Environment of

Marketing Channels
Environment of Marketing
Channels

Economic
Competitive
Socio – Cultural -
Demographic
Technological
Legal
 The Impact of Environment in a
Marketing Channel Context
Producers and
Manufacturers
focus of
Channel
Member Management
Environment participants
Intermediaries
• Economic
• Sociocultural
• Competitive
• Legal Target
• Technological Markets
Channel manager’s
Nonmember
participants
Facilitating analysis of
environmental impact
Agencies must include all
channel participants
Economic Environment

Recession
Inflation
Deflation
Other Economic Issues
 The Competitive Environment
 Horizontal Competition
 Intertype Competition
Vertical Competition
Channel System Competition
Socio – Cultural – Demographic
Environment
Key Findings of
Worldwide Research

Marketing channel structure

reflects the socio – cultural –
demographic environment within
 Technological Environment

Technology is powerful, but remember the

other two dimensions:
 Economic: Is the technology cost
effective?
 Behavioral: Will customers really use it?
 The Legal Environment

Basic Principle:

 Competition is a “good thing”

 Monopoly is a “bad thing”

Therefore: Laws and regulations are aimed at

promoting competition and
reducing monopoly power.
 Legal Issues in Channel
Strategy and Management
Dual (or Multi-Channel) Distribution
Exclusive Dealing
Full-Line Forcing
Price Discrimination
Price Maintenance (Fair Trade)
Refusal to Deal
Resale Restrictions
Tying Agreement
Vertical Integration
 Micro or Managerial Perspective
Vs.
Macro ,Ethical & Societal Perspective

These often come into direct Conflict in

the formulation and implementation of
Marketing channel strategy
Behavioral Processes in
Marketing Channels
 Behavioral Processes in
Marketing Channels
Marketing Channels are not just economic
systems

Marketing Channels are also Social Systems

Therefore, the same behavioral processes existing in

all Social systems also exist in Marketing Channels
The behavioral processes of most relevance to
marketing channels are:

Conflict

Power

Role
Communications “noise”
 Conflict Defined

When one Party perceives the

behavior of another party in the
social system to be impeding
the attainment of its goals, a
state of conflict exists.
 Conflict Compared to
Competition
Conflict ≠ Competition
Conflict > Competition

Conflict Competition
Direct Object centered
Personal Indirect
Opponent centered Impersonal
 Causes of Channel
Conflict
Role Incongruities
Resource Securities
Perceptual Differences
Expectational Differences
Decision Damping Disagreements
Goal Incompatibilities
Communicational Difficulties
 Effects of Channel
Conflict

No Effect

Negative Effect

Positive Effect

Multiple Effects Over Different Ranges

 Managing Channel Conflict
(I)

First of all must

recognize that:
Conflict is inherent in marketing
channels
Many causes: so conflict is pervasive
Conflict can affect channel efficiency
 Managing Channel Conflict
(II)
1. Detect Channel Conflict
 Informal communication system
 Marketing Channel Audit
 Distributors’ advisory councils
1. Appraise Effects of Conflict
 Negative
 Positive
 No effect
1. Resolve Conflict
Have a dialogue over lunch all the way to
going to court
Power in Marketing
Channels

Power Defined:
The capacity of one channel member
to get another channel member to do
something that he otherwise would not
have done.
Bases of Power for
Channel Control

Reward Power 1st

Place

Coercive Power

Legitimate Power

Referent Power

Expert Power
 Using Power in
Marketing Channels
Identifying available power bases

Selecting and using appropriate bases

What “buttons” are available and which ones

should be pushed
 Role in Marketing
Channels

Role Defined:
Set Prescriptions defining what the
behavior of a position member
should be.
 Communication in
Marketing Channels

Communication Defined:
Flow of information that enables
channel members to send and
receive messages
Problems “Noise” in Channel
Communications

Differing Goals

Language Differences

Perceptual Differences
Designing the marketing
channel
Attaining Competitive
Advantage Through Channel
Design
 Cycle of Competitive
Rationality
Value
Smarter
Customer
s Price

