Introduction to Marketing
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Chapter 11 Objectives
1. Understand how marketing channels
add time, place, and possession
utilities for final customers and how
channel structure evolves to provide
these utilities effectively and
efficiently.
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
Chapter 11 Objectives
2. Identify the five major flows in
marketing channels and how each
contributes to making products
conveniently available to many
millions of customers.
3. Realize that marketing channels are
not only economic systems, but also
social systems, in which power and
conflict play an important role.
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
Chapter 11 Objectives
4. Recognize and explain all six
decision areas of channel
management and be familiar with
the main issues associated with
each of those decisions.
5. Appreciate the crucial role played
by logistics in the creation and
operation of high-performance
marketing channels.
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
Marketing Channels and Distribution
• The availability of a virtually limitless array of
products to be purchased has become a
routine fact of everyday life for millions of
consumers and organizations.
• Behind this seemingly ordinary process is an
extraordinary combination of businesses,
people, and technologies, making up the
marketing channels that have made such
efficient distribution possible.
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Marketing Channel Defined
•
A marketing channel is the network of
organizations that creates time, place,
and possession utilities.
– Sales Channel
– Facilitating Channel
Objective 1
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Marketing Channel Defined
•
Time, place, and possession utilities are
conditions that enable consumers and
business users to have products
available for use when and where they
want them and to actually take
possession of them.
Objective 1
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Marketing Channel Structure
•
The form or shape that a marketing
channel takes to perform the tasks
necessary to make products available to
consumers is usually referred to as
channel structure.
Objective 1
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Marketing Channel Structure
•
Marketing channel structure has three
basic dimensions:
1. Length of the channel
2. Intensity at various stages
3. The types of intermediaries involved
Objective 1
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Length of Channel Structure
•
Channel length is the number of levels
in a marketing channel.
Objective 1
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Intensity of Channel Structure
•
Channel Intensity
– Intensive distribution- all possible
intermediaries at the particular level of the
channel are used.
– Selective distribution- a smaller number of
intermediaries are used.
– Exclusive distribution- only one
intermediary is used.
Objective 1
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Types of Intermediaries in the Channel Structure
•
Types of intermediaries refers to the
different kinds of intermediary
institutions that can be used at the
various levels of the channel.
•
Scrambled merchandising- all kinds of
products are sold in stores not
traditionally associated with those
products.
Objective 1
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Determinants of Channel Structure
1. The distribution tasks that need to be
performed
2. The economics of performing
distribution tasks
3. Management’s desire for control of
distribution
Objective 1
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Distribution Tasks
•
Distribution functions must be
performed in order to consummate
transactions between buyers and
sellers.
Objective 1
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Distribution Tasks
•
Discrepancies between production and
consumption:
1.
2.
3.
4.
Discrepancies in quantity
Discrepancies in assortment
Discrepancies in time
Discrepancies in place
Objective 1
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The Economics of Performing Distribution Tasks
•
The development of efficient marketing
channel structures is based on two
principles:
– Specialization or Division of Labor
– Transaction Efficiency
Objective 1
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Specialization or Division of Labor
•
Specialization or Division of Labor
occurs when each participant in the
marketing channel focuses on
performing those activities at which it is
most efficient.
•
This results in much greater efficiency
and higher output.
Objective 1
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Specialization or Division of Labor
•
Economies of scale and economies of
scope are obtained by spreading the
costs of distribution over a large
quantity of products (scale) or over a
wide variety of products (scope).
Objective 1
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Transaction Efficiency
•
Transaction efficiency refers to the effort
to reduce the number of transactions
between producers and consumers.
Objective 1
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Management’s Desire for Control of
Distribution
•
In general, the shorter the channel
structure, the higher the degree of
control, and vice versa.
•
The lower the intensity of distribution,
the higher the degree of control, and
vice versa.
Objective 1
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Flows in Marketing Channels
•
Channel flows provide the links that
tie channel members and other
agencies together in the distribution of
goods and services.
Objective 2
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Flows in Marketing Channels
1.
