Principles of Marketing

Chapter 10 Marketing Channels to

Create Value for Customers

Marketing Channel
Group of organizations involved in selling and
promoting goods from the time they are
produced until they reach the end user.

Channel Members
The firms a company partners with to actively
promote and sell a product as it travels through
its marketing channel to users.

Channel Designs
Smallest possible channel is between two
members- a producer and consumer.
Any other addition to the channel involves the
inclusion of intermediaries.

Intermediaries
Using intermediaries should have some benefit
Shipping company and their logistics
Distribution center and their trucks
Local business and their market knowledge
Dealer for their customers
etc

Intermediaries
Using intermediaries also should streamline
processes
Selling to 500 customers versus selling to 20
dealers

Intermediaries
Should always be evaluated and monitored for
alternatives
Could be to technology changes (record stores,
encyclopedias)
Efficiency changes as some companies just get
outdated

Types of Partners
Wholesalers- Businesses that:
purchase products in large quantities
can store the products
can break down the pallets into smaller units
can deliver desired quantities to distributors,
retailers, and consumers.

Types of Partners
Types of wholesalers Merchant wholesalers (distributors)- Wholesalers that take
title to the goods
Full service- perform more than just distribution, but also aid in
inventory management, credit for buyers, goods delivery, and
employing salespeople to assist customers.
Limited-service- few services but lower prices.
Drop shippers- generally deal in bulky items and make commissions on the
sale of orders from buyers to suppliers
Mail order wholesalers- sell via catalogs and ship direct to buyers
Truck jobbers- sell directly off of a truck generally selling high
perishability products
Rack jobbers- sell products that are displayed on their own racks in stores.
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Types of Partners
Types of wholesalers Brokers- dont purchase the products they sell, just
connect buyers and sellers.
Paid on commissions from sales

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Types of Partners
Types of wholesalers Manufacturers agents- A form of factory outlet
Sell to stores and sometimes consumers at a discount

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Types of Partners
Retailers- Buy from wholesalers, agents, or
distributors and sell to consumers

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Types of Partners
Types of retailers
Supermarkets- self-service retailers that provide
full range of food products and household products
There is a wide variety of supermarkets that have
different levels of assortments and prices that dictate
their position (think Whole foods versus Kroger)

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Types of Partners
Types of retailers
Convenience stores- Miniature supermarkets
Easy in and out
Generally an average variety, but little depth
High markup

Often paired with similar businesses

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Types of Partners
Types of retailers
Specialty Stores- Narrow but deep product lines
High service
Knowledgeable staff
A large specialty store that dominates a product
line is called a category killer (PetSmart for pet
products)

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Types of Partners
Types of retailers
Department stores- wide variety
Generally are chain stores
Wide variety of department stores (Saks and Kmart are
both department stores)

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Types of Partners
Types of retailers
Superstores- oversized department stores that carry
a very broad range of merchandise and groceries

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Types of Partners
Types of retailers
Warehouse clubs- Supercenters that sell at a
discount
Pay an annual fee to become a member to gain price
benefits

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Types of Partners
Types of retailers
Off-price retailers- general merchandisers that sell
overruns, seconds, and liquidations of last
seasons items.

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Types of Partners
Types of retailers
Pop-up store- Small, temporary stores that drive
business to larger stores
New form of retailing

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Typical Marketing Channels

Direct channel is from producer to customer
Indirect is anything other than a direct channel

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Disintermediation
Cutting out intermediaries
Becoming increasingly popular due to the
internet alleviating the need for middlemen.
Information allows for the best price and the
ability to find customers directly or be found by
customers directly

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Multiple Channels and Alternate Channels

Channels are rarely a straight line
Generally quite complex and often vary based on
situations
Might sell directly to a consumer if they buy in bulk,
but to a distributor for smaller orders

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Channel Partner Functions

Push strategy- manufacturer convinces
wholesaler, distributor, or retailer to sell its
products.
Pull strategy- stimulate demand among
consumers to create demand for a product

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Channel Partner Functions

Sorting and regrouping products
As mentioned before, some businesses are in place
to break down larger quantities and well smaller
portions (wholesaler)

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Channel Partner Functions

Storing and Managing Inventory
Keeping inventory in stock and close at hand can
make replenishment easier and prevent missed
sales

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Channel Partner Functions

Distributing products
Sometimes this is handled in house, Walmart, or it
could be handled through a third party.

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Channel Partner Functions

Assume ownership risk and extend credit
Damage happens, so there needs to be someone to
take the hit
Free on board designates who is responsible for
the goods and at what point
Not as odd as it might sound. Think about buying
perishable goods in a snowstorm.

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Marketing Channel Strategies

Channel Selection Strategies
Selecting the correct marketing channel is a must
to be successful
Internet helps this by allowing customers to make some
of these decisions

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Marketing Channel Strategies

Types of customers
Individual versus institutional buyer
Automated versus manual buying
Customized versus commoditized

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Marketing Channel Strategies

Type of Product
Not all products are best sold through the same
medium
How many of you want to buy groceries online?
Clothes? Television?

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Marketing Channel Strategies

Channel partner capabilities
Abilities that you have the advantage over other
organizations
Some firms are good at getting into large retailers,
others are not

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Marketing Channel Strategies

Business environment and technology
Economy always is a driver
When money is tight everyone is affected

Technological changes can also alter channels

Targeting is getting easier and easier with better ability
to track consumers and even partners
Specializations ease is also altering the landscape for
firms

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Factors That Affect a Products Intensity of

Distribution
Intensive distribution- sell a product in as may
outlets as possible
Commodities and convenience offerings fit here

Selective distribution- selling at select outlets

in specific locations
Sell the high end of the product line at a high end
retailer, etc.

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Factors That Affect a Products Intensity of

Distribution
Exclusive distribution
Selling through one or few outlets
Drives traffic to a specific store if the name is
strong enough to pull customers in

Gray market- market which a producer hasnt

authorized its products to be sold.
Omega and Costco
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Channel Dynamics
Channel power- ability to influence channel
partners goals and efforts
Category killers can dictate what products they
want
Large retailers can basically tell suppliers what to
do

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Channel Dynamics
Channel Conflict- Dispute in a channel
All about incentives
This is a normal battle in most businesses

Sell through versus replenishment versus sales

Inventory level debates- who holds inventory
Contractual debates with partners
Multi-channel issues
Selling in stores and online with different prices

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Channel Dynamics
Vertical versus Horizontal conflicts
Vertical is among channel members
Horizontal is between organizations
Company A and Company B both want exclusive rights
to sell a product

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Channel Dynamics
Ethical cooperation
Some firms have a positive image and just by
dealing with them, the positive benefits can be had
Avoid manipulating the supply chain for personal
gain
Big discounts to make sales numbers against the better
judgement of the rep

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Channel Integration
Vertical marketing system- buying along the channel lines
Manufacturer buying a retail store

Conventional marketing system- channel members have

no affiliation with one another
Sometimes just a one-time sale

Horizontal marketing system- Two companies at the same

channel level agree to cooperate with one another to sell
products
Two manufacturers coming together to sell a product is not
collusion, unless there are some rules they break

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