Oversupply Choice More

Offering
s New Products
Or Services

Price
Imitation
Options

New Distribution
Techniques
The Nature of Competitive
Advantage
Superior Resources
Superior Skills
• Differences must be
perceived in the
marketplace.
• Leave a ‘footprint’ in
the marketplace.
Marketing Channels as
Organizational Teams
• Conventional Channel Teams:
– Loosely aligned
– Bridge gap between producer
– consumer
• Agreement:
– Goals
– Purpose
– Core competencies
• Rewards and punishments
– Conflict resolution system
– Behavioral norms.
 Marketing Channels:
Issues and Answers
• What is channel design?
Decisions associated with forming new or altering existing
channels.
• Why are design decisions critical?
•They directly influence all other marketing decisions.
•Key external resource for many manufacturers.
• How do marketing functions factor into design
decisions?
Who performs what channel function more efficiently and
effectively.
• When is it time for channel redesign?
When a new firm is established, new product introduced, new
market targeted, external environment change, or when there is
a change or performance failure of channel members.
 Five Marketing Functions in an Automobile Channel
Physical
Function
Transporter Transporte
Supplier Manufactur Dealers Transporte Custom
s rs
s er rs er
Warehouse Warehous
s es
Title Function
Suppliers Manufacturer Dealers Customer

Payment Function
Suppliers Banks Manufacturer Banks Dealers Banks Customer

Information
Function
Transporte Transporte
rs Deale Transporter Customer
Suppliers rs Manufactur
Warehouse rs s Banks
Warehouse er
s Banks s Banks

Promotion
Function
Advertising Advertising
Suppliers Manufactur Dealers Customer
Agency Agency
er
 Channel Design Decisions
• Compromise:
 What is ideal
• Respond to
 What is adequate
SWOT:
 What is obtainable
 Strength

 Weakness

 Opportunity

 Threat
 Channel Design Options
• Three Dimensions of
Variation:

 Number of levels in the

channel.

 Number of intermediaries at
each level.

 Types of intermediaries used

at each level.
Number of Intermediaries at Each
Level
Outlet

Use as many Use as few outlets

outlets as possible (intermediaries) as
Outlet possible
Outlet

Intensive Exclusive
Distributi Distributi
Outlet on
Outlet Outlet on Intermediaries

Not all available

intermediaries are
Selectiveused
Distributio
Intermediaries n Intermediaries
 Types of Intermediaries

• Manufacturer’s sales
force

• Manufacturer’s
representatives

• Industrial
distributors
 Consumer Channel Design
Number of Levels

Zero-level

One-level Retailer

Producer Consumer
Two-level Wholesaler Retailer

hree-level Wholesaler Agent Retailer

 Industrial Channel Design
Number of Levels

Zero-level

Industrial
One-level
Distributor

Manufacturer Industrial
Manufacturer’s Industrial User
Two-level Representative Distributor

Installer
Manufacturer’s
hree-level Salesforce
Industrial
Distributor
 Evaluating Channel Design
Alternatives

• Expected sales and

Fl e
xib
ilit

costs
y

Sales

co
s ts • Control and
resources
Res
o ur c
es

Contr
ol • Flexibility
Break-even Cost analysis: Company Sales Force
and a Manufacturer’s Sales Agency
Manufacturer’s
Sales Agency

Company
Sales Force

Sales
Costs
Breakeven

Level of Sales
Issues of Control vs. Resources in Channel
Design

Manufacturer’s Few
High
Financial Resources
Fewer financial
resources required
Less control given up Number of
Manufacturer’s
Financial Intermediaries
Resources More financial
resources required
More control given up
Many
Intermediary’s Control
Low
Over Channel Functions
Selecting the Best Channel Design

• Analyzing Desired Channel Output

Utilities:

• Analyzing Channel Objectives and

Product Characteristics:

• Analyzing Market Behaviors and

Segments
 Analyzing Desired Channel
Output Utilities

• Convenience
(time/spatial) utility

• Lot size utility

• Selection Utility

• Service utility
 Analyzing Channel Objectives
and Product Characteristics
• Unit value

• Standardization

• Bulkiness

• Complexity

• Stage of Product Life

Cycle
Changes in Life Cycle and Channels: The Case
of Designer Apparel
Utility Added by Channel

High Low

Introductory Declining/
Low
Stage Death
Boutique Offprice Outlets
(e.g., service utility) (e.g., convenience utility)
Market
Growth Rate
Growth Mature
Stage Stage
High Better Department Stores Merchandisers
(e.g., selection utility) (e.g., lot size utility)
Physical distribution
management
Physical Distribution - Nature and Importance

