Download Nature and Importance of Marketing Channels

Marketing Channels:
Delivering Customer Value
Chapter
10
Chapter Outline
 Supply Chains and the Value Delivery
Network
 The Nature and Importance of
Marketing Channels
 Channel Behavior and Organization
 Channel Design Decisions
 Channel Management Decisions
 Marketing Logistics and Supply Chain
Management
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 2
Previewing the Concepts
1.
2.
3.
4.
5.
Explain why companies use marketing
channels and discuss the functions these
channels perform.
Discuss how channel members interact and
how they organize to perform the work of the
channel.
Identify the major channel alternatives open
to a company.
Explain how companies select, motivate, and
evaluate channel members.
Discuss the nature and importance of
marketing logistics and integrated supply
chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 3
Supply Chains and the
Value Delivery Network
 Producing and making products
available to buyers requires building
relationships with “upstream” and
“downstream” supply chain partners.
– Upstream: Firms that supply the raw
materials, components, parts, and other
elements necessary to create a good.
– Downstream: Marketing channel
partners that link the firm to the
customer.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 4
Value Delivery Network
The network made up of the
company, suppliers, distributors,
and ultimately customers who
“partner” with each other to
improve the performance of the
entire system in delivering
customer value.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 5
Supply Chains and the
Value Delivery Network
 Marketing
channels, such
as retailers,
represent the
“downstream”
side of the value
delivery
network.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 6
Marketing Channels
A set of interdependent
organizations that help
make a product or service
available for use or
consumption by the
consumer or business users.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 7
Nature and Importance of
Marketing Channels
 Marketing channel decisions:
– Affect other marketing decisions, such as
pricing or product design.
– Can lead to competitive advantage.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 8
Figure 10.1:
How Adding A Distributor Reduces the
Number of Channel Transactions
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 9
Nature and Importance of
Marketing Channels
 How channel members
add value:
– The use of intermediaries
results from their greater
efficiency in making goods
available to target markets.
– Channel members add value
by bridging the major time,
place, and possession gaps
that separate goods and
services from those who
would use them.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 10
The Nature and Importance of
Marketing Channels
How channel members add value:
 Intermediaries offer the firm more than
it can achieve on its own through their
contacts, experience, specialization, and
scale of operations.
 From an economic view, intermediaries
transform the assortment of products
into assortments wanted by consumers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 11
Nature and Importance of
Marketing Channels
 How channel members add value:
– Channel members can offer more:
• Contacts.
• Experience.
• Specialization.
• Scale of operation.
– Channel members may perform many
functions.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 12
Nature and Importance of
Marketing Channels
Key functions performed by channel members:
 Transaction
 Transaction
completion:
fulfillment:
–
–
–
–
–
Information
Promotion
Contact
Matching
Negotiation
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
– Physical
distribution
– Financing
– Risk taking
10 - 13
The Nature and Importance of
Marketing Channels
Key functions performed by channel
members:
 Promotion refers to the development and
spreading persuasive communications
about an offer.
 Contacts refers to finding and
communicating with prospective buyers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 14
The Nature and Importance of
Marketing Channels
Key functions performed by channel
members:
 Matching refers to shaping and fitting the
offer to the buyer’s needs, including
activities such as manufacturing, grading,
assembling, and packaging.
 Negotiation refers to reaching an
agreement on price and other terms of the
offer so that ownership or possession can
be transferred.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 15
The Nature and Importance of
Marketing Channels
Key functions performed by channel
members:
 Physical distribution refers to transporting
and storing goods.
 Financing refers to acquiring and using
funds to cover the costs of carrying out
the channel work.
 Risk taking refers to assuming the risks of
carrying out the channel work.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 16
Figure 10.2:
Customer and Business
Marketing Channels
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 17
Nature and Importance of
Marketing Channels
 Number of channel levels:
– The number of intermediary levels
indicates the length of a channel.
• Direct marketing channels
– Have no intermediary levels between the
manufacturer and the customer.
• Indirect marketing channels
– Contains one or more intermediaries.
– All channel institutions are connected by
several types of flows.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 18
Channel Behavior and Organization
 The channel will be most effective when:
– Each member is assigned tasks it can do best.
– All members cooperate to attain overall
channel goals.
 Otherwise, channel conflict can occur:
– Horizontal conflict occurs among firms at the
same level of the channel (e.g., retailer to
retailer).
– Vertical conflict occurs between different
levels of the same channel (e.g., wholesaler to
retailer).
 Some conflict can be healthy competition.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 19
Channel Behavior
Channel conflict is disagreement
among marketing channel members
on goals, roles, and rewards.
Horizontal
conflict
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
Vertical
conflict
10 - 20
Marketing in Action
Goodyear’s
1992 decision to
sell tires via
Sam’s, WalMart, and Sears
created conflict
with it’s prized
network of
independent
dealers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 21
Figure 10.3:
Comparison of Conventional Distribution Channel
with Vertical Marketing System
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 22
Channel Behavior and Organization
 Conventional distribution channel:
– Consists of one or more independent producers,
wholesalers, and retailers, each a separate
business seeking to maximize its own profits even
at the expense of profits for the system as a
whole.
