15
Marketing Channels and
Supply Chain Management
Agenda
•
•
•
•
•
The Nature of Marketing Channels
Types of Marketing Channels
Intensity of Market Coverage
Supply Chain Management
Legal Issues in Channel Management
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The Nature of Marketing Channels
• Distribution
– The activities that make products available
to customers when and where they want to
purchase them
• Marketing Channel
– A group of individuals
and organizations
directing products
from producers to
customers
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The Nature of Marketing Channels (cont’d)
• Marketing Intermediary
– A middleman linking producers to other
middlemen or to ultimate consumers
through contractual arrangements or
through the purchase and resale of
products
Producer
Direct Channel
Customer
Indirect Channel
Producer
Intermediary
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Customer
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The Nature of Marketing Channels (cont’d)
• Marketing Channels Create
Utility
– Time utility: have products
available when the customer
wants them (newspaper delivery).
– Place utility: making products available in
locations where the customers wish to
purchase them (convenience stores).
– Possession utility: the customer has
access to the product to use or to store for
future use (raincoats).
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The Nature of Marketing Channels (cont’d)
• Marketing Channels Facilitate
Exchange Efficiencies
– Reduce the overall costs of marketing
exchanges
– Reduce search costs
for customers
– Maintain order in the
marketplace
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Efficiency in
Exchanges
Provided
by an
Intermediary
FIGURE 15.1
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Marketing Channels Form a Supply Chain
• Supply Chain Management
– Long-term partnerships among marketing channel
members that reduce inefficiencies, costs, and
redundancies and develop innovative approaches
to satisfy customers
– Optimizes costs throughout the whole channel for
efficiency and service
– Includes all entities that facilitate product
distribution and benefit from cooperative efforts
– Arises from the need to achieve a
more competitive position
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Typical Marketing Channels for
Consumer Products
FIGURE 15.2
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Typical Marketing Channels for
Business Products
FIGURE 15.3
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Debate Issue
Does cutting out the intermediary cut
costs?
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Multiple Marketing Channels and Channel
Alliances
• Dual Distribution
– The use of two or more channels to
distribute the same product to the same
target market
• Strategic Channel Alliance
– An agreement whereby the products of
one organization are distributed through
the marketing channels of another
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Is This Product
Distributed Through
Multiple Marketing
Channels?
Courtesy of Neutrogena Corp.
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Intensity of Market Coverage
• Intensive Distribution
– Using all available outlets to distribute a
product.
• Convenience products with high replacement
rates
– Provides availability and
reduces search time
– Availability is more important
than outlet type
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Intensity of Market Coverage (cont’d)
• Selective Distribution
– Using only some available outlets to
Tuscaloosa’s
distribute a product
• Shopping products and durable
goods with low replacement rates
Only
Authorized
Dealer
– High qualification
requirements for
intermediaries to
distribute, sell, service,
and support products
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Intensity of Market Coverage (cont’d)
• Exclusive Distribution
– Using a single outlet in a fairly large
geographic area to distribute a product
• Expensive, high-quality products purchased
infrequently
– Exclusive outlets provide an incentive to
sellers in limited markets
– Dealers carry complete inventory and have
trained staff for sales and service
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Are iPods
Distributed Through
Intensive, Selective,
or Exclusive
Distribution?
Reprinted with permission of Apple Computer, Inc. All rights reserved.
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Exercise
Identify the intensity of market
coverage for each of the following
products:
1.
2.
3.
4.
5.
6.
Potato chips
Gucci handbags
Large-screen televisions
Rolex watches
Clinique cosmetics
Carbonated beverages
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Supply Chain Management:
Channel Leadership
• Channel Captain
– The dominant member (producer,
wholesaler, or retailer) of a marketing
channel or supply chain
• Establishes channel policies and
coordinates development of the
marketing mix
• Channel Power
– The ability of one channel
member to influence another
member’s goal achievement
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Supply Chain Management:
Channel Cooperation
• Benefits of Cooperation
– Speeds up inventory replacement
– Improves customer service
– Reduces distribution costs
• Improving Channel Cooperation
– Unifying channel to maintain market order
– Agreeing to direct efforts toward common
objectives
– Precisely defining each channel member’s
tasks
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Supply Chain Management:
Channel Conflict
• Sources of Channel Conflict
– Disagreements arising among channel members
– Communication difficulties jeopardizing
coordination
– Increased use of multiple distribution channels by
manufacturers creating conflicts with distributors
and retailers
– Intermediaries diversifying into and offering
competing products
– Producers attempting to circumvent
intermediaries and dealing directly with retailers
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Legal Issues in Channel Management
Certain practices have legal ramifications; laws
are there to protect others in channel,
customers, and free trade in general.
• Dual Distribution
– A producer can use two different channels to
reach the same target market as long as it is not
trying to engage in unfair competition and put its
independent distributors out of business
• Restricted Sales Territories
– Granting exclusive sales territory rights to
distributors is permissible if the rights do not
restrain trade
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Legal Issues in Channel Management
(cont’d)
• Full-Line Forcing
– Requiring a channel member to carry a supplier’s
entire product line to obtain any of the supplier’s
products
• Exclusive Dealing
– Forbidding an intermediary to carry products of a
competing manufacturer
– Is anticompetitive if
• it blocks competitors from 10% of the market
• sales revenues are sizable
• the manufacturer is larger than the dealer
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Legal Issues in Channel Management
(cont’d)
• Refusal to Deal
– Suppliers can choose their distributors and refuse
to deal with others so long as their decisions are
not based on anticompetitive motives or are not
part of an organized refusal-to-deal with certain
channel members.
• Tying Arrangements
– Requiring a channel member to
buy additional products from the
supplier in order to purchase a
particular product from the
supplier
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Exercise
Many manufacturers sell products in outlet
stores at 25% to 70% off retail prices.
Retailers do not like the added competition
from their own suppliers despite
manufacturers’ claims that they are only
selling last season’s merchandise.
1. How could business objectives, buyer behavior,
product attributes, or environmental forces affect
a manufacturer’s decision to distribute through
outlet stores?
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Exercise (cont’d)
2. By selling in outlet stores, how have these
manufacturers changed their intensity of
market coverage? How is customer
service different at an outlet store?
3. Which of the following may be responsible
for the conflict between manufacturers
and retailers?
• Lack of clear communication
• Deviation from role expectations
• Diversification into product lines traditionally
handled by other intermediaries
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Exercise (cont’d)
4. Should retailers develop store brands,
refuse to stock certain items, or focus
their buying power on one supplier or
group of suppliers? How should the
conflict be resolved?
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