marketing channels: marketing channels: delivering customer value chapter 10

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Marketing Channels:Marketing Channels:Delivering Customer Value

Chapter 10

Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 10 - 2

Chapter OutlineChapter Outline Supply Chains and the Value Delivery

Network The Nature and Importance of

Marketing Channels Channel Behavior and Organization Channel Design Decisions Channel Management Decisions Marketing Logistics and Supply Chain

Management


1. Explain why companies use marketing channels and discuss the functions these channels perform.

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

3. Identify the major channel alternatives open to a company.

4. Explain how companies select, motivate, and evaluate channel members.

5. Discuss the nature and importance of marketing logistics and integrated supply chain management.

Previewing the ConceptsPreviewing the Concepts


Supply Chains and the Supply Chains and the Value Delivery NetworkValue Delivery Network

Producing and making products available to buyers requires building relationships with “upstream” and “downstream” supply chain partners.– Upstream: Firms that supply the raw

materials, components, parts, and other elements necessary to create a good.

– Downstream: Marketing channel partners that link the firm to the customer.


Value Delivery NetworkValue Delivery Network

The network made up of the The network made up of the company, suppliers, distributors, company, suppliers, distributors, and ultimately customers who and ultimately customers who “partner” with each other to “partner” with each other to improve the performance of the improve the performance of the entire system in delivering entire system in delivering customer value.customer value.


Supply Chains and the Supply Chains and the Value Delivery NetworkValue Delivery Network

Marketing channels, such as retailers, represent the “downstream” side of the value delivery network.


Marketing ChannelsMarketing Channels

A set of interdependent A set of interdependent organizations that help organizations that help make a product or service make a product or service available for use or available for use or consumption by the consumption by the consumer or business users.consumer or business users.


Nature and Importance of Nature and Importance of Marketing ChannelsMarketing Channels

Marketing channel decisions:– Affect other marketing decisions, such as

pricing or product design.– Can lead to competitive advantage.


Figure 10.1:Figure 10.1:

How Adding A Distributor Reduces the How Adding A Distributor Reduces the Number of Channel TransactionsNumber of Channel Transactions



How channel members add value:– The use of intermediaries

results from their greater efficiency in making goods available to target markets.

– Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.


The Nature and Importance of The Nature and Importance of Marketing ChannelsMarketing Channels

How channel members add value: Intermediaries offer the firm more than

it can achieve on its own through their contacts, experience, specialization, and scale of operations.

From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers.



How channel members add value:– Channel members can offer more:

• Contacts.• Experience.• Specialization.• Scale of operation.

– Channel members may perform many functions.



Transaction fulfillment:– Physical

distribution– Financing– Risk taking

Transaction completion:– Information– Promotion– Contact– Matching– Negotiation

Key functions performed by channel members:




Promotion refers to the development and spreading persuasive communications about an offer.

Contacts refers to finding and communicating with prospective buyers.




Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.

Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.




Physical distribution refers to transporting and storing goods.

Financing refers to acquiring and using funds to cover the costs of carrying out the channel work.

Risk taking refers to assuming the risks of carrying out the channel work.



Customer and Business Customer and Business Marketing ChannelsMarketing Channels



Number of channel levels:– The number of intermediary levels

indicates the length of a channel.• Direct marketing channels

– Have no intermediary levels between the manufacturer and the customer.

• Indirect marketing channels– Contains one or more intermediaries.

– All channel institutions are connected by several types of flows.


Channel Behavior and OrganizationChannel 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 channel

goals. Otherwise, channel conflict can occur:

– Horizontal conflict occurs among firms at the same level of the channel (e.g., retailer to retailer).

– Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).

Some conflict can be healthy competition.


Channel BehaviorChannel Behavior


Marketing in ActionMarketing in Action Goodyear’s

1992 decision to sell tires via Sam’s, Wal-Mart, and Sears created conflict with it’s prized network of independent dealers.



Comparison of Conventional Distribution Channel Comparison of Conventional Distribution Channel with Vertical Marketing Systemwith Vertical Marketing System


Channel Behavior and OrganizationChannel Behavior and Organization

Conventional distribution channel:– Consists of one or more independent producers,

wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.

Vertical marketing system (VMS):– A distribution channel structure in which

producers, wholesalers, and retailers act as a unified system. One channel member either (i) owns the other, (ii) has contracts with them, or (iii) has so much power that they all cooperate.


Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems

Many restaurant chains franchise to expand distribution.


Franchise organizations are a common form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process.

Types of franchise organizations:– Manufacturer-sponsored retailer franchise.– Manufacturer-sponsored wholesaler franchise.– Service-firm sponsored retailer franchise.



Marketing in ActionMarketing in Action

Almost every kind of business has been franchised. Visit www.franchise.com to view the many opportunities.

http://www.franchise.com/


Horizontal marketing systems:– Two or more

companies at one level join together to follow a new marketing opportunity.


McDonald’s now places “express” versions of their stores in many Wal-Marts.



Multichannel Distribution SystemMultichannel Distribution System


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

more marketing channels to reach one or more customer segments.

– Also called hybrid marketing channel system.

– Offers many advantages.




Multichannel distribution systems allow firms to expand sales and market coverage while tailoring products to diverse needs of market segments.

However, the decision to go multichannel often creates conflict. John Deere dealers complained loudly when Lowe’s began selling select products.


Changing channel organization:– Disintermediation occurs when product

and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries.



Changing channel organization:– Disintermediation presents both

problems and opportunities for both producers and resellers.

• Resellers and intermediaries must innovate to survive.

• Producers must seek additional direct channels to remain competitive, though channel conflict often results.