- Physical distribution: Moving tangible products

through distribution channels
- Physical distribution (or logistics) consists of all
activities involved in moving the right amount of the
right products to the right place at the right time
- In the past years, the surge of e-commerce has
underscored the importance of physical distribution
 the challenge relates to fulfillment, which entails
having the merchandise that is ordered by a
customer in stock and then packing and shipping
it in an efficient, timely manner
Physical Distribution - Supply Chain Management

- SCM represents a total system perspective of distribution, combining

distribution channels and physical distribution
- The core of SCM is coordinated logistics
- With SCM individual logistics activities are brought together in a unified
way - more and more, the Internet is being used to allow supply chain
members to monitor (real time) key factors such as the status of orders
and inventory levels
- Integral to effective SCM is the total cost concept: A company should
determine the set of activities that produces the best relationship
between costs and profits for the entire physical distribution system
- The key point is that physical distribution should be viewed as a
total system, with all related costs being analyzed
- As part of SCM, some companies are contracting out, or
outsourcing, all or part their physical distribution function
Tasks in Physical Distribution Management
- Physical distribution refers to the actual physical flow of
products
- In contrast, physical distribution management is the
development and operation of processes resulting in the
effective and efficient physical flow of products
- Effective physical distribution management requires
careful attention to five interrelated activities:
1. Order processing
2. Inventory control
3. Inventory location and warehousing
4. Materials handling
5. Transportation
Tasks in Physical Distribution Management
1. Order Processing
- The starting point in a physical distribution system is order
processing, which is a set of procedures for receiving,
handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and
other business functions are transmitted by computer
- Originally, EDI required a direct computer link between
supplier and customer, now it is being conducted via the
Internet
- EDI can trim the cost of order processing significantly,
which in turn may reduce purchase prices
Tasks in Physical Distribution Management
2. Inventory Control
- The goal of inventory control is to satisfy the order-
fulfillment expectations of customers while minimizing
both the investment and fluctuations in inventories
- Just-in-Time:
- JIT combines inventory control, purchasing, and
production scheduling
- Applying JIT, a firm buys in small quantities that arrive
just in time for production and then it produces in
quantities just in time for sale
Tasks in Physical Distribution Management
2. Inventory Control (continued)
- Just-in-Time:
- …
- Benefits of JIT are:
- Dramatic cost savings
- Shortened and more flexible and reliable production and
delivery schedules
- Quick responses to quality problems
- Market-Response Systems:
- The central promise is that those who intend to consume a
product should activate a process to produce and deliver
replacement items
- In this way, a product is pulled through a channel on the
basis of demand
Tasks in Physical Distribution Management
3. Inventory Location and Warehousing
- Management must make critical decisions about the
size, location, and transportation of inventories
- These areas are interrelated, often in complex ways
- One key consideration in managing inventories is
warehousing, which embraces a range of
functions, such as assembling, dividing, and
storing products and preparing them for
reshipping
Tasks in Physical Distribution Management
4. Materials Handling
- Selecting the proper equipment to physically
handle products, including the warehouse building
itself, is the materials handling subsystem of
physical distribution management
- Equipment that is well matched to the task can
minimize losses from breakage, spoilage, and theft
- Efficient equipment can reduce handling costs as
well as time required for handling
Tasks in Physical Distribution Management
5. Transportation
- Management must decide on both the mode of
transportation and the particular carriers
- The leading modes of transportation are railroads,
trucks, pipelines, water vessels, and airplanes
- Using two or more modes of transportation to move
freight is termed intermodal transportation; this
approach is intended to seize the advantages of
multiple forms of transportation
 Physical Distribution

Total Cost Perspective

Minimize total cost of physical distribution for a given level of

customer service.

Cost-service orientation versus revenue enhancement

A different way of managing assets
 Physical Distribution

Visible and hidden costs

warehouse, transportation, inventory carrying costs
stockout - lost profits due to failure to deliver

Visible and Hidden costs tradeoff

visible costs tradeoff against each other
…and together against hidden costs

Zero Sub-optimization
do not optimize one functional cost area to detriment of total costs
 Physical Distribution

Customer Service Standards

Relate back to buyer behavior
Must be specific
order processing and delivery time
assortments
order size constraints
Must be coordinated with rest of marketing strategy
This is how p.d. managers are constrained
 Physical Distribution

Warehousing

Receive, identify, sort, store merchandise

Efficiency in production requires manufacturing operations to be
centralized and continuous, but demand is decentralized and not
continuous.

