Marketing Channels

chapter 10

Marketing Channels Marketing Channels and Distributionand Distribution

Harcourt, Inc.

Dr. Rosenbloom

ObjectivesObjectivesObjectivesObjectives

Recognize the importance of Recognize the importance of marketing channels and distributionmarketing channels and distribution

Understand marketing channels in Understand marketing channels in terms of creating time, place, and terms of creating time, place, and possession utilitiespossession utilities

Discuss the three dimensions of Discuss the three dimensions of channel structurechannel structure

Dr. Rosenbloom

ObjectivesObjectivesObjectivesObjectives

Identify determinants of channel Identify determinants of channel structurestructure

Describe the five major flows in Describe the five major flows in marketing channelsmarketing channels

Identify the six major areas of Identify the six major areas of channel managementchannel management

Discern the difference between Discern the difference between logistics and marketing channelslogistics and marketing channels

Dr. Rosenbloom

What is a Marketing Channel?What is a Marketing Channel?What is a Marketing Channel?What is a Marketing Channel?

Marketing channel Marketing channel (a.k.a. distribution (a.k.a. distribution channel) - network of channel) - network of organizations that organizations that create time, place, and create time, place, and possession utilities for possession utilities for consumersconsumers

Dr. Rosenbloom

What is a Marketing Channel?What is a Marketing Channel?What is a Marketing Channel?What is a Marketing Channel?

Hal Riney and Hal Riney and PartnersPartners

Blackstar BeerBlackstar Beer

Dr. Rosenbloom

Channel StructureChannel StructureChannel StructureChannel Structure

Len

gth

of ch

ann

el

Intensity at various levels Types of intermediaries

Three Dimensions

Dr. Rosenbloom


Manufacturer Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer Consumer

Retailer Retailer Retailer

Wholesaler Wholesaler

Agent

1 level1 level 2 level2 level 3 level3 level 4 level4 level

Length of marketing channel

Dr. Rosenbloom

Exclusive Exclusive DistributionDistribution

Selective Selective DistributionDistribution

Intensive Intensive DistributionDistribution


Intensity at various levels

Dr. Rosenbloom

Practiced when a manufacturer restricts product Practiced when a manufacturer restricts product distribution to a single retailer in a particular market distribution to a single retailer in a particular market or just a relatively few retailersor just a relatively few retailers

Products that are expensive, infrequently purchased, Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are or which require considerable after-sale servicing are the most likely candidates for exclusive distributionthe most likely candidates for exclusive distribution

Exclusive DistributionExclusive Distribution



Dr. Rosenbloom

Selectively distributed bands are available in Selectively distributed bands are available in multiple retail outlets in a particular marketmultiple retail outlets in a particular market

Shopping products, or those that consumers Shopping products, or those that consumers seek out, are sold through selective distributionseek out, are sold through selective distribution

Selective DistributionSelective Distribution



Dr. Rosenbloom

Used when convenience products are sold Used when convenience products are sold through virtually every available retail outlet in through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, a particular market, e.g. soft drinks, candy, gum, cigarettesgum, cigarettes

Intensive DistributionIntensive Distribution



Dr. Rosenbloom


Types of intermediaries

FunctionalFunctional

MiddlemenMiddlemen


MiddlemenMiddlemenMerchant Merchant MiddlemenMiddlemenMerchant Merchant MiddlemenMiddlemen

Dr. Rosenbloom




MiddlemenMiddlemen


MiddlemenMiddlemen

Do not take title to products; Do not take title to products; they simply facilitate the they simply facilitate the exchange process by performing exchange process by performing buying and/or selling functions.buying and/or selling functions.

Dr. Rosenbloom



Merchant Merchant MiddlemenMiddlemenMerchant Merchant MiddlemenMiddlemen

Take title to products and Take title to products and resell them.resell them.

Dr. Rosenbloom


Determinants of channel Determinants of channel structure include:structure include: Distribution tasksDistribution tasks Economics of distribution tasksEconomics of distribution tasks Management's desire for Management's desire for

distribution controldistribution control

Dr. Rosenbloom


Distribution tasksDistribution tasks Familial Relationship-Familial Relationship-

stylestyle• Concentration

• Equalization

• Dispersion

Selection process-styleSelection process-style• Accumulating

• Selecting

• Sorting

Dr. Rosenbloom


Distribution tasksDistribution tasks Resolve discrepancies between Resolve discrepancies between

consumers and producersconsumers and producers• Quantity - buffer mass produced

goods

• Assortment - allow producers to focus while providing customers selection

• Time - hold goods until ready

• Place - connect producers and consumers

Dr. Rosenbloom


Economics of Economics of distribution tasksdistribution tasks Specialization or Specialization or

division of labordivision of labor

Dr. Rosenbloom

Mfg. AMfg. A Mfg. BMfg. B Mfg. CMfg. C

11 22 33 44 55 66 77 88

Without Without intermediariesintermediaries


Economics of distribution tasksEconomics of distribution tasks Transaction efficiencyTransaction efficiency

