Marketing Channel -Delivery Customer Value

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Chapter 8

Market ing Channels

Del iver ing Cus tomer Value


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Copyright 2011, Pearson Education Inc. Publishin g as Prent ice-Hall 10- 2

1. Explain why companies use marketingchannels and discuss the functions thesechannels perform.

2. Discuss how channel members interact andhow they organize to perform the work of thechannel.

3. Identify the major channel alternatives open toa company.

4. Explain how companies select, motivate, andevaluate channel members.

5. Discuss the nature and importance ofmarketing logistics and integrated supply

chain management.

Rest Stop :Previewing the Concepts


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Competi t ive Market

Background:Hertz and Aviswere historically #1 and #2 in

car rental market. In the late1990s Enterprise became #1in revenues, profits, locationsand cars, and is currently 50%larger than Hertz.

How Did They Do It?Enterprise catered to thehome-city market via rentalsites in neighborhood areas.Enterprises offer to pickcustomers up at repair shops,accident sites, etc., becamethe theme of its value

proposition.

Enterprise Leaves Competitors in the Dust!

First Stop

Grow th at Enterpr ise

Tappin g New Markets:Enterprise expanded distribution

to the airport market, andacquired Vanguard Car Rentalgroup in 2007. More recently,Enterprise has ventured into thecar-sharing and hourly rentalmarket, called WeCar, indensely populated areas where

many dont own vehicles. Customer Satisfact ion is Key:

Enterprise uses the ESQi(Enterprise Service Qualityindex) to measure satisfaction;managers arent promoted

unless customers are satisfied.


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Supply Chains and the

Value Delivery Network

Producing and making productsavailable to buyers requires buildingrelationships with upstream anddownstream supply chain partners.Upstream:Firms that supply the raw

materials, components, parts, and other

elements necessary to create a good.Downstream:Marketing channelpartners that link the firm to the

customer.


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Supply Chains and the

Value Delivery Network

Value delivery network:The network made up of the company,

suppliers, distributors, and ultimatelycustomers who partner with each otherto improve the performance of the entiresystem in delivering customer value.

Marketing channels represent thedownstream side of the value deliverynetwork.


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Nature and Importance of Marketing

Channels

Marketing channel:A set of interdependent organizations

that help make a product or serviceavailable for use or consumption by theconsumer or business users.

Channel decisions affect other marketingdecisions.

Channel decisions can lead to competitiveadvantage.


7/32Copyright 2011, Pearson Education Inc. Publishin g as Prent ice-Hall 10- 7

How channel members add value:The use of intermediaries results from their

greater efficiency in making goods availableto target markets.

Channel members offer the firm more than itcan achieve on its own in terms of:

Contacts. Experience.

Specialization.

Scale of operation.


Channels




Channels

Transactionfulfillment:Physical

distribution

Financing

Risk taking

Transactioncompletion:Information

Promotion

Contact

Matching

Negotiation

Key functions performed by channel members:



Number of channel levels:The number of intermediary levels

indicates the length of a channel. Direct marketing channels

Have no intermediary levels between themanufacturer and the customer.

Indirect marketing channels Contains one or more intermediaries.

All channel institutions are connectedby several types of flows.


Channels



Channel Behavior and Organization

The channel will be most effective when:Each member is assigned tasks it can do best.

All members cooperate to attain overall channelgoals.

If this does not happen, channel conflict occurs:Horizon tal confl ic toccurs among firms at the same

level of the channel (e.g., retailer to retailer).

Vert ical con fl ic toccurs between different levels ofthe same channel (e.g., wholesaler to retailer).

Some conflict can be healthy competition.




Conventional distribution channel:Consists of one or more independentproducers, wholesalers, and retailers, eacha separate business seeking to maximizeits own profits even at the expense ofprofits for the system as a whole.

Vertical marketing system (VMS):

A distribution channel structure in whichproducers, wholesalers, and retailers actas a unified system. One channel memberowns the other, has contracts with them, orhas so much power that they all cooperate.




Types of vertical marketing systems:Corporate VMS.

Contractual VMS.

Franchise organization.

Administered VMS.




Corporate VMS:Vertical marketing system that combines

successive stages of production and

distribution under single ownership. Channelleadership is established via commonownership.

Contractual VMS:Vertical marketing system in which

independent firms at different levels ofproduction/distribution join together throughcontracts to obtain more economies of scalethan they could alone.




Franchise organizations are a commonform of contractual vertical marketingsystem in which a franchisor links several

stages in the product-distribution process. Types of franchise organizations:Manufacturer-sponsored retailer franchise.

Manufacturer-sponsored wholesalerfranchise.

Service-firm sponsored retailer franchise.


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Horizontal marketing systems:Two or more companies at one level join

together to follow a new marketing

opportunity.

