chapter thirteen marketing channels and logistics...

CHAPTER THIRTEENCHAPTER THIRTEENMARKETING CHANNELSMARKETING CHANNELS

ANDANDLOGISTICS MANAGEMENTLOGISTICS MANAGEMENT

STRATEGIC IMPLICATIONS: THEROLE OF MARKETING CHANNELS

IN MARKETING STRATEGY

STRATEGIC IMPLICATIONS: THESTRATEGIC IMPLICATIONS: THEROLE OF MARKETING CHANNELSROLE OF MARKETING CHANNELS

IN MARKETING STRATEGYIN MARKETING STRATEGYnn Channels provide the means by which the firmChannels provide the means by which the firm

moves the goods and services it produces to ultimatemoves the goods and services it produces to ultimateusersusers

nn Channels perform four important functions. They:Channels perform four important functions. They:–– Facilitate the exchange process by cutting theFacilitate the exchange process by cutting the

number of contacts necessarynumber of contacts necessary–– Adjust for discrepancies in the marketAdjust for discrepancies in the market’’ss

assortment of goods and services viaassortment of goods and services via sortingsorting–– Standardize payment terms, delivery schedules,Standardize payment terms, delivery schedules,

prices, and purchase lotsprices, and purchase lots–– Facilitate searches by both buyers and sellersFacilitate searches by both buyers and sellers

TYPES OF MARKETINGCHANNELS

TYPES OF MARKETINGTYPES OF MARKETINGCHANNELSCHANNELS

nn Marketing channel:Marketing channel: system of marketingsystem of marketinginstitutions that promotes the physical flow ofinstitutions that promotes the physical flow ofgoods and services, along with ownership title,goods and services, along with ownership title,from producers to consumer or business user;from producers to consumer or business user;also called aalso called a distribution channeldistribution channel

nn Marketing intermediary:Marketing intermediary: wholesaler or retailerwholesaler or retailerthat operates between producers and consumersthat operates between producers and consumersor business users; also called aor business users; also called a middlemanmiddleman

nn Wholesaler:Wholesaler: marketing intermediary that takesmarketing intermediary that takestitle to goods and then distributes these goodstitle to goods and then distributes these goodsfurther; also called afurther; also called a jobberjobber oror distributordistributor

nn I. Channel Structure refers to the various combinationsof institutions (e.g., manufacturers, wholesalers, andretailers) that join forces in a marketing channelarrangement to facilitate the delivery of goods andservices to ultimate consumers or users (Stern and El-Ansary 1988).

n II. Governance Structure is the framework in whichchannel members conduct business and interact. Inother words, the institutional framework in whichrelationships are established and the terms of therelationship (contracts) are initiated, negotiated,monitored, adapted, enforced, and terminated.

TWO COMPONENTS OFCHANNELS OF DISTRIBUTION

Figure 13.2:AlternativeMarketingChannels

Figure 13.2:Figure 13.2:AlternativeAlternativeMarketingMarketingChannelsChannels

TYPES OF MARKETINGCHANNELS

TYPES OF MARKETINGTYPES OF MARKETINGCHANNELSCHANNELS

Step 1. Analyze Consumer Needs for Channel Services:

* Locational convenience

* Lot size

* Delivery time

* Product variety

Step 2. Establish Channel Objectives for Delivering Service Levels

Step 3. Set Channel Strategy in Terms of:

* Coverage

* Support & Ownership

Step 4. Select Appropriate Channel from Available Alternatives

Direct or Indirect

Step 5. Select Specific Channel Partners

STEPS IN THE CHANNEL STRUCTURE AND DESIGNPROCESS

CHANNEL OBJECTIVE

I. Channel structure must be derived from channel objectives. Theseobjectives, in turn, result from a careful analysis of the service levelsdesired by consumers and from management’s long-run overallgoals for the organization.

II. The specific objectives for the channel must be couched in terms ofthe service levels that are needed to meet the demands of thechannel’s target market.

EXAMPLE

A well-known food processor recently developed a high-qualityprepared frozen entree to be sold in supermarkets and conveniencestores. The channel objectives for this company were clearly stated.

“WE WANT THIS PRODUCT TO BE NO MORE THAN A TEN-MINUTE DRIVE FROM 75 PERCENT OF THE FULL-TIMEWORKING WOMEN IN THE UNITED STATES. WE PLAN TOREACH THIS GOAL WITHIN 12 MONTHS OF OUR PRODUCTROLL-OUT.”

CHANNEL STRATEGYDECISIONS

CHANNEL STRATEGYCHANNEL STRATEGYDECISIONSDECISIONS

nn Distribution intensity:Distribution intensity: numbernumberof intermediaries through whichof intermediaries through whicha manufacturer distributes itsa manufacturer distributes itsgoodsgoods

nn Intensive distribution:Intensive distribution: channelchannelpolicy in which a manufacturerpolicy in which a manufacturerof a convenience productof a convenience productattempts to saturate the marketattempts to saturate the market

nn Selective distribution:Selective distribution: channelchannelpolicy in which a firm choosespolicy in which a firm choosesonly a limited number ofonly a limited number ofretailers to handle its productretailers to handle its productlineline

