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Chapter 12 – Marketing Channels PPT CHANNELS - 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 - more difficult to obtain a sustainable competitive advantage distributors and retailers gaining power focus on reducing distribution costs increasing role of technology Supply chains - 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 - 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 - 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 - 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 - - 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 2 IDENTIFYING MAJOR CHANNEL ALTERNATIVES - Number of intermediaries o Exclusive distribution o Selective distribution o Intensive distribution WHOLESALER / RETAIL DISTRIBUTION TASKS – FOR MANUFACTURERS Market coverage - Important when customer base is geographically disbursed and or order frequency is high Sales contact - Provides a sales force, that would be too costly for the manufacturer (sales force can carry products from many suppliers) Inventory holding - 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 - Helps because customers buy in small quantities Difficult for manufacturers to ship small amounts of product Market information - As they have frequent contact with customers, they can give info to the manufacturer Customer support - Exchange products, accept returns, repairs, technical assistance, installations WHOLESALER / RETAIL DISTRIBUTION TASKS – FOR CUSTOMERS Assure product availability - They carry an inventory so you don’t have to Customer service - Delivery, repairs, returns etc. Extend credit - 3 Credit and financing ship product before business pays for it, gives loans Offer an assortment (good selection of products and services) - Bring together items from a variety of manufacturers Break bulk - Manufacturers ship in bulk, they break it up and sell it in smaller units Give advice and technical support RETAILERS - 4 Sells products and services directly to customers for personal consumption