Multichannel distribution system:Occurs when a single firm sets up two or

more marketing channels to reach one ormore customer segments.

Also called hybrid marketing channel system.

Offers many advantages.


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Changing channel organization:Disintermediation occurs when product

and service producers cut outtraditional intermediaries or displace

resellers with radical new types of

intermediaries.

Example: Airline firms sell tickets directly

to consumers via the Internet.



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Changing channel organization:Disintermediation presents both

problems and opportunities for bothproducers and resellers.

Resellers and intermediaries must

innovate to survive.

Producers must seek additional direct

channels to remain competitive, though

channel conflict often results.



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Firms often struggle between what isideal and what is practical.

Marketing channel design:Designing effective marketing channels

by analyzing consumer needs, setting

channel objectives, identifying majoralternatives, and evaluating them.

Channel Design Decisions


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Analyzing consumer needs:Do consumers want to buy from nearby

locations or are they willing to travel?

Do they want to buy-in person, by phone, oronline?

Do they value breadth of assortment or dothey prefer specialization?

Do consumers want many add-on services?

Firm must balance needs against costsand consumer price preferences.


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Setting channel objectives:Objectives are stated in terms of targeted

levels of customer service.

Channel objectives are influenced by:Cost of customer-service requirements.

Nature of the company.

The firms products.Marketing intermediaries.

Competitors.

Environment.



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Identifying major alternatives:Types of intermediaries:

Retailers, value-added retailers,

independent distributors, dealers, etc.

Number of marketing intermediaries:

Intensive, selective, or exclusive

distribution.Responsibilities of channel members:

Price policies, conditions of sale, territoriesand services to be performed.


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Evaluating the major alternatives involvescomparing each alternative to:

Economic criteria:

A company compares the likely sales, costs, and

profitability of different channel alternatives.

Control issues:

How and to whom should control be given?Adaptive criteria:

Consideration of long-term channel commitment vs.

channel flexibility.


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Designing International Channels

Channel design decisions can be verychallenging:Each country has its own unique distribution

system.

Distribution systems can be complex withmany layers and a large number ofintermediaries.

Distribution systems in developing countries

may be scattered or inefficient.Customs and government regulation can

restrict distribution in global markets.


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Channel Management Decisions

Marketing channel management:Selecting channel members.

Managing and motivating channelmembers:

Partner relationship management.

Evaluating channel members.


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Public Policy and Distribution

Decisions

Laws affecting channel decisions seek toprevent the exclusionary tactics that somefirms might use to keep another from using

a desired channel. Situations with the potential to violate

Clayton Act include:Exclusive distribution.

Exclusive dealing.

Exclusive territorial agreements.

Tying agreements.


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Marketing Logistics and Supply

Chain Management

Marketing logistics (physical distribution):Planning, implementing, and controlling thephysical flow of materials, final goods, andrelated information from points of origin to

points of consumption to meet customerrequirements at a profit.

Involves supply chain management:Outbound distribution.Inbound distribution.

Reverse distribution.


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Chain Management

Greater emphasis has been placed on logisticsrecently because:

Firms can gain a competitive advantage whenlogistics result in better service or lower prices.

Improved logistics can lower costs.

Increased product variety has created a need forimproved logistics management.

Improvements in information technology havecreated the means for major gains in distributionefficiency.

Logistics affect the environment as well as thefirms environmental sustainability efforts.


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Goals of the logistics system:Deliver a targeted level of customer

service at the least cost.

Major logistics functions:Warehousing.

Inventory management.

Transportation.

Logistics information management.


Chain Management


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Chain Management

Warehousing:How many, what

types, andwhere?

Storage

warehouses

Distributioncenters

Inventorymanagement:

Balance betweentoo much and too

little inventory

Just-in-time logistics

systemsRFID or smart tag

technology


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Chain Management

Trucks Railroads Water carriers

PipelinesAir carriers

Internet Intermodal

transportation

Piggyback,fishyback,trainship, airtruck

Transportation alternatives:


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Integrated Logistics Management

Integrated logistics management:The logistics concept that emphasizes

teamwork, both inside the company andamong all the marketing channel

organizations, to maximize the performanceof the entire distribution system.

Requires:Cross-functional teamwork inside the

company.Building logistics partnerships.

Outsourcing to third-party logistics providers.


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1. Explain why companies use marketingchannels and discuss the functions thesechannels perform.

2. Discuss how channel members interact and

how they organize to perform the work of thechannel.

3. Identify the major channel alternatives open toa company.

4. Explain how companies select, motivate, andevaluate channel members.5. Discuss the nature and importance of

marketing logistics and integrated supply chainmanagement.

Rest Stop :Reviewing the Concepts

Marketing Channel -Delivery Customer Value

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