Channel Design DecisionsChannel Design Decisions

Designing effective marketing Designing effective marketing channels by analyzing channels by analyzing consumer needs, setting consumer needs, setting channel objectives, identifying channel objectives, identifying major alternatives, and major alternatives, and evaluating them.evaluating them.

Firms often struggle between what is ideal and what is practical.


Channel Design DecisionsChannel Design Decisions 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, or online?

– Do they value breadth of assortment or do they prefer specialization?

– Do consumers want many add-on services? Firm must balance needs against costs and

consumer price preferences.


Channel Design DecisionsChannel Design Decisions 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 firm’s products.– Marketing intermediaries.– Competitors.– Environment.


Channel Design DecisionsChannel Design Decisions Identifying major alternatives:

– Types of intermediaries:• Retailers, “value-added” retailers,

independent distributors, dealers, etc.– Number of marketing intermediaries

(distribution strategies):• Intensive, selective, or exclusive

distribution.– Responsibilities of channel members.

• Price policies, conditions of sale, territories and services to be performed.


Channel Design DecisionsChannel Design DecisionsNumber of Marketing Intermediaries (Distribution Strategies)


Channel Design DecisionsChannel Design DecisionsIntensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.



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Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g.– Luxury automobiles– High-end apparel

http://www.mercedes-benz.com.sg/



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Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products.– Televisions– Electrical appliances

http://en.wikipedia.org/wiki/Image:Best_Denki-SG.JPG

http://www.hitachi.com.sg/

http://www.toshiba.com.sg/default.aspx



Rolex sells its watches exclusively through only a handful of authorized dealers in any given market.

Such limited distribution enhances the brand’s image and generates stronger retailer support.


Evaluating the major alternatives involves comparing 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.



Designing International ChannelsDesigning International Channels

Channel design decisions can be very challenging:– Each country has its own unique distribution

system.– Distribution systems can be complex with

many layers and a large number of intermediaries.

– Distribution systems in developing countries may be scattered or inefficient.

– Customs and government regulation can restrict distribution in global markets.



When the Chinese government banned door-to-door selling, Avon had to abandon its traditional direct marketing approach and sell through retail shops.


Channel Management DecisionsChannel Management Decisions

Marketing channel management:– Selecting channel

members.– Managing and

motivating channel members:

• Partner relationship management.

– Evaluating channel members.

Caterpillar works closely with its worldwide network of independent dealers to find better ways to bring value to customers.


Marketing LogisticsMarketing Logistics

Planning, implementing, and Planning, implementing, and controlling the physical flow of controlling the physical flow of materials, final goods, and materials, final goods, and related information from points related information from points of origin to points of of origin to points of consumption to meet customer consumption to meet customer requirements at a profit.requirements at a profit.

Involves supply chain management.



Supply Chain ManagementSupply Chain Management


Marketing Logistics and Supply Marketing Logistics and Supply Chain ManagementChain Management

Greater emphasis has been placed on logistics recently because:– Firms can gain a competitive advantage when

logistics result in better service or lower prices.– Improved logistics can lower costs.– Increased product variety has created a need for

improved logistics management.– Improvements in information technology have

created the means for major gains in distribution efficiency.

– Logistics effect the environment as well as the firm’s environmental sustainability efforts.



Cost considerations of logistics are becoming increasingly important.

At any given time, Ford has more than 500 million tons of finished vehicles, production parts, and aftermarket parts in transit, running up an annual logistics bill of around $ 4 billion.


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.



Marketing in ActionMarketing in Action More than 80%

of American communities depend solely on the trucking industry for the delivery of their goods. “Good stuff. Trucks bring it.”



Warehousing:– How many,

what types, and where?

– Storage warehouses

– Distribution centers

Inventory management:– Balance between

too much and too little inventory

– Just-in-time logistics systems

– RFID or “smart tag” technology



Warehousing is the storage function that overcomes difference in need quantities and timing, ensuring that the products are available when customers are ready to buy them.

Storage warehouses are designed to store goods, not move them.

Distribution centers are designed to move goods, not store them.



Just-in-time logistics systems allow producers and retailers to carry small amounts of inventories of parts of merchandise.

RFID (radio frequency identification devices) are small transmitter chips embedded in or placed on products or packages to provide greater inventory control.



Trucks Railroads Water carriers Pipelines Air carriers

Internet Intermodal

transportation– Piggyback,

fishyback, trainship, airtruck

Transportation alternatives:

Transportation affects the pricing of products, delivery performance, and condition of the goods when they arrive



Intermodal transportation combines two or more modes of transportation.– Piggyback uses rail and truck.– Fishyback uses water and truck.– Airtruck uses air and truck.– Trainship uses rail and water.


Integrated Logistics ManagementIntegrated Logistics Management

The logistics concept that The logistics concept that emphasizes teamwork, both emphasizes teamwork, both inside the company and among inside the company and among all the marketing channel all the marketing channel organizations, to maximize the organizations, to maximize the performance of the entire performance of the entire distribution system.distribution system.


Integrated Logistics ManagementIntegrated Logistics Management

Integrated logistics management requires:– Cross-functional teamwork inside the

company.– Building logistics partnerships.– Outsourcing to third-party logistics

providers.



Third-party logistics companies such as Ryder help clients to tighten up sluggish, overstuffed supply chains, slash inventories, and get products to customers more quickly and reliably.


1. Explain why companies use marketing channels and discuss the functions these channels perform.

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

3. Identify the major channel alternatives open to a company.

4. Explain how companies select, motivate, and evaluate channel members.

5. Discuss the nature and importance of marketing logistics and integrated supply chain management.

Reviewing the ConceptsReviewing the Concepts

marketing channels: marketing channels: delivering customer value chapter 10

Documents

marketing channel partners

marketing decisions

supply chain managementexplain

use of intermediaries

products available

goods available

conceptssupply chains

product design