Used to hold inventory as a buffer

Demand for warehouses is a function of the need for inventory.
 Physical Distribution

Warehousing (cont.)

What type?
Private versus public

How many?
Centralized or decentralized

Where?
Near factory or near customers
 Physical Distribution

Warehousing (cont.)

Private
owned by firm that owns the inventory inside
stable inventory levels
peculiar handling requirements
high volume
 Physical Distribution

Warehousing (cont.)

Public
rented space
highly seasonal demand
low volume
 Physical Distribution

Warehousing (cont.)
– Centralized

customer

warehouse customer

customer

Lower warehouse cost, lower inventory cost, higher transportation costs

 Physical Distribution

Warehousing (cont.)
– Decentralized
customer

warehouse field warehouse customer

customer

higher warehouse cost, higher inventory cost, lower transportation costs

 Physical Distribution

Inventory Management

Match quantity produced with quantity demanded

holding costs
ordering costs
stockout costs
 Physical Distribution

Inventory Management (cont.)

When to reorder?

How much to reorder?

How much to keep as safety stock?

Key is accurate forecasting

…of demand
…order filling time
 Physical Distribution

Inventory Management (cont.)

Stock Zero safety stock model

on hand
time

place receive
order order

order filling time

 Physical Distribution

Inventory Management (cont.)

stockout
If demand increases...
Stock
on hand
time

place safety stock

order
receive
order
 Physical Distribution

Inventory Management (cont.)

If order filling time increases...

Stock stockout
on hand
time

place safety stock

order
receive
order
 Physical Distribution

Transportation Management

What mode?

What route?
 Physical Distribution

Transportation Management (cont.)

Modes
water
bulk, low value, slow
inland waterways heavily subsidized by government

rail
flexible, long-haul, bulk, still slow, rough (high damage)
dominant mode in ton-miles
 Physical Distribution

Transportation Management (cont.)

Modes (cont.)
Motor Carriers (trucks)
flexible, medium to short haul, high theft
only true door-to-door mode
dominant mode in number of shipments

Air
fast, high value, light weight
flexible but expensive

Pipeline
liquids and near liquids, inflexible, high fixed cost, not vc
 Physical Distribution

Transportation Management

Trends
increased use of air freight
truck trains - “double,” “triple” bottoms
rail making comeback
3:1 fuel efficiency advantage over trucks
10:1 + over planes
subsidies on inland waterways decreasing
deregulation has led to increase in intermodal firms
 Physical Distribution

Symptoms of Poor PDM

low inventory turnover
6-12 times a year minimum

stockout
inventory = 2 mos. Sales > 99% in stock
inventory = 1 mo. Sales > 90% in stock

interwarehouse shipments
do not ship it to yourself

frequent use of premium freight

instead of what system was designed to use
 Physical Distribution

PD Management Trends
increasing importance relative to the rest of operations, marketing

increasing fuel costs

international complexity
rail traffic in Europe

increasing opportunities…Supply Chain Management,

recycling
Wholesaling

- Wholesaling is the sale, and all activities directly

related to the sale, of goods and services to
businesses and other organizations for
1. resale,
2. use in producing other goods or services, or
3. operating an organization
- Thus wholesaling includes sales by any firm to any
customer except an ultimate consumer who is
buying for personal, nonbusiness use
Wholesaling - Economic Justification

