８a
Marketing Channels
Marketing Channels
Sets of interdependent organizations
involved in the process of making a
product or service available for use
or consumption.
Professor Takada
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Channels and
Marketing Decisions
Push
Strategy
Pull
Strategy
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Categories of Buyers
Habitual shoppers
High value deal seekers
Variety-loving shoppers
High-involvement shoppers
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Buyer Expectations for
Channel Integration
• Ability to order a product
online and pick it up at a
convenient retail location
• Ability to return an onlineordered product to a nearby
store
• Right to receive discounts
based on total online and
offline purchases
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e-Commerce Marketing Practices
• Pure-click
• Brick-and-click
• Brick-and-mortar
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Should the 4 P’s be replaced?
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•
•
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Solutions
Information
Value
Access
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ROAD MAP:
• Why do companies use distribution channels?
The functions these channels perform.
• How do channel members interact and
organize to perform the work of the channel?
• Identify the major channel alternatives open
to a company.
• How do companies select, motivate, and
evaluate channel members?
• Marketing logistics and supply chain
management.
Professor Takada
8a-8
ROAD MAP:
• Why do companies use distribution channels?
The functions these channels perform.
• How do channel members interact and organize to
perform the work of the channel?
• Identify the major channel alternatives open to a
company.
• How do companies select, motivate, and evaluate
channel members?
• Marketing logistics and supply chain management.
Professor Takada
8a-9
Marketing or Distribution Channel
• A set of interdependent organizations involved in the
process of making a product or service available for use
or consumption by the consumer or business user.
How Channel Members Add Value
• The use of intermediaries results from their greater efficiency in
making goods available to target markets.
• Offers the firm more than it can achieve on its own through the
intermediaries:
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–
–
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Contacts
Experience
Specialization
Scale of operation
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A Distributor Reduces the Number of Channel Transactions
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Channel Member Functions
• Gather information
• Develop and disseminate persuasive
communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
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Marketing Channel Flows
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Consumer Marketing Channels
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Industrial Marketing Channels
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ROAD MAP:
• Why do companies use distribution channels? The functions these
channels perform.
• How do channel members interact and organize to
perform the work of the channel?
– Channel Behavior
– Vertical Marketing Systems (VMS)
• Corporate VMS
• Contractual VMS-Franchise Organization
• Administered VMS
– Horizontal Marketing Systems
• Identify the major channel alternatives open to a company.
• How do companies select, motivate, and evaluate channel members?
• Marketing logistics and supply chain management.
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8a-16
Channel Behavior
• The channel will be most effective when:
– each member is assigned tasks it can do best.
– all members cooperate to attain overall channel
goals.
• If this does not happen, conflict occurs:
– 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.
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Conventional vs. Vertical Marketing System
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Types of Vertical Marketing Systems
Corporate VMS
Common Ownership at Different Levels of the Channel
(Sears)
High
Contractual VMS
Contractual Agreements Among Channel Members
(ACE Hardware)
Administered VMS
Leadership Assumed by One ora Few Dominant Members
(Kraft)
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Control
Low
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Franchise Organization
• Manufacturer-Sponsored Retailer Franchise System
– Ford and its independent franchised dealers
• Manufacturer-Sponsored Wholesaler Franchise System
– Coca-Cola’s licensed bottlers
• Service-Firm Sponsored Retailer Franchise System
– McDonald’s, Avis, and Holiday Inn
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Innovations in Marketing Systems
Horizontal Marketing System
Hybrid Marketing System
Two or more companies at
one channel level join
together to follow a new
marketing opportunity.
Example: Banks in grocery stores
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A single firm sets up two or
more marketing channels
to reach one or more
customer segments.
Example: Retailers and catalogs
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Changing Channel Organization
• Disintermediation
– Product and service producers are bypassing
intermediaries and going directly to final
buyers
– Radically new types of channel intermediaries
are emerging to displace traditional ones.
Expedia, Travelocity, Priceline, Hotels.com, and Orbitz
versus traditional travel agents.
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ROAD MAP:
• Why do companies use distribution channels? The functions
these channels perform.
• How do channel members interact and organize to perform
the work of the channel?
• Identify the major channel alternatives open to a
company.
– Channel Design Decisions:
• Analyze consumer needs, set channel objectives, identify major
alternatives, and evaluate the major alternatives.
• How do companies select, motivate, and evaluate channel
members?
• Marketing logistics and supply chain management.
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8a-23
Channel Design Decisions
• Analyze Consumer Needs
• Set Channel Objectives
• Identify Major Alternatives
– Types of intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
– Number of intermediaries
• Intensive distribution
• Exclusive distribution
• Selective distribution
• Evaluate the Major Alternatives
– 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:
• Consider long-term commitment vs. flexibility.
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Identifying Channel Alternatives
Types of
intermediaries
Number of
intermediaries
Terms and
responsibilities
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Number of Intermediaries
Exclusive
Selective
Intensive
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The Value-Adds Versus Costs of Different
Channels
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Break-Even Chart for the Choice Between A
Company Sales Force and Manufacturer’s Sales
Agency
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8a-28
ROAD MAP:
• Why do companies use distribution channels? The
functions these channels perform.
• How do channel members interact and organize to
perform the work of the channel?
• Identify the major channel alternatives open to a
company.
• How do companies select, motivate, and
evaluate channel members?
– Channel Management Decisions
• Marketing logistics and supply chain management.
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Channel Management Decisions
Selecting Channel Members
Managing & Motivating Channel Members
Evaluating Channel Members
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Channel Power
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Coercive
Reward
Legitimate
Expert
Referent
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Managing Channel Conflict
• Adoption of
superordinate goals
• Cooptation
• Diplomacy
• Mediation
• Arbitration
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Public Policy and Distribution Decisions
• Exclusive distribution
• Exclusive dealing
• Exclusive territorial agreements
• Tying agreements
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8a-33
ROAD MAP:
• Why do companies use distribution channels? The functions
these channels perform.
• How do channel members interact and organize to perform
the work of the channel?
• Identify the major channel alternatives open to a company.
• How do companies select, motivate, and evaluate channel
members?
• Marketing logistics and supply chain management.
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8a-34
Logistics and Supply Chain Management
• Planning, implementing, and controlling the physical flow of goods,
services, and related information from points of origin to points of
consumption to meet customer requirements at a profit.
• Includes:
– Outbound distribution
– Inbound distribution
– Reverse distribution
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Major Logistics Functions
• Warehousing
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How many, what types, and where?
Storage warehouses
Distribution centers
Automated warehouses
• Inventory management
– Must balance between too much and too little inventory.
– Just-in-time logistics systems
– RFID, AutoID, or Smart Tag technology
• Transportation
– Trucks, railroads, water carriers, pipelines, air, Internet, intermodal transportation
• Logistics information management
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8a-36
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.
• Involves:
– Cross-functional teamwork inside the company
– Building logistics partnerships
– Third-party logistics
• Ryder Integrated Logistics
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Rest Stop: Reviewing the Concepts
1. Explain why companies use distribution channels
and discuss the functions these channels perform.
2. Discuss how channel members interact and how
they organize to perform the work of the channel.
3. Identify the major channel alternatives open to a
company.
4. Explain how companies select, motivate, and
evaluate channel members.
5. Discuss the nature and importance of marketing
logistics and integrated supply chain management.
Professor Takada
8a-38