 Vertical marketing system (VMS):
– A distribution channel structure in which
producers, wholesalers, and retailers act as a
unified system. One channel member either
(i) owns the other, (ii) has contracts with them, or
(iii) has so much power that they all cooperate.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 23
Types of Vertical Marketing Systems
Corporate VMS
• Integrates successive stages of production and distribution under
single ownership
Contractual VMS
• Consists of independent firms at different levels of production and
distribution who join together through contracts – includes franchises
Administered VMS
• Leadership is assumed not through common ownership or contractual
ties but through the size and power of one or a few dominant channel
members.
Many restaurant
chains franchise to
expand distribution.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 24
Channel Behavior and Organization
 Franchise organizations are a common
form of contractual vertical marketing
system in which a franchisor links several
stages in the product-distribution process.
 Types of franchise organizations:
– Manufacturer-sponsored retailer franchise.
– Manufacturer-sponsored wholesaler franchise.
– Service-firm sponsored retailer franchise.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 25
Marketing in Action
Almost every kind of business has been
franchised. Visit www.franchise.com to view
the many opportunities.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 26
Channel Behavior and Organization
 Horizontal
marketing systems:
– Two or more
companies at one
level join together
to follow a new
marketing
opportunity.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
McDonald’s now places
“express” versions of their
stores in many Wal-Marts.
10 - 27
Figure 10.4:
Multichannel Distribution System
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 28
Channel Behavior and Organization
 Multichannel distribution system:
– Occurs when a single firm sets up two or
more marketing channels to reach one
or more customer segments.
– Also called hybrid marketing channel
system.
– Offers many advantages.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 29
Marketing in Action
Multichannel distribution
systems allow firms to
expand sales and market
coverage while tailoring
products to diverse needs
of market segments.
However, the decision to go
multichannel often creates
conflict. John Deere dealers
complained loudly when
Lowe’s began selling select
products.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 30
Channel Behavior and Organization
 Changing channel organization:
– Disintermediation occurs when product
and service producers cut out
traditional intermediaries or displace
resellers with radical new types of
intermediaries.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 31
Channel Behavior and Organization
 Changing channel organization:
– Disintermediation presents both
problems and opportunities for both
producers and resellers.
• Resellers and intermediaries must
innovate to survive.
• Producers must seek additional direct
channels to remain competitive, though
channel conflict often results.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 32
Channel Design Decisions
Designing effective marketing
channels by analyzing
consumer needs, setting
channel objectives, identifying
major alternatives, and
evaluating them.
Firms often struggle between what
is ideal and what is practical.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 33
Channel Design Decisions
 Analyzing consumer needs:
– Do consumers want to buy from nearby
locations or are they willing to travel?
– Do they want to buy-in person, by phone, or
online?
– Do they value breadth of assortment or do
they prefer specialization?
– Do consumers want many add-on services?
 Firm must balance needs against costs and
consumer price preferences.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 34
Channel Design Decisions
 Setting channel objectives:
– Objectives are stated in terms of targeted
levels of customer service.
 Channel objectives are influenced by:
–
–
–
–
–
–
Cost of customer-service requirements.
Nature of the company.
The firm’s products.
Marketing intermediaries.
Competitors.
Environment.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 35
Channel Design Decisions
 Identifying major alternatives:
– Types of intermediaries:
• Retailers, “value-added” retailers,
independent distributors, dealers, etc.
– Number of marketing intermediaries
(distribution strategies):
• Intensive, selective, or exclusive
distribution.
– Responsibilities of channel members.
• Price policies, conditions of sale, territories
and services to be performed.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 36
Channel Design Decisions
Number of Marketing Intermediaries
(Distribution Strategies)
Intensive distribution
• Candy and toothpaste
Exclusive distribution
• Luxury automobiles and prestige clothing
Selective distribution
• Television and home appliance
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 37
Channel Design Decisions
Intensive distribution is a strategy
used by producers of convenience
products and common raw materials
in which they stock their products in
as many outlets as possible.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 38
Channel Design Decisions
 Exclusive distribution is a strategy in
which the producer gives only a
limited number of dealers the
exclusive right to distribute products
in territories, e.g.
– Luxury automobiles
– High-end apparel
=
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 39
Channel Design Decisions
 Selective distribution is a strategy
when a producer uses more than one
but fewer than all of the
intermediaries willing to carry the
producer’s products.
– Televisions
– Electrical appliances
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
=
10 - 40
Marketing in Action
Rolex sells its watches
exclusively through only a
handful of authorized
dealers in any given
market.