2.
3.
4.
5.
Product flow
Negotiation flow
Ownership flow
Information flow
Promotion flow
Objective 2
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Marketing Channels as Social Systems
•
Once viewed only as economic
systems, marketing channels are now
seen as social systems as well
because they involve people
interacting with each other in
different organizations and
institutions.
Objective 3
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Power in Marketing Channels
•
Marketing channel power refers to the
capacity of one channel member to
influence the behavior of another
channel member.
Objective 3
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Conflict in Marketing Channels
•
Conflict in marketing channels occurs
when one channel member believes
that another channel member is
impeding the attainment of its goals.
Objective 3
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Conflict in Marketing Channels
•
Conflicts can also arise between
producers of products and other
channel members when the producer
attempts to force channel members to
buy a particular product as a
condition for access to another
product.
Objective 3
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Conflict in Marketing Channels
•
Other marketing channel strategies
that can create conflicts among
channel members include exclusive
dealing, price discrimination,
territorial restrictions, and full-line
forcing.
Objective 3
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Marketing Channel Management
•
Marketing channel management
refers to the analysis, planning,
organizing, and controlling of a firm’s
marketing channels.
•
Interorganizational context refers to
channel management that extends
beyond a firm’s own organization into
independent businesses.
Objective 4
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Perspectives for Channel Management
•
Channel management can be viewed
from two basic vantage points:
1. From that of the producer or
manufacturer looking “down the
channel” toward the market
2. From that of the retailer (or other final
reseller) looking “up the channel” back
to the producer or manufacturer
Objective 4
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Decision Areas of Channel Management
1.
2.
3.
4.
5.
Formulating channel strategy
Designing the channel structure
Selecting the channel members
Motivating the channel members
Coordinating channel strategy with
the marketing mix
6. Evaluating channel member
performance
Objective 4
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Formulating Channel Strategy
•
Channel strategy refers to the broad
set of principles by which a firm
seeks to achieve its distribution
objectives to satisfy its customers.
•
Sustainable competitive advantage is
a competitive edge that cannot be
easily or quickly copied by
competitors in the short run.
Objective 4
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Designing the Channel Structure
•
Channel design is the process of
developing new channels where none had
existed before, or making significant
modifications to existing channels.
1. Setting distribution objectives
2. Specifying the distribution tasks that need to be
performed by the channel
3. Considering alternative channel structures
4. Choosing an optimal channel structure
Objective 4
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Setting Distribution Objectives
•
Distribution objectives refer to what
the firm would like its channel
strategy to accomplish in terms of
meeting the needs of its customers.
– Bottom Up or Backward Approach
Objective 4
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Specifying the Distribution Tasks
•
Making products available to final
consumers calls for the performance
of numerous distribution tasks such
as storage, inventory control, order
processing, transportation, order
tracking, and many others.
Objective 4
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Considering Alternative Channel Structures
•
The form or shape the channel takes
to perform the distribution tasks is
referred to as the channel structure.
•
The channel structure has three
dimensions:
1. Length
2. Intensity
3. The types of intermediaries used
Objective 4
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Choosing an Optimal Structure
•
Approaches that rely on managerial
judgment accompanied by some data
on distribution costs and profit
potentials are the most common for
choosing an optimal structure.
Objective 4
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Choosing an Optimal Structure
•
Criteria to be used in choosing the
channel structure:
–
–
–
–
–
–
Market variables
Product variables
Company variables
Intermediary variables
Behavioral variables
External environmental variables
Objective 4
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Selecting Channel Members
•
The selection of channel members,
the last phase of channel design,
consists of four steps:
1. Developing selection criteria
2. Finding prospective channel members
3. Evaluating prospective channel
members against certain criteria
4. Converting prospective members into
actual members
Objective 4
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Developing Selection Criteria
•
Each firm needs to develop criteria
for selecting channel members that
are consistent with its own
distribution objectives and strategies.
