Marketing Management

30 May 2011

Marketing Channels

Delivering Customer Value

Supply Chains and Value Delivery Networks

• Company relationships are important to ensure that your products get to the end consumer

• Resellers and suppliers are key in a company’s supply chain• Upstream and Downstream partners

– Upstream from the company to create a product or service e.g. raw materials, components

– Downstream marketing channel partners such as wholesalers and retailers

• Supply chain - make and sell view of business process• Demand chain – sense and respond view of the market

– Planning starts with needs of the target consumers• Value Delivery Network: A network made up of the company

suppliers, distributors, and customers who collectively partner to improve the performance of the system in delivering customer value

Nature and Importance of Marketing Channels

• Most companies use intermediaries to bring products to market through distribution channels

• Marketing/Distribution Channels: A set of interdependent organisations that assist in making a product available for use or consumption by the end user

• Channel decisions affect all other marketing decisions• Companies can use their distribution systems to gain a

competitive advantage• Distribution channel decisions are often long-term

contractual agreements• Changing needs and wants should be considered before

decisions are completed

Value of Channel Members

• Producers use intermediaries for greater efficiencies in availing goods to their target market

• Producers make few assortments in large quantities• Consumers require broad assortments in small

quantities• Marketing channel members purchase large quantities

and break them to broader assortments in smaller quantities

• Channel members add value through bridging time, place and possession gaps that separate goods from users

• Marketing channel intermediaries make buying easier for consumers

• What would life be like without your grocery store?

Value of Channel Members

Value of Channel Members

Key Functions of channel members• Information: gathering, distributing, intelligence and aiding

exchange• Promotion: developing and spreading communication• Contact: finding and communicating with buyers• Matching: shaping and fitting offer to the buyer’s needs• Negotiating: reaching an agreement to ensure transfer of

ownership and possessionFor Completed Transactions• Physical Distribution: Transporting and storage of goods• Financing: Acquiring and using funds to cover costs of

channel work• Risk Taking: Assuming the risks of the channel work

Channel Levels• Channel levels are layers of intermediaries which perform

work in bringing products and ownership closer to end buyers• Producers and the end buyer/consumer are also part of every

channel• The number of intermediary levels indicates the length of a

channel• A direct marketing channel has no intermediary levels• An indirect marketing channel has one or more intermediary

levels• For a producer, the greater the levels, the less control and

greater complexity• Institutions within a channel are connected by flows i.e.

physical flow of products, flow of ownership, payment flow, info flow, promo flow

Channel Levels

Channel Levels

Channel Behaviour and Organisation

Channel Behaviour• Firms that have partnered for their common good – marketing

channel• All channel members play a specialised and significant role and

should strive to work together• Agreements may take place over roles, goals and rewards.

These lead to channel conflicts• Horizontal Conflicts: conflict occurs amongst firms at the same

level• Vertical Conflicts: conflict occurs with firms at different levels of

the same channel• Good healthy competition is good for a channel to prevent

passive and non-innovative companies• Severe and prolonged conflicts which impede on the customer’s

value disrupts channel effectiveness

Channel Behaviour and Organisation

Vertical Marketing Systems• A channel always performs better if it includes a firm, an

agency, or leadership to assign roles and to manage conflict

• Conventional distribution channels have often lacked leadership and has led to vertical marketing systems

• Conventional Distribution Channel: one or more independent producers, wholesalers, and retailers. – Each has goals to maximise profits often at the expense of the

holistic system– No channel member has control over the other members– No formal means of assigning roles and resolving conflicts

Channel Behaviour and Organisation

Channel Behaviour and Organisation

• Vertical Marketing System (VMS): consists of producers, wholesalers, and retailers acting as a united system– One channel member owns the others and has

contracts with them– The VMS can be owned by the producer, wholesaler

or retailer

• Three Types of VMSs – Corporate, Contractual and Administered

• They all use different types of leadership, power and control in the channel

Channel Behaviour and Organisation

Corporate VMS• A vertical marketing system which combines successive stages of

production and distribution under single ownership– Channel leadership is through common ownership

Contractual VMS• A vertical marketing system in which independent firms at different

levels of production and distribution join together through contracts for economies or sales impact

– Franchises are the most common and they can be broken into: Manufacturer-sponsored Retailer and Wholesaler Franchise Systems; and Service-firm-sponsored retailer franchise systems

Administered VMS• A vertical marketing system which coordinates successive stages of

production and distribution through the size of one of the parties– No common ownership or contractual ties– Well known and respected manufacturers and resellers

Channel Behaviour and Organisation

• Horizontal Marketing System: A channel arrangement where two or more companies at one level join collectively to follow a new marketing opportunity– Maybe competitors or noncompetitors– E.G. Steers and Total or Macro and Hot Dog Café

• Multichannel Distribution Systems: A distribution system where a firm uses two or marketing channels to reach one or more customer segments– Also called a hybrid marketing channel

• Disintermediation: Cutting out of channel intermediaries by product or service producers, or when new types of intermediaries displace old, traditional ones– Internet and Technology has had a major effect– E.G. low cost airlines and direct bookings

See you next time.

Cheers Guys!