Such limited distribution
enhances the brand’s
image and generates
stronger retailer support.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 41
Channel Design Decisions
 Evaluating the major alternatives involves
comparing each alternative to:
– Economic criteria:
• A company compares the likely sales, costs, and
profitability of different channel alternatives.
– Control issues:
• How and to whom should control be given?
– Adaptive criteria:
• Consideration of long-term channel commitment
vs. channel flexibility.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 42
Designing International Channels
 Channel design decisions can be very
challenging:
– Each country has its own unique distribution
system.
– Distribution systems can be complex with
many layers and a large number of
intermediaries.
– Distribution systems in developing countries
may be scattered or inefficient.
– Customs and government regulation can
restrict distribution in global markets.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 43
Marketing in Action
When the Chinese government banned door-to-door
selling, Avon had to abandon its traditional direct
marketing approach and sell through retail shops.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 44
Channel Management Decisions
 Marketing channel
management:
– Selecting channel
members.
– Managing and
motivating channel
members:
• Partner relationship
management.
– Evaluating channel
members.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
Caterpillar works closely
with its worldwide
network of independent
dealers to find better
ways to bring value to
customers.
10 - 45
Marketing Logistics
Planning, implementing, and
controlling the physical flow of
materials, final goods, and
related information from points
of origin to points of
consumption to meet customer
requirements at a profit.
Involves supply chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 46
Figure 10.5:
Supply Chain Management
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 47
Marketing Logistics and Supply
Chain Management
 Greater emphasis has been placed on logistics
recently because:
– Firms can gain a competitive advantage when
logistics result in better service or lower prices.
– Improved logistics can lower costs.
– Increased product variety has created a need for
improved logistics management.
– Improvements in information technology have
created the means for major gains in distribution
efficiency.
– Logistics effect the environment as well as the
firm’s environmental sustainability efforts.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 48
Marketing in Action
Cost considerations of
logistics are becoming
increasingly important.
At any given time, Ford
has more than 500
million tons of finished
vehicles, production
parts, and aftermarket
parts in transit,
running up an annual
logistics bill of around
$ 4 billion.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 49
Marketing Logistics and Supply
Chain Management
 Goals of the logistics system:
– Deliver a targeted level of customer
service at the least cost.
 Major logistics functions:
– Warehousing.
– Inventory management.
– Transportation.
– Logistics information management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 50
Marketing in Action
More than 80%
of American
communities
depend solely on
the trucking
industry for the
delivery of their
goods. “Good
stuff. Trucks
bring it.”
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 51
Marketing Logistics and Supply
Chain Management
 Warehousing:
– How many,
what types,
and where?
– Storage
warehouses
– Distribution
centers
 Inventory
management:
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
– Balance between
too much and too
little inventory
– Just-in-time logistics
systems
– RFID or “smart tag”
technology
10 - 52
Marketing Logistics and Supply
Chain Management
Warehousing is the storage function
that overcomes difference in need
quantities and timing, ensuring that
the products are available when
customers are ready to buy them.
 Storage warehouses are designed to
store goods, not move them.
 Distribution centers are designed to
move goods, not store them.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 53
Marketing Logistics and Supply
Chain Management
 Just-in-time logistics systems allow
producers and retailers to carry small
amounts of inventories of parts of
merchandise.
 RFID (radio frequency identification
devices) are small transmitter chips
embedded in or placed on products
or packages to provide greater
inventory control.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 54
Marketing Logistics and Supply
Chain Management
Transportation alternatives:





Trucks
Railroads
Water carriers
Pipelines
Air carriers
 Internet
 Intermodal
transportation
– Piggyback,
fishyback, trainship,
airtruck
Transportation affects the pricing of products, delivery
performance, and condition of the goods when they arrive
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 55
Marketing Logistics and Supply
Chain Management
 Intermodal transportation combines
two or more modes of
transportation.
– Piggyback uses rail and truck.
– Fishyback uses water and truck.
– Airtruck uses air and truck.
– Trainship uses rail and water.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 56
Integrated Logistics Management
The logistics concept that
emphasizes teamwork, both
inside the company and among
all the marketing channel
organizations, to maximize the
performance of the entire
distribution system.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 57
Integrated Logistics Management
 Integrated logistics management
requires:
– Cross-functional teamwork inside the
company.
– Building logistics partnerships.
– Outsourcing to third-party logistics
providers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 58
Marketing in Action
Third-party logistics
companies such as
Ryder help clients to
tighten up sluggish,
overstuffed supply
chains, slash
inventories, and get
products to
customers more
quickly and reliably.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 59
Reviewing the Concepts
1.
2.
3.
4.
5.
Explain why companies use marketing
channels and discuss the functions these
channels perform.
Discuss how channel members interact and
how they organize to perform the work of the
channel.
Identify the major channel alternatives open
to a company.
Explain how companies select, motivate, and
evaluate channel members.
Discuss the nature and importance of
marketing logistics and integrated supply
chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall
10 - 60