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Part Six
Distribution Decisions
15
Marketing Channels and
Supply Chain Management
Objectives
1. To describe the nature and functions of
marketing channels
2. To explain how supply chain
management can facilitate distribution
for the benefit of all channel members,
especially customers
3. To identify the types of marketing
channels
4. To examine the major levels of
marketing coverage
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Objectives (cont’d)
5. To explore the concepts of leadership,
cooperation, and conflict in channel
relationships
6. To specify how channel integration can
improve channel efficiency
7. To examine the legal issues affecting
channel management
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Chapter Outline
•
•
•
•
•
The Nature of Marketing Channels
Types of Marketing Channels
Intensity of Market Coverage
Supply Chain Management
Legal Issues in Channel Management
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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
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The Nature of Marketing Channels (cont’d)
• Marketing Intermediary
– A middleman linking producers to other
middlemen or to ultimate consumers
through contractual arrangements or
through the purchase and resale of
products
Producer
Direct Channel
Customer
Indirect Channel
Producer
Intermediary
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Customer
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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).
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The Nature of Marketing Channels (cont’d)
• Marketing Channels Facilitate
Exchange Efficiencies
– Reduce the overall costs of marketing
exchanges
– Reduce search costs
for customers
– Maintain order in the
marketplace
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Efficiency in
Exchanges
Provided
by an
Intermediary
FIGURE 15.1
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Marketing Channels Form a Supply Chain
• Supply Chain Management
– Long-term partnerships among marketing channel
members that reduce inefficiencies, costs, and
redundancies and develop innovative approaches
to satisfy customers
– Optimizes costs throughout the whole channel for
efficiency and service
– Includes all entities that facilitate product
distribution and benefit from cooperative efforts
– Arises from the need to achieve a
more competitive position
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Typical Marketing Channels for
Consumer Products
FIGURE 15.2
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Typical Marketing Channels for
Business Products
FIGURE 15.3
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Distribution Intermediaries
• Industrial Distributor
– An independent business that takes title to
business products and carries inventories
– Advantages
• Perform needed selling activities in local markets
• Are aware of local needs and can pass market
information on to producers
• Reduce producers’ capital requirements by holding
inventories for local markets.
– Disadvantages
•
•
•
•
Difficult to control
Stocking of competing brands
Less likely to handle bulky and slow-selling items
Lack of technical knowledge
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Distribution Intermediaries (cont’d)
• Manufacturers’ Agent
– An independent businessperson who sells, on
commission, the complementary products of
several producers; does not take title to or hold
inventories.
– Advantages
• Possesses technical and market information
• Has an established set of customers
• Serves as a substitute for a sales force
– Disadvantages
• Difficult to control
• Concentration on only large accounts
• Sales focus limited to commission-related activities
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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
• Strategic Channel Alliance
– An agreement whereby the products of
one organization are distributed through
the marketing channels of another
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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
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Intensity of Market Coverage (cont’d)
• Selective Distribution
– Using only some available outlets to
Tuscaloosa’s
distribute a product
• Shopping products and durable
goods with low replacement rates
Only
Authorized
Dealer
– High qualification
requirements for
intermediaries to
distribute, sell, service,
and support products
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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
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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
• Channel Power
– The ability of one channel
member to influence another
member’s goal achievement
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Supply Chain Management:
Channel Cooperation
• Benefits of Cooperation
– Speeds up inventory replacement
– Improves customer service
– Reduces distribution costs
• Improving Channel Cooperation
– Unifying channel to maintain market order
– Agreeing to direct efforts toward common
objectives
– Precisely defining each channel member’s
tasks
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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
– Intermediaries diversifying into and offering
competing products
– Producers attempting to circumvent
intermediaries and dealing directly with retailers
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Supply Chain Management:
Channel Integration
• Vertical Channel Integration
– Two or more stages of the marketing channel are
under one management
– 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
• Corporate VMS
• Administered VMS
• Contractual VMS
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Legal Issues in Channel Management
• Dual Distribution
– A producer can use two different channels to
reach the same target market as long as it is not
trying to engage in unfair competition and put its
independent distributors out of business
• 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
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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
• it blocks competitors from 10% of the market
• sales revenues are sizable
• the manufacturer is larger than the dealer
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Legal Issues in Channel Management
(cont’d)
• Refusal to Deal
– Suppliers can choose their distributors and
refuse to deal with others so long as their
decisions are not based on anticompetitive
motives or are not part of an organized
refusal-to-deal with certain
channel members.
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After reviewing this chapter you should:
• Be able to describe the nature and
functions of marketing channels.
• Be able to explain how supply chain
management can facilitate distribution
for the benefit of all channel members,
especially customers.
• Be able to identify the types of
marketing channels.
• Be familiar with the major levels of
marketing coverage.
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15 | 27
After reviewing this chapter you should:
• Understand the concepts of leadership,
cooperation, and conflict in channel
relationships.
• Be able to specify how channel
integration can improve channel
efficiency.
• Be aware of the legal issues affecting
channel management.
Copyright © Houghton Mifflin Company. All rights reserved.
15 | 28