Chapter 13: Marketing Channels Prepared by Amit Shah, Frostburg State University Designed by Eric Brengle, B-books, Ltd. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 1 Learning Outcomes LO1 Explain what a marketing channel is and why intermediaries are needed LO2 Define the types of channel intermediaries and describe their functions and activities LO3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements Copyright 2010 by Cengage Learning Inc. All Rights Reserved 2 Learning Outcomes LO4 Discuss the issues that influence channel strategy LO5 Describe the different channel relationship types and their unique costs and benefits LO6 Explain channel leadership, conflict, and partnering Copyright 2010 by Cengage Learning Inc. All Rights Reserved 3 Learning Outcomes LO7 LO8 Discuss channels and distribution decisions in global markets Identify the special problems and opportunities associated with distribution in service organizations Copyright 2010 by Cengage Learning Inc. All Rights Reserved 4 Marketing Channels LO1 Explain what a marketing channel is and why intermediaries are needed. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 5 Marketing Channels A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 6 Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency Copyright 2010 by Cengage Learning Inc. All Rights Reserved 7 Specialization and Division of Labor Creates greater efficiency Provides lower costs Achieves economies of scale Aids producers who lack resources to market directly Builds good relationships with customers Copyright 2010 by Cengage Learning Inc. All Rights Reserved 8 Overcoming Discrepancies Discrepancy of Quantity The difference between the amount of product produced and the amount an end user wants to buy. Discrepancy of Assortment The lack of all the items a customer needs to receive full satisfaction from a product or products. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 9 Overcoming Discrepancies Temporal Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. Spatial Discrepancy The difference between the location of a producer and the location of widely scattered markets. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 10 Providing Contact Efficiency Copyright 2010 by Cengage Learning Inc. All Rights Reserved 11 LO1 Review Learning Outcome Marketing Channels Marketing Channel Providing Specialization and Division of Labor Overcoming Discrepancies Providing Contact Efficiency Supply Chain Copyright 2010 by Cengage Learning Inc. All Rights Reserved 12 Channel Intermediaries LO2 Define the types of channel intermediaries and describe their functions and activities. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 13 Channel Intermediaries Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product from producer to end user by representing retailers, wholesalers, or manufacturers. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 14 Channel Intermediaries Retailers Take Title to Goods Merchant Wholesalers Take Title to Goods Agents and Brokers Do NOT Take Title to Goods Copyright 2010 by Cengage Learning Inc. All Rights Reserved 15 Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics Copyright 2010 by Cengage Learning Inc. All Rights Reserved 16 Channel Functions Performed by Intermediaries Contacting/Promotion Transactional Functions Negotiating Risk Taking Physically distributing Logistical Functions Storing Sorting Facilitating Functions Researching Financing Copyright 2010 by Cengage Learning Inc. All Rights Reserved 17 Logistics The efficient and cost-effective forward and reverse flow as well as storage of goods, services, and related information, into, through, and out of channel member companies. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 18 LO2 Review Learning Outcome Channel Intermediaries and Functions CHANNEL INTERMEDIARIES CHANNEL FUNCTIONS Perform Retailers Transactional Wholesalers Logistical Agents and Brokers Facilitating Copyright 2010 by Cengage Learning Inc. All Rights Reserved 19 Channel Structures LO3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 20 Channels for Consumer Products Direct Channel - A distribution channel in which producers sell directly to consumers. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 21 Channels for Consumer Products Direct Channel Producer Retailer Channel Producer Wholesaler Channel Producer Agent/Broker Channel Producer Agents or Brokers Consumers Wholesalers Wholesalers Retailers Retailers Retailers Consumers Consumers Consumers Copyright 2010 by Cengage Learning Inc. All Rights Reserved 22 Channels for Business Products Direct Channel Direct Channel Industrial Distributor Agent/Broker Channel Producer Producer Producer Producer Producer Agents or Brokers Agents or Brokers Industrial Distributor Industrial Distributor Industrial User Govt. Buyer Industrial User Agent/Broker Industrial Channel Industrial User Copyright 2010 by Cengage Learning Inc. All Rights Reserved Industrial User 23 Business Exchanges on the Internet Agents link buyers and sellers Companies drop the intermediary from the supply chain “Private exchanges” with select suppliers automate the supply chain http://www.sherwinwilliams.com Online Copyright 2010 by Cengage Learning Inc. All Rights Reserved 24 Alternative Channel Arrangements Multiple channels Nontraditional channels Strategic channel alliances Copyright 2010 by Cengage Learning Inc. All Rights Reserved 25 LO3 Review Learning Outcome Channel Structures CONSUMER CHANNELS BUSINESS CHANNELS ALTERNATIVE CHANNELS Direct Direct Multiple Retail Industrial Nontraditional Wholesaler Agent/broker Agent/broker Agent/broker industrial Strategic alliances Copyright 2010 by Cengage Learning Inc. All Rights Reserved 26 Making Channel Strategy Decisions LO4 Discuss the issues that influence channel strategy. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 27 Channel Strategy Decisions Factors Affecting Channel Choice Level of Distribution Intensity Market Factors Intensive Distribution Product Factors Selective Distribution Producer Factors Exclusive Distribution Copyright 2010 by Cengage Learning Inc. All Rights Reserved 28 Market Factors Customer profiles Consumer or Industrial Customer Market Factors That Affect Channel Choices Size of market Geographic location Copyright 2010 by Cengage Learning Inc. All Rights Reserved 29 Product Factors Product Complexity Product Price Product Standardization Product Factors That Affect Channel Choices Product Life Cycle Product Delicacy Copyright 2010 by Cengage Learning Inc. All Rights Reserved 30 Producer Factors Producer Resources Number of Product Lines Producer Factors That Affect Channel Choices Desire for Channel Control Copyright 2010 by Cengage Learning Inc. All Rights Reserved 31 Levels of Distribution Intensity Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area Copyright 2010 by Cengage Learning Inc. All Rights Reserved 32 Levels of Distribution Intensity Intensity Level Objective Number of Intermediaries Intensive Achieve mass market selling. Convenience goods. Many Selective Work with selected intermediaries. Shopping and some specialty goods. Several Exclusive Work with single intermediary. Specialty goods and industrial equipment. Copyright 2010 by Cengage Learning Inc. All Rights Reserved One 33 LO4 Review Learning Outcome Issues Influencing Channel Strategy Copyright 2010 by Cengage Learning Inc. All Rights Reserved 34 Types of Channel Relationships LO5 Describe the different channel relationship types and their unique costs and benefits. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 35 Types of Channel Relationships Arm’s Length Integrated Cooperative Copyright 2010 by Cengage Learning Inc. All Rights Reserved 36 Arm’s Length and Integrated Relationships Arm’s Length Relationship- A relationship between companies that is loose, characterized by low Relational investment and trust, and usually taking the form of a series of discrete transactions with no/low expectation of future interaction or service. Integrated Relationship- A relationship between companies that is tightly connected, with linked processes across and between firm boundaries, and high levels of trust and inter-firm commitment. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 37 Cooperative Relationships A relationship between companies that takes the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 38 LO5 Review Learning Outcome Types of Channel Relationships Copyright 2010 by Cengage Learning Inc. All Rights Reserved 39 Managing Channel Relationships LO6 Explain channel leadership, conflicts, and partnering. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 40 Managing Channel Relationships Power Control Leadership Conflict Partnering Copyright 2010 by Cengage Learning Inc. All Rights Reserved 41 Channel Power, Control, and Leadership Channel Power The capacity of a particular marketing channel member to control or influence the behavior of other channel members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader (channel captain) A member of a marketing channel that exercises authority/power over the activities of other members Copyright 2010 by Cengage Learning Inc. All Rights Reserved 42 Channel Conflict and Partnering Channel Conflict – A clash of goals and methods between distribution channel members. Channel Partnering (Channel Cooperation) – The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 43 Channel Conflict Conflicts may occur if channel members: • Have conflicting goals • Fail to fulfill expectations of other channel members • Have ideological differences • Have different perceptions of reality Copyright 2010 by Cengage Learning Inc. All Rights Reserved 44 Channel Partnering Transaction-Based Partnership-Based Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Information Sharing Minimal High Investment Required Minimal High Copyright 2010 by Cengage Learning Inc. All Rights Reserved 45 LO6 Review Learning Outcome Channel Leadership, Conflict, & Partnering Channel Power, Control, Leadership Channel Partnering Channel Relationship Synergy Channel Conflict Horizontal Vertical Copyright 2010 by Cengage Learning Inc. All Rights Reserved 46 Channels and Distribution Decisions for Global Markets LO7 Discuss channels and distribution decisions in global markets. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 47 Channels and Distribution Decisions for Global Markets Channel structure and type differ Global Channel Development Gray marketing channels Copyright 2010 by Cengage Learning Inc. All Rights Reserved 48 LO7 Review Learning Outcome Global Market Channel & Distribution Decisions Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray” marketing channels Legal and infrastructure differences Copyright 2010 by Cengage Learning Inc. All Rights Reserved 49 Channels and Distribution Decisions for Services LO8 Identify the special problems and opportunities associated with distribution in service organizations Copyright 2010 by Cengage Learning Inc. All Rights Reserved 50 Channels and Distribution Decisions for Services Minimizing wait times Managing service capacity Improving service delivery Copyright 2010 by Cengage Learning Inc. All Rights Reserved 51 LO8 Review Learning Outcome Distribution in Service Organizations Copyright 2010 by Cengage Learning Inc. All Rights Reserved 52