into assortments wanted by consumers
Bridge the major time, place and possession gaps that separate goods and services
from users
SPECIALIZATION AND DIVISION OF LABOUR
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Specialise in what you are good at
Pay others who are better at other tasks
Contactual efficiency (deal with fewer contact points)
o The use of intermediaries (almost always) will increase contactual efficiency
ECONOMIES OF SCALE
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Most businesses have an optimal size (or structure) that results in the lowest total
average cost
o As firms vary in size, their level of efficiency varies
Many channels functions are outsourced because of this
o Shipping companies tend to be very large, most companies would have much
higher shipping costs if they tried to handle shipping on their own
o Small companies cannot afford to hire salespeople, so they find a sales rep who
sales products for several companies
FLOWS IN MARKETING CHANNEL
1. Product (physical) flows
a. Manufacturer
b. Transportation company
c. Wholesalers
d. Retailers
e. Consumers
2. Negotiation / payment flows
a. Manufacturer
b. Wholesalers
c. Retailers
d. consumers
3. Ownership (title) flows
a. Manufacturer
b. Wholesalers
c. Retailers
d. Consumers
4. Information flows
a. Manufacturer
b. Transportation company
c. Wholesalers
d. Retailers
e. Consumers
5. Promotion flows
a. Manufacturer
b. Advertising agency
c. Wholesalers
d. Retailers
e. Consumers
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IDENTIFYING MAJOR CHANNEL ALTERNATIVES
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Number of intermediaries
o Exclusive distribution
o Selective distribution
o Intensive distribution
WHOLESALER / RETAIL DISTRIBUTION TASKS – FOR MANUFACTURERS
Market coverage
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Important when customer base is geographically disbursed and or order frequency is
high
Sales contact
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Provides a sales force, that would be too costly for the manufacturer (sales force can
carry products from many suppliers)
Inventory holding
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Reduces the manufacturers risk of holding large inventories (which may go out of
demand) and reduce in inventory costs
Example: if a firm has 100 million in sales and holds a 20% inventory, that is 20million
tied up that could be invested. If it was invested at 10% that is a loss of 2million per
year, for a firm that may only have 2 or 3 million in annual profits, this is substancial
Order processing
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Helps because customers buy in small quantities
Difficult for manufacturers to ship small amounts of product
Market information
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As they have frequent contact with customers, they can give info to the manufacturer
Customer support
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Exchange products, accept returns, repairs, technical assistance, installations
WHOLESALER / RETAIL DISTRIBUTION TASKS – FOR CUSTOMERS
Assure product availability
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They carry an inventory so you don’t have to
Customer service
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Delivery, repairs, returns etc.
Extend credit
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Credit and financing  ship product before business pays for it, gives loans
Offer an assortment (good selection of products and services)
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Bring together items from a variety of manufacturers
Break bulk
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Manufacturers ship in bulk, they break it up and sell it in smaller units
Give advice and technical support
RETAILERS
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4
Sells products and services directly to customers for personal consumption