McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO:
LO1
LO2
Explain what is meant by a marketing
channel of distribution and why
intermediaries are needed.
Distinguish among traditional
marketing channels, electronic
marketing channels, and different
types of vertical marketing systems.
15-2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO:
LO3
LO4
Describe the factors and
considerations that affect a company’s
choice and management of a
marketing channel.
Recognize how conflict, cooperation,
and legal considerations affect
marketing channel relationships.
15-3
APPLE STORES: CREATING A HIGH-TOUCH CUSTOMER
EXPERIENCE IN A HIGH-TECH MARKETING CHANNEL
15-4
FIGURE 15-1 The variety of terms used
for marketing intermediaries that vary in
specificity and use in consumer and
business markets
15-5
LO1
NATURE AND IMPORTANCE OF
MARKETING CHANNELS
THE VALUE CREATED BY INTERMEDIARIES

Marketing Channel

Functions Performed by Intermediaries
• Transactional Function
• Logistical Function
• Facilitating Function

Utilities Received by Consumers
15-6
FIGURE 15-2 Intermediaries minimize
transactions and the cost of distribution for
producers and customers
15-7
FIGURE 15-3 Marketing channel
intermediaries perform three functions, each
consisting of different activities
15-8
CHANNEL STRUCTURE & ORGANIZATION
LO2
MARKETING CHANNELS FOR
CONSUMER GOODS AND SERVICES

Direct Channel

Indirect Channel
• Retailers
• WholesalersRetailers
• AgentsWholesalersRetailers
15-9
FIGURE 15-4 Common marketing channels
for consumer offerings by the kind and
number of intermediaries
15-10
CHANNEL STRUCTURE & ORGANIZATION
LO2
MARKETING CHANNELS FOR
BUSINESS GOODS AND SERVICES

Direct Channel

Indirect Channel
• Industrial Distributor
• Agents
• AgentsIndustrial Distributors
15-11
FIGURE 15-5 Common marketing channels
for business offerings by the kind and
number of intermediaries
15-12
CHANNEL STRUCTURE & ORGANIZATION
LO2
ELECTRONIC & DIRECT MARKETING CHANNELS;
MULTICHANNEL MARKETING

Electronic Marketing Channels

Direct Marketing Channels

Multichannel Marketing
15-13
FIGURE 15-6 Consumer electronic
marketing channels are similar to those for
consumer and business offerings
15-14
CHANNEL STRUCTURE & ORGANIZATION
LO2
DUAL DISTRIBUTION &
STRATEGIC CHANNEL ALLIANCES

Dual Distribution

Strategic Channel Alliances
15-15
FIGURE 15-7 Functions performed by
independent wholesaler types
15-16
LO2
CHANNEL STRUCTURE & ORGANIZATION
CHANNEL INTERMEDIARIES

Merchant Wholesalers
• Full-Service Wholesalers
 General Merchandise
(Full-Line) Wholesalers
 Specialty Merchandise
(Limited-Line) Wholesalers
15-17
LO2
CHANNEL STRUCTURE & ORGANIZATION
CHANNEL INTERMEDIARIES

Merchant Wholesalers
• Limited-Service Wholesalers
 Rack Jobbers
 Cash and Carry Wholesalers
 Drop Shippers/Desk Jobbers
 Truck Jobbers
15-18
LO2
CHANNEL STRUCTURE & ORGANIZATION
CHANNEL INTERMEDIARIES

Agents and Brokers
• Manufacturer’s Agents
• Selling Agents
• Brokers

Manufacturers
• Branch Offices
• Sales Offices
15-19
FIGURE 15-8 Three types of vertical
marketing systems: corporate, contractual
(most popular), and administered
15-20
LO2
CHANNEL STRUCTURE & ORGANIZATION
VERICAL MARKETING SYSTEMS

Vertical Marketing Systems

Corporate Systems
• Forward Integration
• Backward Integration

Contractual Systems
• Wholesaler-Sponsored Voluntary Chains
• Retailer-Sponsored Cooperatives
15-21
LO2
CHANNEL STRUCTURE & ORGANIZATION
VERICAL MARKETING SYSTEMS