- Most manufacturers are small and specialized: Therefore

they do not have the capital to maintain a sales force to contact
the many retailers or final users that are or could be their
customers
- Even for large manufacturers some products or lines generate
such a small volume of sales that it would not be cost-
effective to establish a sales force to sell them
- At the other end of the distribution channel, most retailers and
final users buy in small quantities and have limited
knowledge of the market and sources of supply
- Thus there is often a gap between the seller and the
buyer
- A wholesaler can fill this gap by providing services of value
to manufacturers and/or retailers
The Economy of Transactions in Wholesaling
Direct selling & Direct
marketing channel
 Direct Selling
• A Method of distribution of consumer goods and
services through personal (sell to buyer) contract
away from fixed business locations, primarily in a
home. ---- Industry Trade Association in Washington DC
• A form of selling without retail outlets, distributors,
wholesalers or any type of middlemen.-- Baker (1984)
• The marketing of consumer goods and services
directly to consumers in their homes by way of
explanation and/or demonstration through a
salesperson. The location can also be a friend’s home,
the workplace of the customer during breaks or other
places away from shops – Federation of European Direct
Selling Association (FEDSA)
 Operational Perspective

1. Face-to-face selling
2. Away from a fixed retail location

Direct selling is distinct from direct marketing in

that at an operational level it does not involve
mailed catalogs, telemarketing, direct response
advertising, infomercials, or the like.
 Tactical Perspective
Direct Selling can be characterized by
• The type of salesperson used.
• Whether selling agents are part-time or fulltime.
• Whether the selling effort occurs in a home or elsewhere.
• Whether it is transaction-oriented or relationship-oriented.
• Whether it follows a party plan format.
• Whether personification is used.
• Whether it is multi-level.
• The extent to which selling agents are customers.
• Whether selling agents take physical possession of
products
• The manner in which purchases are delivered and payment
is obtained.
 Strategic Perspective

•Direct Selling as a Distribution Channel

 Strategic Perspective

•Direct Selling as a Means of Gaining Access to a

Market
◆ Direct selling is a push marketing strategy

•Direct Selling as a Way of Doing Business

◆ Direct selling is the preferred channel of distribution
because it is “ invisible” .There are no products on
shelves that competitors can monitor.
◆ Direct selling can be undertaken by a firm with

relatively little start-up capital, especially capital for

marketing and distribution purposes.
•What can be sold through Direct Selling ?
Vacuum cleaners
Encyclopedias
Cosmetics
Nutritional items
Kitchenware

•Who buys from Direct Sellers ?

In the United States are more likely to be female, younger,

and possess more education and higher incomes than

individuals who have not purchased from a direct selling
company .
 Benefits of Direct Marketing
• TO CUSTOMERS! • TO COMPANIES!
• Mailing Lists for Almost
• Fun, Convenient & any Market
Hassle-Free • Customized Offers
• Saves Time • Ongoing Relationships with
Customers
• Larger Merchandise
• Timed to Achieve Higher
Selection Readership & Response
• Comparison Shopping • Alternative Media/Message
Testing
• Order Products for
• Privacy
Themselves or Others
• Measurable Responses
 Uses for Databases
• Identify Prospects easier
• Match customers & offers easier
• Deepen customers loyalty easier
• Reactivate customers easier
 Direct Marketing Channels
• Face-to-Face Selling
• Direct-Mail Marketing
• Catalog Marketing
• Telemarketing
• Direct-Response TV Marketing
• On-line Marketing
 Consumer Issues in Direct
Marketing

• It’s an Irritation
• It’s Unfair business dealings
• It’s too deceptive and fraudulent
• It’s an invasion of our privacy
Channels for service marketing ,
format of direct selling
 Direct Selling
Direct selling is a dynamic,
vibrant, rapidly expanding channel of
distribution for quality products through
independent business people
The saleDefinition:
of a consumer Direct
productSelling
or service, in a
person-to-person manner, away from a fixed
retail location, where the company offers
opportunities to an independent contractor
sales force

A compensation system within direct selling,

where a distributor/salesperson can earn
money not only on their own personal sales,
and not only on the sales of a person
personally recruited by them, but also on
sales of persons recruited by their personal
recruits
 Direct Selling Systems
• Classical Direct Selling, Multi-Level
Marketing (MLM), Network Marketing and
Referral Marketing are selling systems
• Variety of compensation plans (financial
reward) and administrative systems
• Main difference between Multi-Level
Marketing and Network Marketing - structure
and benefits of the COMPENSATION PLAN
 Classical Direct Selling
• Selling products directly to a wide customer
base, earning financial rebates or volume
discounts on all products sold
• Emphasis in classical direct selling is for the
direct seller to sell products to a wide base
of their own customers, thereby earning
rebates on all products they sell
 Multi-Level/Network Marketing

