dr. close. introduction to channels (1) channel: firms handling goods between production and...

Dr. Close

Introduction to Channels (1) Channel: firms handling goods between production and consumption (Wal-Mart)

Importance: Toughest “P” to change: expense (Sears)

Functions: producers & consumers are far apart (geographically & desires)

Introduction to Channels (2) Adjusting Discrepancies (also customers generally do not want to shop separately) Middlemen: Discrepancies of quantity

Producers make a lot of each item (examples??) Consumers want just a few (P&G: toothpaste)

Middlemen: Discrepancies of Assortment Consumers want many types of items

(examples??) Producers make a few types (Ford; diversity)

Introduction to Channels (3) How we change quantity & assortment: regrouping activities Middlemen: Adjusting quantity

Accumulating: collect products from many small producers (shipping firm; farmer market; what else??)

Bulk breaking: reducing quantity as products move to consumer (autos)

Introduction to Channels (4)

Middlemen: Adjusting assortment Sorting: group by grade quality (mutual

funds; agricultural products; bonds; what else??)

Assorting: put items together in attractive offering (K-Mart)

Many other types of intermediaries

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Marketing IntermediariesMarketing Intermediaries

Middleman – independent link between producers and Middleman – independent link between producers and consumersconsumers

Merchant middleman – actually buys goods and takes Merchant middleman – actually buys goods and takes title/ownershiptitle/ownership

Agent – business unit that negotiates purchases and sales Agent – business unit that negotiates purchases and sales but does not take ownershipbut does not take ownership

Wholesaler – a merchant who primarily stores and handles Wholesaler – a merchant who primarily stores and handles goods in large quantities goods in large quantities

Retailer – merchant middleman who sells to final consumers Retailer – merchant middleman who sells to final consumers Broker – middleman who serves as a go-between for the Broker – middleman who serves as a go-between for the

buyer and sellerbuyer and seller

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Marketing IntermediariesMarketing Intermediaries

Manufacturer’s agent – an agent who operates by contract Manufacturer’s agent – an agent who operates by contract serving a geographic territoryserving a geographic territory

Distributor – wholesale middleman in lines with selective or Distributor – wholesale middleman in lines with selective or exclusive distributionexclusive distribution

Jobber – a middleman who buys from manufacturers and Jobber – a middleman who buys from manufacturers and sells to retailers sells to retailers

Facilitating agent – a firm that performs distribution tasks Facilitating agent – a firm that performs distribution tasks other than buying, selling and transferringother than buying, selling and transferring

Channels & the Customer (1) Traditional: no cooperation

Vertical marketing system Entire channel focuses on customer Over 60% of consumer products Any examples?

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Vertical Marketing SystemVertical Marketing System

Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems

Channels & the Customer (2)

Variations on vertical marketing system Corporate channel: AKA vertical integration

Buy/create own channel members (Wal-Mart, Motorola)

Adv: greater control Dis: need great skill

Administration channel Informal agreement to cooperate Grocery store

Ordering: restock Promotion: displays

Channels & the Customer (3) Variations on vertical marketing system

(cont…) Contractual Channel: formal, written

agreement to cooperate (joint venture) Short term agreements also possible (movies, cereals, and what else??)

Outcomes (1) Goal: ideal market exposure – product

available enough to meet (not exceed) needs.

Alternatives: Intensive (Candy, gum)

Good available at all suitable outlets Not necessarily all Adv: exposure Seen in growth and market maturity

Outcomes (2) Alternatives:

Selective (Levi’s and what else??) Only “better” outlets (those giving push) Gaining relative to intensive (80-20 rule)

Exclusive (fast food; Rolex; autos) One intermediary/area Expansion? (buy first, McDonald’s)

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Channels of DistributionChannels of Distribution

Conventional Channels of Distribution of Consumer GoodsConventional Channels of Distribution of Consumer Goods

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Some Benefits of Wholesalers for Some Benefits of Wholesalers for Various Channel MembersVarious Channel Members

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Major Functions Performed in Major Functions Performed in Channels of DistributionChannels of Distribution

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Selecting Channels of DistributionSelecting Channels of Distribution

In either the presence or the absence of a traditional In either the presence or the absence of a traditional channel, a primary constraint is that of the availability channel, a primary constraint is that of the availability of various types of middlemenof various types of middlemen

Selecting a channel of distribution can hinge on one of Selecting a channel of distribution can hinge on one of these factorsthese factors Distribution coverage requiredDistribution coverage required Degree of control desiredDegree of control desired Total distribution costTotal distribution cost Channel flexibilityChannel flexibility

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Selecting Channels of DistributionSelecting Channels of Distribution

Distribution coverage – Channel selection may Distribution coverage – Channel selection may depend upon the nature of market coverage desireddepend upon the nature of market coverage desired Intensive distribution – Using as many wholesalers and Intensive distribution – Using as many wholesalers and

retailers as possibleretailers as possible Selective distribution – Using only the best available per Selective distribution – Using only the best available per

geographic areageographic area Exclusive distribution – Selected intermediaries are Exclusive distribution – Selected intermediaries are

given exclusive rights within a particular territorygiven exclusive rights within a particular territory

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Selecting Channels of DistributionSelecting Channels of Distribution

Degree of control desired – Achieved by the seller is Degree of control desired – Achieved by the seller is proportionate to the directness of channelproportionate to the directness of channel

Total distribution cost – Channel should be viewed as Total distribution cost – Channel should be viewed as a total system composed of interdependent a total system composed of interdependent subsystems subsystems Objective should be to optimize total system Objective should be to optimize total system

performanceperformance Generally assumed that the total system should be Generally assumed that the total system should be

designed to minimize costs, other things being equaldesigned to minimize costs, other things being equal Channel flexibility – Ability of the manufacturer to Channel flexibility – Ability of the manufacturer to

adapt to changing conditionsadapt to changing conditions

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Franchising: An Alternative to Conventional Franchising: An Alternative to Conventional Channels of DistributionChannels of Distribution

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Franchising: An Alternative to Conventional Franchising: An Alternative to Conventional Channels of DistributionChannels of Distribution

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Store RetailingStore Retailing

Mass merchandisers – Carry broad assortments of Mass merchandisers – Carry broad assortments of goods and compete based on selection and pricegoods and compete based on selection and price

Specialty stores – Handle deep assortments in a Specialty stores – Handle deep assortments in a limited number of product categorieslimited number of product categories Limited-line storesLimited-line stores Single-line storesSingle-line stores Category killersCategory killers

Convenience stores – Retailers whose primary Convenience stores – Retailers whose primary advantages are location convenience, close-in advantages are location convenience, close-in parking, and easy entry and exitparking, and easy entry and exit

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Non-Store RetailingNon-Store Retailing

Catalogs and direct mailCatalogs and direct mail Vending machinesVending machines Television home shoppingTelevision home shopping Direct salesDirect sales Electronic exchangeElectronic exchange E-cart abandonmentE-cart abandonment

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Annual Nonstore Retail SalesAnnual Nonstore Retail Sales

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Electronic Commerce: Advantages and Electronic Commerce: Advantages and Disadvantages for MarketersDisadvantages for Marketers