Contractual Systems
• Franchising
 Manufacturer-Sponsored Retail Franchise
Systems
 Manufacturer-Sponsored Wholesale Systems
 Service-Sponsored Retail Franchise Systems
 Service-Sponsored Franchise Systems
15-22
LO2
Sherwin-Williams and H&R Block
What vertical marketing system does each use?
15-23
LO2
CHANNEL STRUCTURE & ORGANIZATION
VERICAL MARKETING SYSTEMS

Administered Systems

Channel Partnership
15-24
LO3
CHANNEL CHOICE AND MANAGEMENT
FACTORS AFFECTING CHANNEL CHOICE

Environmental Factors

Consumer Factors

Product Factors

Company Factors
15-25
LO3
CHANNEL CHOICE AND MANAGEMENT
CHANNEL CHOICE CONSIDERATIONS

Target Market Coverage
• Intensive Distribution
• Exclusive Distribution
• Selective Distribution
15-26
LO3
CHANNEL CHOICE AND MANAGEMENT
CHANNEL CHOICE CONSIDERATIONS

Satisfying Buyer Requirements
• Information
• Convenience
• Variety
• Pre- or Post-Sale Service
15-27
LO3
Jiffy Lube and Petco
What buyer requirements have been satisfied?
15-28
GOING ONLINE
Visit an Apple Store to See
What All the Excitement is About
15-29
LO3
CHANNEL CHOICE AND MANAGEMENT
CHANNEL CHOICE CONSIDERATIONS

Profitability
• Margins Earned
• Channel Costs

Global Dimensions of
Marketing Channels
15-30
USING MARKETING DASHBOARDS
Channel Sales and Profit at
Charlesburg Furniture
15-31
LO4
CHANNEL CHOICE AND MANAGEMENT
CHANNEL RELATIONSHIPS

Sources of Channel Conflict
• Vertical Conflict
• Disintermediation
• Horizontal Conflict
15-32
LO4
CHANNEL CHOICE AND MANAGEMENT
CHANNEL RELATIONSHIPS

Channel Captain

Channel Influence
• Economic
• Identification
• Expertise
• Legitimate Right
15-33
LO4
CHANNEL CHOICE AND MANAGEMENT
CHANNEL RELATIONSHIPS

