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Distribution Channel Management
Chapter 1
Marketing Channels
Structure and Functions
Chapter 1 Outlines
Learning Objectives
- The meaning of marketing channel
- Why manufacturers choose to use intermediaries
between themselves and end-users
- What marketing flows define the work of the channel
- Members of marketing channel and the flows in
which they specialize
- Framework for marketing channel design and
implementation
Marketing Channels
The importance of Marketing Channels to
Today’s Business
- Gatekeeper between manufacturer and end-user
- Main differentiator of Company’s market offering
from its competitors
- Impact to end-users overall perception and satisfaction
- Key strategic marketing asset in beating rivals
- Tools to help companies operate more profitably
and do better jobs of meeting customers’ demands
and preferences
Marketing Channels
Basic Definition of Marketing Channel
“A Marketing Channel is a set of interdependent
organizations involved in the process of making
a product or service available for use or
consumption”
Marketing Channels
Points of Discussion
- Marketing Channel often viewed as key strategic
asset to manufacturer
- Why Manufacturers not selling all products and
services directly to all end-users
- Why marketing channel ever change or new
Marketing channels ever emerge
Marketing Channels
Demand-side Factors
- As a facilitation of search
- Products/services are easier to find
- Target end-users are more readily to reach
- Adjustment of natural discrepancy between
large product quantity being produced and wide
variety being demanded
Channel members perform function of sorting goods
Marketing Channels
Supply-side Factors
- Routinization of transactions to minimize
distribution cost
- Standardization of goods and services
- Channel inventory management
- Reduction in number of contacts
Marketing Channels
Points of Discussion
- Intermediaries participate in the work of marketing
channel add value and help reduce cost in the channel
- What are the functions performed by intermediaries?
- The largest component of carrying cost of inventory
- Capital costs are the opportunity costs
- Members in the channel can be eliminated or
substituted, but the flows performed by these
members cannot be eliminated
The Work of Marketing Channels
Eight Universal Flows in Marketing Channel
Marketing Channels
Key Members in Marketing Channel
- Manufacturers (Branded VS. private-label)
- Intermediaries (Wholesale, retail, specialized)
- End-users (Business customer, individual consumers)
Channel Captain – Prime mover in establishing
and maintaining the channel links
Marketing Channels
Forms of Retail Intermediaries
- Department Stores
- Mass Merchandisers
- Specialty Stores
- Category Killers
- Convenience Stores
- Catalogers
- On-line Retailers
Marketing Channels
Specialized Intermediaries perform specific flow
- Financial Flow (Insurance, Finance, credit card
Companies)
- Physical Possession Flow (Logistic and shipping firms)
- Ordering and Payment Flow (Information technology firms)
- Promotion Flow (Advertising agencies)
- Marketing Intelligence (Marketing research firms)
Framework for Channel Analysis
The Marketing Channel Challenge involves two
major processes
1. Designing the right channel which involve
- Segmenting the market
- Choosing which segment to target
- Right channel structure to meet target
end-users demands at the most efficient way
Framework for Channel Analysis
The Marketing Channel Challenge involves
two major processes
2. Implementation of the design
- Understanding each channel member’s
source of power
- Degree of dependency
- Potential of channel conflict
- Channel coordination for optimal working
environment
Framework for Channel Analysis
Marketing Channels
Points of Discussion
- The Concept of Interdependence and the
value of Specialization
- Demands for service outputs are used for
segmenting the market
Channel Design
The meaning of Service Output
“The value-added services created by channel members
and consumed by end-users along with the product
purchased”
Service Outputs include
- Bulk-breaking
- Spatial convenience
- Waiting and delivery time
- Assortment and variety
- Customer service
- Product/Market/usage information provision
Channel Design
Channel Structure Decision involve with three
main elements
1. What kinds of intermediaries to use
(own sales force vs. distributor)
2. The exact identity of the channel partner
(specific characters of channel member)
3. How many of each type of channel member
(Intensive, selective or exclusive)
Channel Design
Points of Discussion
- Why channel manager not target all the
segments identified in the segmentation
analysis?
Channel Design
Distribution Gap
“It’s the constraints that prevent channel manager
of not implementing the optimal level of
distribution due to
1. Managerial bounds (internal influences)
2. Environmental bounds (external influences)
3. Competitor bounds (external influences)
Channel Design
Distribution Gap
There are gaps on both Demand and Supply sides:
- On the demand side---at least one of the service
output demands is not being appropriately met
by the channel (either undersupplied or oversupplied)
- On the supply side---at least one of the flows in
the channel of distribution is carried out at too
high a cost
Channel Implementation
Channel members fail to perform the flow tasks
due to channel conflicts
Types of conflicts among members
- Goal conflicts – different goal and objectives
- Domain conflict – disagreements over domain
of action and responsibility
- Perceptual conflict – difference in perceptions
of the marketplace
Channel Implementation
Managing conflict by assessing the true degree
of each issue relevant to channel management
- Frequency of disagreement
- Intensity of disagreement
- Importance of the issue
Conflict resolution through the use of economic
incentives coupled with good communication
Channel Institutions
The holistic approach in channel management
- Retailing based format – connecting point
between channel and end-user
- Wholesaling based format – distribution’s
“back room”
- Logistics firms – specialists that co-ordinate
activities of the marketing channel
Channel Institutions
The holistic approach in channel management
- Supply chain parties – involve upstream and
downstream toward end-users
- Franchising business – small business
people operate under the guidance from
large-scale parent company