DeterminingDistribution Intensity

DeterminingDeterminingDistribution IntensityDistribution Intensity



nn Exclusive distribution:Exclusive distribution:channel policy in whichchannel policy in whicha firm grants exclusivea firm grants exclusiverights to a singlerights to a singlewholesaler or retailer towholesaler or retailer tosell its products and asell its products and aparticular geographicparticular geographicareaarea

DeterminingDistribution Intensity

DeterminingDeterminingDistribution IntensityDistribution Intensity



nn Factors which impactFactors which impactthe selection of athe selection of amarketing channelmarketing channelinclude:include:–– Market factorsMarket factors–– Product factorsProduct factors–– Organizational factorsOrganizational factors–– Competitive factorsCompetitive factors

Selection of Director Indirect

Marketing Channel

Selection of DirectSelection of Director Indirector Indirect

Marketing ChannelMarketing Channel

InexpensiveInexpensiveExpensiveExpensive

StandardizedStandardizedComplexComplex

DurableDurablePerishablePerishableProductProductfactorsfactors

Small ordersSmall ordersLarge ordersLarge orders

Little technicalLittle technicalknowledge and regularknowledge and regularservicing not requiredservicing not required

Extensive technicalExtensive technicalknowledge and regularknowledge and regularservicing requiredservicing required

Geographically diverseGeographically diverseGeographicallyGeographicallyconcentratedconcentrated

ConsumersConsumersBusiness usersBusiness usersMarketMarketfactorsfactors

Characteristics of LongCharacteristics of LongChannelsChannels

Characteristics of ShortCharacteristics of ShortChannelsChannels

Table 13.1: Factors Influencing MarketingChannel Strategies

Manufacturer feelsManufacturer feelsdissatisfied withdissatisfied withmarketingmarketingintermediariesintermediaries’’performance inperformance inpromoting productspromoting products

Manufacturing feelsManufacturing feelssatisfied with marketingsatisfied with marketingintermediariesintermediaries’’performance inperformance inpromoting productspromoting products

CompetitiveCompetitivefactorsfactors

Channel control notChannel control notimportantimportant

Limited product lineLimited product line

Channel controlChannel controlimportantimportant

Broad product lineBroad product line

Manufacturer lacksManufacturer lacksadequate resources toadequate resources toperform channelperform channelfunctionsfunctions

Manufacturer hasManufacturer hasadequate resources toadequate resources toperform channelperform channelfunctionsfunctions

ProducerProducerfactorsfactors

Characteristics ofCharacteristics ofLong ChannelsLong Channels

Characteristics ofCharacteristics ofShort ChannelsShort Channels

Table 13.1: Factors Influencing Marketing ChannelTable 13.1: Factors Influencing Marketing ChannelStrategies (Continued)Strategies (Continued)



nn FundamentalFundamentalprinciple that governsprinciple that governschannel decisions:channel decisions:Channel members can shiftChannel members can shiftresponsibilities for theresponsibilities for theperformance of certainperformance of certainmarketing functions, butmarketing functions, butthey cannot eliminatethey cannot eliminatecentral functionscentral functions

Who Should PerformChannel Functions?

Who Should PerformWho Should PerformChannel Functions?Channel Functions?

VERTICAL MARKETINGSYSTEMS

VERTICAL MARKETINGVERTICAL MARKETINGSYSTEMSSYSTEMS

nn Vertical marketing system (VMS):Vertical marketing system (VMS):planned channel system designed toplanned channel system designed toimprove distribution efficiency and costimprove distribution efficiency and costeffectiveness by integrating variouseffectiveness by integrating variousfunctions throughout the distributionfunctions throughout the distributionchainchain



nn Corporate marketingCorporate marketingsystem:system: a VMS in whicha VMS in whicha single owner operatesa single owner operatesat each stage in itsat each stage in itsmarketing channelmarketing channel

nn Example: HartmarxExample: Hartmarxmarkets its Hartmarkets its HartSchaffner and Marx suitsSchaffner and Marx suitsthrough companythrough company--ownedownedstores and selectedstores and selectedindependent retailersindependent retailers

CorporateSystems



nn Administered marketingAdministered marketingsystem:system: VMS thatVMS thatachieves channelachieves channelcoordination when acoordination when adominant channeldominant channelmember exercises itsmember exercises itspowerpower

nn Example: Goodyear sellsExample: Goodyear sellstires throughtires throughindependently ownedindependently owneddealers, but controls thedealers, but controls thestock that the dealersstock that the dealerscarrycarry

AdministeredSystems

CHANNEL MANAGEMENTAND LEADERSHIP

CHANNEL MANAGEMENTCHANNEL MANAGEMENTAND LEADERSHIPAND LEADERSHIP

nn Channel Captain:Channel Captain: a dominant anda dominant andcontrolling member of a marketingcontrolling member of a marketingchannelchannel



nn Contractual marketingContractual marketingsystem:system:VMS that coordinatesVMS that coordinateschannel activitieschannel activitiesthrough formalthrough formalagreements amongagreements amongchannel members like:channel members like:–– WholesalerWholesaler--SponsoredSponsored

Voluntary ChainsVoluntary Chains–– Retail CooperativesRetail Cooperatives–– FranchisesFranchises

ContractualSystems

chapter thirteen marketing channels and logistics...

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