• A marketing system where individual direct sellers

recruit, train and develop a team of product users
• These new direct sellers also recruit, train and
develop their own team of product users, who also
recruit, train and develop their own team …
• BASIC CONCEPT is that any individuals sales
performance can be multiplied by using the efforts
of others through a network of people who work
directly for themselves and indirectly for the person
who introduced them into the network
 Methods of Direct Selling
(within the direct selling systems)

• Person-to-Person
• Party-Plan or Group Presentations
• Unique company marketing techniques
 No Barriers

•Men/women across all age groups have

achieved significant success – 18’s to 80’s!
•No fixed education requirements or previous
experience needed
•Direct selling companies provide all the
training to get started and to grow in the
business
•Ensure you select a DSA member company –
 Cost of Getting Started
• Cost to start an independent direct
selling business is typically very low
• Usually, a modestly priced sales kit is
all that is required to get started
• In sharp contrast to franchise and other
business opportunities, which may
require substantial initial investment
7 reasons why people join a Direct
Selling Company
1)Wholesale / Discount buyers
2)Short Term sellers with specific objectives
3)Part Time sellers
4)Full Time, career orientated sellers and
business builders
5)Social Reasons
6)Recognition
7)Need to share the benefits of the product and
company
 Earnings Potential

•Income generating – limited only by amount of time,

effort and dedication invested
•Entrepreneurial opportunity (business-within-a-
business)
•Personal growth – training, mentorship, recognition

•Developing others – share same opportunities and

benefits you have enjoyed
•Merchandise and travel incentives

•Potential of building a residual income stream

 Product Mix-prevalent
Product 2007(%)
Household Goods 26.99
Health & Wellness 24.29
Cosmetics 7.04
Financial Products 15.54
Personal Care 10.96
Other 4.41
Fragrance 7.33
Jewelry 3.44
100.00%
Top QUALITY products
 Financial services -Channel
• LIC
• 1st contact with an insurance company through an insurance sales
agent.

• help individuals, families, and businesses select insurance policies

• agents who work exclusively for one insurance company are

referred to as captive agents.

• Independent insurance agents / brokers, represent several

companies and place insurance policies for their clients with the
company that offers the best rate and coverage.
 Financial services -Channel
• LIC

• agents prepare reports, maintain records, seek out new clients, and, in the event of a loss, help
policyholders settle their insurance claims.

• some are also offering their clients financial analysis or advice on ways the clients can minimize risk.
Internet in the insurance industry is gradually altering the relationship between agent and client.

• Increasingly, clients are obtaining quotes online , contacting the company directly to purchase policies.

• client has a more active role in selecting a policy at the best price, while reducing the amount of time
agents spend actively seeking new clients.

• Because insurance sales agents also obtain many new accounts through referrals, it is important that
they maintain regular contact with their clients

• Developing a satisfied clientele that will recommend an agent’s services to other potential customers is
a key to success in this field.
 Financial services -Channel
• LIC

• ICICI bank

• Shares

• Mutual Funds
SDM –review snapshot
 What is a Distribution
Channel?
• A set of interdependent organizations
(intermediaries) involved in the process of
making a product or service available for use or
consumption by the consumer or business user.

• Marketing Channel decisions are among the

most important decisions that management
faces and will directly affect every other
marketing decision.
 Why are Marketing
Intermediaries
Used?
• Greater efficiency in making goods available to
target markets.
• Offer the firm more than it can achieve on it’s own
through the intermediaries:
–Contacts,
–Experience,
–Specialization,
–Scale of operation.
• Match supply and demand.
 Intermediarie
s
• Wholesalers—buys from manufacturers and sells B2B or to
consumer (Cosco)
• Retailers—buys from manufacturers and sells to consumer
(Chao Shi Fa)
• Distributors and Dealers—add value by stocking or selling,
credit, after-sales service
• Franchisees—holds contract to sell or market product or service
of franchiser
• Agents and Brokers—brings sellers and buyers together but
never takes legal title to the goods
 Distribution Channel Functions
These Functions Should be Assigned to the Channel Member Who Can
Perform Them Most Efficiently and Effectively to Provide Satisfactory
Assortments of Goods and Services to Target Customers.

