Marketing

Channels

Session 6
Chapters 12 & 13
Marketing Channels: Nature & Importance
oA set of independent organizations involved in the
process of making a product available for consumption
oValue Delivery Network
The network made up of the company, suppliers, distributors,
and ultimately customers who partner with each other to
improve the performance of the entire system.

oChannel choices link other decisions in marketing mix

Pricing, Marketing communications

oStrong distribution system can be a competitive

advantage
oChannel decisions involve long-term commitments to
other firms
 Key Functions Performed by
Channel Members
o Information
o Negotiation
o Promotion
o Physical Distribution
o Contact
o Financing
o Matching
o Risk taking
How Channel Members Add Value
Ensure fewer contacts to move the product to final purchaser
Help match product assortment demand with supply.
Bridge major time, place, and possession gaps
Marketing Channels: Nature & Importance
Producer
o The number of
intermediary levels
indicates the length of a
marketing channel
Direct Channels Wholesaler
Indirect Channels

Direct Marketing

Indirect Marketing
o Producers lose more
control and face greater
channel complexity as Retailer
additional channel levels
are added.

Customer
 Channel Behavior and Organization
A. Channel Conflict
When channel members disagree on roles/activities/ rewards.
Horizontal: occurs among firms at the same channel level
Vertical: occurs among firms at different channel levels

B.1. Vertical Marketing Systems (vs. conventional distribution channel)

Corporate VMS (common ownership)
Contractual VMS
Manufacturer-sponsored retailer franchise system (Ford)
Manufacturer-sponsored wholesaler franchise system (Coca-cola)
Service-firm-sponsored retailer franchise system (KFC)
Administered VMS (GM-dominating power)

B.2. Horizontal Marketing Systems

Channel Behavior and Organization (contd.)

B.3. Multi-channel Distribution Systems

Also called hybrid marketing channels
Occurs when a firm uses two or more marketing channels
Hybrid marketing has many advantages
Producer

Distributors
Catalogs, Sales
Telephone, force
Internet
Retailers Dealers

Consumer Consumer Business Business

Segment 1 Segment 2 Segment 1 Segment 2

C. Changing Channel Organization

Disintermediation
 Channel Design Decisions
o Step 1: Analyzing Consumer Needs
Cost and feasibility of meeting needs must be considered
o Step 2: Setting Channel Objectives
Set channel objectives in terms of targeted customer service

o Step 3: Identifying Major Alternatives

Types of intermediaries
Company sales force, manufacturers agency, industrial distributors
Number of intermediaries
Intensive, selective, and exclusive distribution
Responsibilities of channel members
o Step 4: Evaluating Major Alternatives
Economic criteria
Control issues
Adaptive criteria
 Channel Management Decisions
o Selecting Channel Members
Identify characteristics that distinguish the best channel
members

o Managing and Motivating Channel Members

Partner relationship management (PRM) is key

o Evaluating Channel Members

Performance should be checked against standards
Channel members should be rewarded/replaced as dictated
by performance
 Wholesaling
All activities involved in selling goods/services to
those buying for resale or business use.
Wholesaling Marketing Decisions
oTarget market & positioning
Targeting may be made on the basis of size of customer,
type of retailer, need for service.
oMarketing mix decisions
Product and service assortment: inventory, line
Pricing: usual markup on COG is 20%
Promotion: largely disorganized and unplanned
Place: location, facilities
 Retailing
Retailing
All activities involved in selling goods or services
directly to final consumers for their personal, non-
business use.
Retailer Marketing Decisions
o Target marketing and positioning
o Product assortment, service mix, stores atmosphere
o Place (location) - Accessible
o Promotion - All promotional efforts
o Price
High mark-up with low volume
Low mark-up with high volume
Distribution Planning
o A producer uses multiple channels when its
product is for both consumer and industrial
markets.

o Manufacturers and producers weigh the control

they have over distribution versus costs and
profitability.

o A manufacturer must decide how much control it

wants over the sales function.
 Distribution Intensity
o Three Levels of Distribution Intensity
Exclusive distribution: A business that obtains
goods from manufacturers and resells them to
organizational users, other wholesalers, and
retailers, also called distributors.

Selective distribution: Distribution in which a

limited number of outlets in a given geographic
area sell a manufacturers product.

Intensive distribution: Distribution that involves

the use of all suitable outlets to sell a product.
E-Commerce
o e-marketplace; an online shopping outlet.

o More than half of all travel bookings are made

online in these days.

o E-marketplaces for B2B operations provide one-

stop shopping.

o E-marketplaces provide smaller businesses with

widespread exposure.

o Businesses are using social networking to share

information about their products.