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Chapter 1
Marketing Channel Concepts
Major Points for Ch. 1
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Let’s Learn about:
1. Key Terms and Definitions
2. Why Marketing Channels and
Intermediaries?**
3. Marketing Channels and other Marketing
Concepts
4. The Flows in the Marketing Channels**
5. Basic Principles for Marketing
Channels**
6. Evolution of Marketing Channel Concept
Marketing Channels
Originally meant:
Paths through which
goods or materials
can move from
producers to users.
Cf) Distribution Channels vs. Marketing Channels
Middleman (Intermediaries)
create value by reducing
the spatial separation* –
the physical distance
between the point of
production and point of
consumption
*A question
What is a marketing channel?
(Textbook version)
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Firm involved in negotiatory functions
Internal *& External contactual
organization that management
operates to achieve its distribution
objectives
What are the distribution objectives?**
Marketing Channels Act as
Exchange Facilitators
We define a Marketing
Channel as “exchange
relationships that
create customer value
in the acquisition,
consumption*, and
disposition* of
products and services”
Point 2: Why Marketing Channels and
Intermediaries?**
Create Higher Exchange Utility by Providing
More Customer Value*
• Four Basic Components:
–Form Utility
–Place Utility
–Possession Utility
–Time Utility
• New Focus: Developing and Enhancing
Customer Relationships
c
r
a M
• Create utility by contributing to
Contactual efficiency*
• Facilitating Routinization
• Simplifying Assortment
• Minimizing uncertainty within
marketing channels
FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES
Selling Directly
(Without Intermediaries)
Manufacturers
40 Contact
Lines
Retailers
FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES
Selling Through One Wholesaler
Manufacturers
Wholesaler
Retailers
ex) one-stop shopping
14 Contact
Lines
FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES
Selling Through Two Wholesalers
Manufacturers
Wholesalers
Retailers
28 Contact Lines
Why the growing importance of
marketing channels?
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1. The explosion of information
technology and E-commerce
2. A greater difficulty in gaining a
sustainable competitive advantage
3. The growing power of distributors,
especially retailers in marketing channels
4. The need to reduce distribution costs
1.
2.
3.
4.
The explosion of information technology and E-commerce
A greater difficulty in gaining a sustainable competitive
advantage
The growing power of distributors, especially retailers
in marketing channels
The need to reduce distribution costs
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The prediction:
Disintermediation — reduction/deletion of number of intermediaries
The reality:
Reintermediation — evolution of a new type of intermediary
Yahoo!
eBay
Amazon.com
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The explosion of information technology and Ecommerce
2. A greater difficulty in gaining a sustainable competitive advantage
3. The growing power of distributors, especially retailers in
marketing channels
4. The need to reduce distribution costs
1.
Sustainable
competitive
advantage
Place (distribution), or Marketing
Channel Strategy
Potential for gaining
competitive advantage
because place is more
difficult for competitors
to copy
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1. The explosion of information technology and E-commerce
2. A greater difficulty in gaining a sustainable competitive advantage
3. The growing power of distributors
4. The need to reduce distribution costs
Power retailers as gatekeepers
of consumer markets
Act as buying agents for customers rather than
as selling agents for manufacturers
Ex) Recent Changes in IT industry
1. The explosion of information technology and E-commerce
2. A greater difficulty in gaining a sustainable competitive advantage
3. The growing power of distributors
4. The need to reduce distribution costs
Marketing channels are the most recent
target for
reducing distribution costs.
The focus is on channel
structure and management.
1
Point 3:
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How does marketing channel strategy
relate to the rest of the marketing mix?
Marketing Mix
or
the four Ps
Product
Price
Promotion
Place
(Distribution)
Challenges
Limited ability to gain and hold competitive
advantage
Price wars erode profitability & provide unstable
basis for sustaining competitive advantage
Expensive and short-lived
Marketing channels support & enhance other Ps
to meet demands of target markets
Marketing Channels
Originally defined as:
Paths through which
goods or materials
can move from
producers to users.
©McGraw-Hill Companies, Inc. 2002
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Point 4:
Marketing Channel Flows**
Product Flow*
Negotiation Flow
Ownership Flow
Information Flow*
* Unbundling Flows
Promotion Flow
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Product Flow
Manufacturer
Transportation Company
Wholesalers
Retailers
Consumers
1
Negotiation Flow
Manufacturer
Wholesalers
Retailers
Consumers
1
Ownership Flow
Manufacturer
Wholesalers
Retailers
Consumers
1
Information Flow
Manufacturer
Transportation Company
Wholesalers
Retailers
Consumers
1
Promotion Flow
Manufacturer
Advertising Agency
Wholesalers
Retailers
Consumers
FIGURE : MARKETING FLOWS IN CHANNELS
Producers
Physical
Possession
Ownership
Physical
Possession
Ownership
Physical
Possession
Ownership
Promotion
Promotion
Promotion
Negotiation
Negotiation
Negotiation
Financing
Financing
Financing
Wholesalers
Retailers
Risking
Risking
Risking
Ordering
Ordering
Ordering
Payment
Payment
Payment
Commercial Channel Subsystem
Consumers
Industrial
and
Household
Marketing Channel and Logistics
Management: Same or Different?
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Part of distribution variable
• Concerned with entire
process of starting and
operating contactual
organization
• Formulated before
logistics management
Focused specifically on
providing product
availability at appropriate
time & place
point 5:
Foundations on Distribution through
intermediaries (Basic Principles)
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Factors that determine/influence the role of intermediaries
Economic
Considerations
New Technology
Specialization &
Division of Labor.*
Contactual Efficiency
New channels
Social Considerations  Relationships
Point 6
The Evolution of
Marketing Channel Concepts
4. Relationship Marketing Era
2. The Institutional Period
And
Selling Orientation
3. The Marketing Concept
1. The Production Era
And
Distributive Practices
1900s
1940s
1950s
1990s
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The change of focus on channel strategy
• Creates competitive advantage with long-term
viability
• Builds strong relationships between
manufacturers and (selected) channel members
• Use of Multichannel Strategy
• IT-enabled, open channel systems