Dr. Rosenbloom

Mfg. AMfg. A Mfg. BMfg. B Mfg. CMfg. C

IntermediaryIntermediary

11 22 33 44 55 66 77 88

With With intermediariesintermediaries


Economics of distribution tasksEconomics of distribution tasks Transaction efficiencyTransaction efficiency

Dr. Rosenbloom


Management’s desire for Management’s desire for controlcontrol The shorter the channel The shorter the channel

structure the higher the controlstructure the higher the control Needed when a manufacturer Needed when a manufacturer

must protect product image, must protect product image, etc.etc.

Dr. Rosenbloom

Marketing Channel FlowsMarketing Channel FlowsMarketing Channel FlowsMarketing Channel Flows

Product FlowProduct Flow The movement of the product The movement of the product

from manufacturer through all from manufacturer through all parties who take physical parties who take physical possessionpossession

Negotiation FlowNegotiation Flow Interplay of buying/selling tasks Interplay of buying/selling tasks

associated with title transferassociated with title transfer

Dr. Rosenbloom


Ownership FlowOwnership Flow Movement of title of the productMovement of title of the product

Information FlowInformation Flow Information to and from the Information to and from the

manufacturermanufacturer Promotion FlowPromotion Flow

Flow of persuasive Flow of persuasive communication (advertising, communication (advertising, personal selling, etc.)personal selling, etc.)

Dr. Rosenbloom


Dr. Rosenbloom

Social Aspects of Marketing ChannelsSocial Aspects of Marketing ChannelsSocial Aspects of Marketing ChannelsSocial Aspects of Marketing Channels

Marketing channel powerMarketing channel power The influence one channel member has The influence one channel member has

over other members’ behaviorsover other members’ behaviors Marketing channel conflictMarketing channel conflict

Goal impeding behavior by one or Goal impeding behavior by one or more channel membersmore channel members

Territorial encroachmentTerritorial encroachment

Dr. Rosenbloom

Determinants of PowerDeterminants of PowerDeterminants of PowerDeterminants of Power

Reward PowerReward Power Reward PowerReward Power

Coercive PowerCoercive Power

Legitimate PowerLegitimate Power

Expert PowerExpert Power

Referent PowerReferent Power

Ability to offer an Ability to offer an award (e.g. award (e.g. granting of granting of exclusive exclusive distribution)distribution)

Dr. Rosenbloom

Reward PowerReward Power

Coercive PowerCoercive Power Coercive PowerCoercive Power

Threat of Threat of punishment (e.g. a punishment (e.g. a manufacturer manufacturer might threaten a might threaten a retailer with loss retailer with loss of exclusive of exclusive distribution)distribution)





Dr. Rosenbloom

Legitimate PowerLegitimate Power Legitimate PowerLegitimate Power

Power from Power from contract contract agreement or agreement or organizational organizational relationshipsrelationships






Dr. Rosenbloom

Power resulting Power resulting from technological from technological expertise or expertise or proprietary proprietary reasonsreasons

Expert PowerExpert Power Expert PowerExpert Power






Dr. Rosenbloom

Power resulting Power resulting from ability to from ability to influence further influence further actionaction

Referent PowerReferent Power Referent PowerReferent Power






Dr. Rosenbloom

Marketing Channel ManagementMarketing Channel ManagementMarketing Channel ManagementMarketing Channel Management

Formulating channel strategy

Design channel structure

Select channel members

Motivate channel members

Coordinate with marketing mix

Evaluate member performance

Realize only the place ‘P’ Realize only the place ‘P’ provides protection from provides protection from imitationimitation

Distribution strategies can Distribution strategies can provide sustainable provide sustainable competitive advantagecompetitive advantage

Dr. Rosenbloom








Set distribution objectives

Specify tasks to be performed by the channel

Consider alternative structures

Choose optimal structure

Dr. Rosenbloom








Optimal structure identified Optimal structure identified by considering:by considering: Market variablesMarket variables Product variablesProduct variables Company variablesCompany variables Intermediary variablesIntermediary variables Behavioral variablesBehavioral variables External environment variablesExternal environment variables

Dr. Rosenbloom








Develop selection criteriaDevelop selection criteria

Prospective channel member

Management

succession

Sales

PerformanceMarket

Coverage

Reputation

Product

Lines

Sales

Strength

Credit and

Financial

Condition

Size

Attitude

Management

Ability

Dr. Rosenbloom








Find prospective channel Find prospective channel membersmembers

Evaluate prospective channel Evaluate prospective channel membersmembers

Convert prospectives into Convert prospectives into actual channel membersactual channel members

