Marketing Channels

Marketing
Channel
Supply
Chain
A set of interdependent organizations that ease the transfer of
ownership as products move from producer to business user or
consumer.
The connected chain of all the business entities, both internal
and external to the company, that perform or support the
logistics function.
Marketing Channel Functions
Specialization and
Division of Labor
Channels
Fulfill
Three
Important
Functions
Overcoming
Discrepancies
Providing Contact
Efficiency
3
Specialization and
Division of Labor
Provides economies of scale

Aids producers who lack resources to market
directly

Builds good relationships with customers
Overcoming Discrepancies
Discrepancy
of
Quantity
Discrepancy
of
Assortment
The difference between the amount of
product produced and the
amount an end user wants to buy.
The lack of all the items a
customer needs to receive full satisfaction from
a product or products.
Overcoming Discrepancies
Temporal
Discrepancy
Spatial
Discrepancy
A situation that occurs when a product is
produced but a
customer is not ready to buy it.
The difference between the
location of a producer and the location of
widely scattered markets.
Channel Functions
Information
Promotion
Contact
Matching
Negotiation
Physical Distribution
Financing
Risk taking
7
Channel Levels
Producer Producer Producer Producer
Consumers Consumers Consumers Consumers
Retailers Retailers Retailers
Wholesalers Wholesalers
Agents or
Brokers
Wholesaler
Channel
Retailer
Channel
Direct
Channel
Agent/Broker
Channel
Channel Flow
Forward flow
Backward flow
Flow both ways
Five Channel flows
Physical flow of goods
Title flow of goods
Payment flow
Information flow
Promotion flow
Channel Design Decisions
Analyze customer needs
Establish channel objectives
Identify major channel alternatives
Evaluate major channel alternatives
Analyzing Consumer Service Needs
Designing the distribution channel begins with
determining what (e.g. convenient location to
buy the products, immediate delivery, credit,
repairs, long-term warranty) the consumers
want from the channel.
The company must balance the consumer
service needs with the feasibility and costs
plus prices.
Channel objectives
Defines what the channel system is suppose to do
to support customer service
Product characteristics, market profile, competition
Customer needs could include
Lot size
Waiting/delivery time
Spatial convenience
Product variety
Service backup
Identifying Channel Alternatives
Types of intermediaries
Number of intermediaries
Exclusive
Selective
Intensive
Terms and responsibilities
Price policy
Condition of sale
Distributors territorial rights
Mutual services and responsibilities


Evaluation of alternatives
Cost of operations
Ability to manage
& Control
Adaptability
Range & volume to be
handled
Channel-Management Decisions
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
Channel Integration and Systems
Vertical marketing systems
Corporate VMS
Administered VMS
Contractual VMS
Horizontal marketing systems
Multichannel systems

Vertical Marketing Systems
Vertical Marketing Systems (VMS) consists of
producers, wholesalers, and retailers acting as a
unified system - that seek to maximize profits for the
whole channel.
Here, one channel members owns the others, has
contracts with them or use so much power that they
all cooperate.
Such systems occur to control channel behavior and
manage channel conflict.
There are three major types of VMSs which has
different means for setting up leadership and
power in the channel;
Corporate VMS
Contractual VMS
Wholesaler-sponsored voluntary chains
Retailer cooperatives
Franchise organizations
Administered VMS

Types of Vertical Marketing Systems
Corporate VMS
In a corporate VMS, production and
distribution stages are combined under single
ownership, in order to manage cooperation
and conflict management e.g. AT&T markets
its products through its own chain of
distributors.
Contractual VMS
A contractual VMS consists of independent firms at
different levels of production and distribution who
join together through contracts to obtain more
economies or sales impact than each could achieve
alone.
There are three types of contractual VMSs;
wholesaler-sponsored voluntary chains; are
contractual marketing systems in which
wholesalers organize voluntary chains of
independent retailers to help them compete with
large corporate chain organizations.

retailer cooperatives; are contractual marketing systems in which
retailers organize a new, jointly owned business to carry on
wholesaling and possibly production.
franchise organizations; are contractual marketing systems in which a
channel member, called a franchiser, links several stages in the
production-distribution process. There are three forms of franchisees;
manufacturer-sponsored retailer franchise system e.g. Ford
licenses dealers to sell its cars. The dealers are independent
businesspeople who agree to meet various conditions of sales and
service.
manufacturer-sponsored wholesaler franchisee system e.g. Coca-
Cola licenses bottlers (wholesalers) in varius markets who buy
Coca-Cola syrup concentrate and then carbonate, bottle and sell
the finished product to retailers in local markets.
service-firm-sponsored retailer franchise system in which a
service firm e.g. Hertz, Avis, McDonalds, Burger King, Holiday Inn,
Ramada Inn licenses a system of retailers to bring its service to
consumers.

Reduced set-up costs
Contractual relationship
Proven system and established brand name
Centralised buying power
Expertise in operational, managerial, legal
matters
Forfeit some control
Performance against exacting standards
Aggressive targets

Administered VMS
A vertical marketing system that coordinates production
and distribution stages, not through common ownership
or contractual ties, but through the size and power of
one of the parties e.g. Procter & Gamble, Kraft, Campbell
Soup (or retailers like Wal-Mart, Toys `R` Us) are very
strong that they can command special displays, shelf
space, promotions and prices form the other parties.
Horizontal Marketing Systems
Horizontal marketing systems is a channel arrangement in
which two or more companies at one level join together to
follow a new marketing opportunity.
The major benefit is that companies combine their capital,
production capabilities, marketing resources and therefore
accomplish more.
Companies might join forces with competitors or non -
competitors. They might work with each other on a
temporary or permanent basis or they may create a separate
company.

E.g. Coca-Cola and Nestle formed a joint venture to market ready-
to-drink coffee and tea worldwide. Coke provided worldwide
experince in marketing and distribution beverages and Nestle
contributed two established brand names - Nescafe and Nestea.
Hybrid Marketing Systems
Hybrid marketing systems is also called multichannel
distribution systems where the company uses several
marketing channels (e.g. direct mail - telemarketing,
retailers, distributors, dealers, own sales force) to sell
its products to different customer segments.
E.g. IBM uses its own sales force + IBM direct which is the catalog
and telemarketing operation of IBM + independent IBM dealers +
IBM dealers for business segments + large retailers like Wal-Mart.
The major benefit is that when the company has large and
complex markets (consumers) the company can expand its
sales and market coverage by providing services to the
specific needs of diverse customer segments.
The disadvantage is that they are harder to control and
generate more conflict.


What is Channel Conflict?
Channel conflict occurs when one members
actions prevent another channel from
achieving its goal.
Types of channel conflict
Vertical
Horizontal
Multichannel

Causes of Channel Conflict
Goal incompatibility
Unclear roles and rights
Differences in perception
Intermediaries dependence on manufacturer
Strategies for Managing Channel Conflict
Adoption of
superordinate goals
Exchange of employees
Joint membership in
trade associations
Cooptation
Diplomacy
Mediation
Arbitration
Legal recourse