Legal Considerations
• Dual Distribution
• Tying Arrangements
• Vertical Integration
• Refusal to Deal
• Exclusive Dealing
• Resale Restrictions
15-34
FIGURE 15-9 The Clayton Act and Sherman
Act place legal restrictions on specific
marketing channel strategies and practices
15-35
VIDEO CASE 15
GOLDEN VALLEY
MICROWAVE FOODS:
THE SURPRISING CHANNEL
15-36
VIDEO CASE 15
GOLDEN VALLEY MICROWAVE FOODS
15-37
VIDEO CASE 15
GOLDEN VALLEY MICROWAVE FOODS
1. Visit ACT II’s website at
www.ACTII.com and examine
the assortment of products
offered today. Are (a) the
assortment or (b) the packaging
related to Golden Valley’s
distribution channels or the
segments they serve?
15-38
VIDEO CASE 15
GOLDEN VALLEY MICROWAVE FOODS
2. Use Figure 15–4 to create a
description of the channels of
distribution being used by
Golden Valley today.
15-39
VIDEO CASE 15
GOLDEN VALLEY MICROWAVE FOODS
3. Compared to selling through the
non-grocery channels, what kind
of product, price, and promotion
strategies might Golden Valley
use to reach the grocery channel
more effectively?
15-40
VIDEO CASE 15
GOLDEN VALLEY MICROWAVE FOODS
4. What special marketing issues
does Golden Valley face as it
pursues growth in global
markets?
15-41
SUPPLEMENTAL
LECTURE NOTE 15-1
TURNING EXCLUSIVE
DISTRIBUTION ON ITS HEAD
15-42
IN-CLASS ACTIVITY 15-1
MARKETING CHANNELS
FOR APPLE
15-43
Apple Product Examples
iMac
iPhone
MacBook Air
15-44
Apple Marketing Channel Structure:
Apple Online Store—Direct Channel
Producer
Consumer
Customers
15-45
Apple Marketing Channel Structure:
Apple Retail Store—Direct Channel
Producer
Consumer
Customers
15-46
Apple Marketing Channel Structure:
Ingram Micro/Best Buy—Indirect Channel
Producer
Wholesaler
Ingram
Micro
Retailer
Best Buy
Consumer
Customers
15-47
Apple Marketing Channel Structure:
MacMall Retail Store/Online/Catalog—Indirect Channel
Producer
Retailer
MacMall
Consumer
Customers
15-48
IN-CLASS ACTIVITY 15-2
MARKETING CHANNELS
FOR FASTENAL’S UNIQUE
THREADED FASTENERS
15-49
Fastenal Fasteners (Unique Heads/Tops)
15-50
FIGURE 15-5 Common marketing channels
for business goods and services
15-51
Marketing Channel
A marketing channel consists
of Individuals and firms involved
in the process of making a
product or service available for
use or consumption by consumers
or industrial users.
15-52
Industrial Distributor
An industrial distributor is an
intermediary that performs a
variety of marketing channel
functions, including selling,
stocking, delivering a full product
assortment, and financing.
15-53
Electronic Marketing Channels
Electronic marketing channels
employ the Internet to make
goods and services available for
consumption or use by consumers
or business buyers.
15-54
Direct Marketing Channels
Direct marketing channels
allow consumers to buy products
by interacting with various
advertising media without a
face-to-face meeting with a
salesperson.
15-55
Multichannel Marketing
Multichannel marketing involves
the blending of different
communication and delivery channels
that are mutually reinforcing in
attracting, retaining, and building
relationships with consumers who
shop and buy in traditional
intermediaries and online.
15-56
Dual Distribution
Dual distribution involves an
arrangement whereby a firm
reaches different buyers by
employing two or more different
types of channels for the same
basic product.
15-57
Strategic Channel Alliances
Strategic channel alliances is a
practice whereby one firm’s
marketing channel is used to sell
another firm’s products.
15-58
Merchant Wholesalers
Merchant wholesalers are
independently owned firms that
take title to the merchandise
they handle.
15-59
Manufacturer’s Agents
Manufacturer’s agents are
agents who work for several
producers and carry
noncompetitive, complementary
merchandise in an exclusive
territory. Also called
manufacturer’s representatives.
15-60
Selling Agents
Selling agents are agents who
represent a single producer and
are responsible for the entire
marketing function of that
producer.
15-61
Brokers
Brokers are independent firms
or individuals whose principal
function is to bring buyers and
sellers together to make sales.
15-62
Vertical Marketing Systems
Vertical marketing systems
are professionally managed and
centrally coordinated marketing
channels designed to achieve
channel economies and
maximum marketing impact.
15-63
Franchising
Franchising involves a contractual
arrangement between a parent
company (a franchisor) and an
individual or firm (a franchisee) that
allows the franchisee to operate a
certain type of business under an
established name and according to
specific rules.
15-64
Channel Partnership
A channel partnership consists
of agreements and procedures
among channel members for
ordering and physically distributing
a producer’s products through the
channel to the ultimate consumer.
15-65
Intensive Distribution
Intensive distribution is a level
of distribution density whereby a
firm tries to place its products and
services in as many outlets as
possible.
15-66
Exclusive Distribution
Exclusive distribution is a level
of distribution density whereby
only one retail outlet in a specific
geographical area carries the
firm’s products.
15-67
Selective Distribution
Selective distribution is a level
of distribution density whereby a
firm selects a few retail outlets in a
specific geographical area to carry
its products.
15-68
Channel Conflict
Channel conflict arises when
one channel member believes
another channel member is
engaged in behavior that
prevents it from achieving its
goals.
15-69
Disintermediation
Disintermediation involves
channel conflict that arises when
a channel member bypasses
another member and sells or
buys products direct.
15-70
Channel Captain
A channel captain is a channel
member (producer, wholesaler,
or retailer) that coordinates,
directs, and supports other
channel members.
15-71