Dr. Rosenbloom








Learn about the needs and Learn about the needs and problems of channel membersproblems of channel members Advisory committeesAdvisory committees

Offer supportOffer support Informal supportInformal support Strategic alliances, partnershipsStrategic alliances, partnerships

Provide ongoing leadershipProvide ongoing leadership Continuing focusContinuing focus

Dr. Rosenbloom








Product and ChannelProduct and Channel Retailers (a channel member) Retailers (a channel member)

play an important role in play an important role in product positioningproduct positioning

Display fixturesDisplay fixtures Personal sellingPersonal selling

Dr. Rosenbloom








Pricing and ChannelPricing and Channel Relevant to channel members:Relevant to channel members:

• Profit margins available to channel members

• Pricing policies

• Incentives

Dr. Rosenbloom








Promotion and ChannelPromotion and Channel Promotions interface with Promotions interface with

channel memberschannel members Point-of-purchase displaysPoint-of-purchase displays Inventory levelsInventory levels Sales person trainingSales person training

Dr. Rosenbloom








Assessment of success of Assessment of success of channel members in channel members in implementing strategiesimplementing strategies Requires good information Requires good information

flows between membersflows between members Point-of-sale systems, EDIPoint-of-sale systems, EDI

Dr. Rosenbloom

Marketing Channel LogisticsMarketing Channel LogisticsMarketing Channel LogisticsMarketing Channel Logistics

Logistics make products available Logistics make products available to customersto customers Also called physical distribution (PD)Also called physical distribution (PD) Supply chain management (SCM) are Supply chain management (SCM) are

logistical systems that facilitate close logistical systems that facilitate close cooperation among firms in a channelcooperation among firms in a channel

Dr. Rosenbloom


Total Cost Approach and Systems ConceptTotal Cost Approach and Systems Concept

Management

views logistics as

a system of

interrelated

components

Management

tries to reduce

cost of using the

components

as a whole

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Systems Concept

Total Cost

Approach

Dr. Rosenbloom


Almost all Almost all products products must be must be movedmoved

Generally Generally one of the one of the highest highest percentage percentage costscosts

Use in-house Use in-house transport or transport or common common carriers?carriers?

What rates What rates are available?are available?

What are What are competitors competitors doing?doing?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Growing Growing use of cross-use of cross-dockingdocking

How to How to minimize minimize distancesdistances

What What equipment equipment should be should be used?used?

How to use How to use labor labor efficientlyefficiently

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Order cycle Order cycle time (time time (time between between order and order and delivery)delivery)

How to How to reduce errors reduce errors in order in order processingprocessing

How to How to develop develop standards for standards for different different product types product types

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Economic Economic order order quantity quantity (EOQ) is (EOQ) is the lowest the lowest total cost total cost (inventory (inventory carry cost + carry cost + ordering ordering costs)costs)

How to How to balance balance inventory inventory levels with levels with order sizes order sizes

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Growth of Growth of single item single item shipmentsshipments

Where to Where to locate a locate a warehousewarehouse

Number of Number of warehousing warehousing units and size units and size of unitsof units

Ownership Ownership question question

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Effective Effective packaging packaging can help can help control control inventory inventory carry costs carry costs and help and help logistics logistics efficiencyefficiency

What type of What type of package is package is required required (sturdiness, (sturdiness, etc.)etc.)

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Dr. Rosenbloom


Customer service is the Customer service is the output of logistics output of logistics systemssystems

Dr. Rosenbloom

Corporate SystemsCorporate Systems Administered VMSAdministered VMS Administered VMSAdministered VMS

Conventional channel with one channel member Conventional channel with one channel member (a manufacturer, wholesaler, or retailer) (a manufacturer, wholesaler, or retailer) informally acting as the channel leader.informally acting as the channel leader.

Contractual SystemsContractual Systems

Vertical Marketing SystemsVertical Marketing SystemsVertical Marketing SystemsVertical Marketing Systems

Dr. Rosenbloom

Corporate SystemsCorporate Systems Corporate SystemsCorporate Systems Administered VMSAdministered VMS

Contractual SystemsContractual Systems


Combines all levels of the marketing channel Combines all levels of the marketing channel under one company’s ownershipunder one company’s ownership

Dr. Rosenbloom

Corporate SystemsCorporate Systems Administered VMSAdministered VMS

Contractual SystemsContractual Systems Contractual SystemsContractual Systems


Are integrated via contractual agreementAre integrated via contractual agreement Franchising is the major form of contractual Franchising is the major form of contractual

VMS. Others include voluntary chains and VMS. Others include voluntary chains and cooperativescooperatives

Marketing Channels

Documents

Transcript of Marketing Channels