Objective 4
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Finding Prospective Channel Members
•
The search for prospective channel
members can utilize a number of
sources:
–
–
–
–
–
Outside field sales forces
Customers
Advertising
Trade shows
The Internet
Objective 4
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Evaluating Prospective Channel Members
•
Once prospective channel members
have been identified, they need to be
assessed against certain criteria to
determine those who will actually be
selected.
Objective 4
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Converting Prospective Members into
Actual Members
•
Manufacturers or franchisers seeking
to secure the services of quality
channel members have to make a
convincing case that selling their
products will be profitable for the
channel members.
Objective 4
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Motivating Channel Members
•
Motivating channel members refers to
the actions taken by manufacturers to
get channel members to implement
their channel strategy.
Objective 4
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Motivating Channel Members
•
Motivation in the marketing channel
can be viewed as a sequence of
phases:
1. Learning about the needs and problems
of channel members
2. Offering support to channel members to
help meet their needs and solve their
problems
3. Providing ongoing leadership
Objective 4
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Learning about Channel Members’ Needs
and Problems
•
Manufacturers’ channel strategies
should meet channel members’
needs and help solve their problems.
1. Research channel members using inhouse research teams.
2. Investigate channel members using
outside researchers.
3. Use channel member advisory
committees.
Objective 4
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Offering Support for Channel Members
•
Informal support approaches
•
Strategic alliances or channel
partnerships
•
Vertical marketing systems
– Administered
– Contractual
– Corporate
Objective 4
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Providing Continuing Leadership
•
Even well-conceived motivation
programs still require leadership on a
continuing basis to achieve effective
motivation of channel members.
Objective 4
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Coordinating Channel Strategy in the
Marketing Mix
•
Channel strategy should enhance,
rather than detract from the firm’s
product, price, and promotion
strategies.
Objective 4
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Product Strategy and Channel Strategy
•
Product strategy is often dependent
on channel strategy because some
key product strategies interface with
channel strategy in ways that can
mean the difference between success
or failure.
– Product positioning strategy
Objective 4
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Pricing Strategy and Channel Strategy
•
Pricing strategy is closely related to
channel management, because
pricing decisions need to take into
account channel issues if the
manufacturer expects strong
cooperation from the channel
members.
Objective 4
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Promotion Strategy and Channel Strategy
•
Promotion interfaces with channel
strategy, because many promotions
undertaken by a manufacturer require
strong channel member support and
follow-though to work successfully.
Objective 4
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Evaluating Channel Member Performance
•
Evaluation is necessary to assess
how successful the channel members
have been in implementing the
manufacturer’s channel strategies
and achieving distribution objectives.
•
The higher the degree of control, the
more information the manufacturer
can gather, and vice versa.
Objective 4
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Logistics in Marketing Channels
•
Logistics (or physical distribution) is
the planning, implementing, and
controlling of the physical flows of
materials and final products from
points of origin to points of use to
meet customer’s needs at a profit.
Objective 5
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Logistics in Marketing Channels
•
Supply-chain management is
managing logistical systems to
achieve close cooperation and
comprehensive interorganizational
management so as to integrate the
logistical operations of different firms
in the marketing channel.
Objective 5
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The Role of Logistics
•
The movement of the right amount of
the right products to the right place at
the right time
Objective 5
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Logistics Systems, Costs, and Components
•
The systems concept of logistics
entails viewing all components of a
logistical system together and
understanding the relationships
among them.
Objective 5
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Logistics Systems, Costs, and Components
•
The total cost approach is calculating
the cost of a logistical system by
addressing all of the costs of
logistics together rather than
individual costs taken separately, so
as to minimize the total cost of
logistics.
Objective 5
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Logistics Systems, Costs, and Components
•
Basic components of a logistics
system:
–
–
–
–
–
–
Transportation
Materials handling
Order processing
Inventory control
Warehousing
Packaging
Objective 5
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The Output of the Logistics System:
Customer Service
•
Logistical service standards are the
kinds of quantifiable distribution
services performed by a logistical
system to meet the needs of
customers.
Objective 5
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