Risk
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
 Consumer Marketing Channels & Levels
Channel Level - Each Layer of Intermediaries that Perform Some Work
in Bringing the Product and its Ownership Closer to the Final Buyer.

Channel 1 Direct
Direct
Mfg
Mfg Consumer
Consumer

Channel 2 Indirect
Indirect
Mfg
Mfg Retailer
Retailer Consumer
Consumer

Channel 3

Mfg
Mfg Wholesaler
Wholesaler Retailer
Retailer Consumer
Consumer
Channel 4

Mfg
Mfg Agent
Agent Wholesaler
Wholesaler Retailer
Retailer Consumer
Consumer
 Channel Behavior &
• The channel willConflict
be most effective when:
– each member is assigned tasks it can do best.
– all members cooperate to attain overall channel goals and satisfy
the target market.

• When this doesn’t happen, conflict occurs:

– Horizontal Conflict occurs among firms at the same level of the
channel.
– Vertical Conflict occurs between different levels of the same
channel.

• For the channel to perform well, conflict must be managed.

 Types of Vertical Marketing
Greater Systems
Corporate
Corporate
Common
Common Ownership
Ownership at
atDifferent
Different
Levels
Levelsof
ofthe
theChannel
Channel

Degree
Degree
of
of
Contractual
Contractual
Direct
Direct Contractual
ContractualAgreements
AgreementsAmong
Among
Control
Control Channel
ChannelMembers
Members

Administered
Administered
Leadership
Leadership is
isAssumed
Assumed by
byOne
Oneor
or
Lesser
aaFew
FewDominant
DominantMembers
Members
 Vertical Marketing
Systems
Vertical
Vertical
Marketing
Marketing
Systems
Systems (VMS)
(VMS)

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
Wholesaler Franchise
Retailer
Retailer Franchise
Sponsored
Sponsored Organizations
Cooperatives
Cooperatives Organizations
Voluntary
VoluntaryChain
Chain

Manufacturer-
Manufacturer- Manufacturer-
Manufacturer-
Sponsored Service-Firm-
Service-Firm-
Sponsored Sponsored
Sponsored
Retailer Sponsored
Sponsored
Retailer Wholesaler
Wholesaler
Franchise Franchise
FranchiseSystem
System
FranchiseSystem
System Franchise
FranchiseSystem
System
 Innovations in Marketing
Systems
Horizontal
HorizontalMarketing
Marketing Hybrid
HybridMarketing
Marketing
System
System System
System

Two or More A Single Firm Sets

Companies at One Up Two or More
Channel Level Join Marketing Channels
Together to Follow to Reach One or
a New Marketing More Customer
Opportunity. Segments.
Example: Example:
Banks in Grocery Retailers, Catalogs,
Stores and Sales Force
Channel
Channel Design
Design Decisions
Decisions

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives && Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
 Nature and Importance
of
• Involves getting the right product to the right customers in
theMarketing Logistics
right place at the right time.
• Companies today place greater emphasis on logistics
because:
– customer service and satisfaction have become the
cornerstone of marketing strategy.
– logistics is a major cost element for most companies.
– great increases in product variety has created a need for
improved logistics management.
– information technology has created opportunities for
major gains in distribution efficiency.
 Goals of the Logistics
System
• Provide a Targeted Level of Customer Service at
the Least Cost.
• Maximize Profits,
Profits Not Sales.
Higher Distribution Costs/
Higher Customer Service Levels

Lower Distribution Costs/

Lower Customer Service Levels
 Major Logistics
Functions
Costs
Costs Order
OrderProcessing
Processing
Minimize
MinimizeCosts
Costsofof Received
Received
Attaining
AttainingLogistics
Logistics Processed
Processed
Objectives
Objectives Shipped
Shipped

Logistics
Transportation Functions Warehousing
Warehousing
Rail, Truck, Storage
Storage
Water, Pipeline, Distribution
Distribution
Air
Inventory
Inventory
When
Whento toorder
order
How
Howmuch
muchto toorder
order
Just-in-time
Just-in-time
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value,
low-value,
non
nonperishable
perishablegoods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcestotomarkets
markets
Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededoror
distance
distancemarkets
marketshave
haveto
tobe
bereached
reached
 Choosing
Transportation
Modes
Checklist for Choosing
Transportation Modes
1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
 Integrated Logistics
Management
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics