Part 1Part 1
Marketing Channel Systems
Primer on “The Basics”Primer on “The Basics”
What is Marketing?
Primer on “The Basics”Primer on “The Basics”
What is Marketing?
• Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. (Lusch and Marshall 2004)
• Competition for a Differential Advantage (Alderson 1957)
Primer on “The Basics”Primer on “The Basics”
What is the Marketing Concept?
• A management philosophy which advocates that a business organization (or channel):
Primer on “The Basics”Primer on “The Basics”
What is the Marketing Concept?
• A management philosophy which advocates that a business organization (or channel):– Exists to identify and satisfy the needs of its customers (i.e.,
customer orientation)
– That a customer orientation is accomplished through an integrative effort throughout the firm or channel (i.e., integrated effort)
– That the firm’s (or channel’s) focus should be long-term and seek to provide a satisfactory return on owner’s investment (ROI) (i.e., long-term profit orientation)
Primer on “The Basics”Primer on “The Basics”
What are the Eight (8) General Marketing Functions?
Primer on “The Basics”Primer on “The Basics”
What are the Eight (8) General Marketing Functions?
• Buying
• Selling
• Storing
• Transporting
• Sorting
• Financing
• Information Gathering
• Risk Taking
Primer on “The Basics”Primer on “The Basics”
What Purpose do
Marketing Channels Perform?
Primer on “The Basics”Primer on “The Basics”
What Purpose do
Marketing Channels Perform?
• Make products and services conveniently available to customers when, where, and how they want them in order to satisfy demand.
– The farmer, egg, & grocery store example.
Chapter 1Chapter 1
Marketing Channel Concepts
WhyWhy the growing importance of the growing importance of marketing channels?marketing channels?
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1. The explosion of information technology and
E-commerce
2. A greater difficulty in gaining a sustainable competitive advantage
3. The growing power of distributors, especially retailers in marketing channels
4. The need to reduce distribution costs
Objective 1:
11.. 2. A greater difficulty in gaining a sustainable competitive
advantage 3. The growing power of distributors, especially retailers
in marketing channels 4. The need to reduce distribution costs
11
Yahoo! eBay
Amazon.com
The prediction:Disintermediation — reduction of number of intermediaries
The reality:Reintermediation—evolution of a new type of intermediary
The explosion of information technology and E-commerceThe explosion of information technology and E-commerce
E-commerce is more an evolution than a revolution in marketing.
11.. 2. A greater difficulty in gaining a sustainable competitive
advantage 3. The growing power of distributors, especially retailers
in marketing channels 4. The need to reduce distribution costs
11 The explosion of information technology and E-commerceThe explosion of information technology and E-commerce
1. The explosion of information technology and E- commerce 2.2. 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs
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A greater difficulty in gaining a sustainable competitive advantageA greater difficulty in gaining a sustainable competitive advantage
Place (distribution), or Marketing
Channel Strategy Sustainable competitive advantage
Potential for gaining competitive advantage because place is more difficult for competitors
to copy
1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3.3. 4. The need to reduce distribution costs
The growing power of distributorsThe growing power of distributors
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Power retailers as gatekeepers of consumer markets
Act as buying agents for customers rather than as selling agents for manufacturers
1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors 4.4.
The need to reduce distribution costsThe need to reduce distribution costs
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Marketing channels are the most recent target for
reducing distribution costs.
The focus is on channel structure and management.
What is a marketing channel?What is a marketing channel?
External contactual organization that management operates to achieve its distribution objectives
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Outside the firm
Firm involved in negotiatory functions
Management’s involvement in the process
Goals that change, causing variationsin contactual organizations involved
Objective 2:
What is a channel manager?What is a channel manager?
Anyone in a firm or organization who is involved
in marketing channel decision making
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Objective 3: 11How does marketing channel strategy relate to How does marketing channel strategy relate to
the the rest of the marketing mix?rest of the marketing mix?
Marketing Mixor
the four Ps
Challenges
Product Limited ability to gain and hold competitive advantage
Price Price wars erode profitability & provide unstable basis for sustaining competitive
advantage
Promotion Expensive and short-lived
Place (Distribution)
Marketing channels support & enhance other Ps to meet demands of
target markets
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The change of focus to channel strategyThe change of focus to channel strategy
• Creates competitive advantage with long-term viability
• Builds strong relationships between manufacturers and channel members
• Based on trust, confidence, and people power
Channel Strategy and Logistics ManagementChannel Strategy and Logistics Management
Parts of the “Place” or “Distribution” Variable
• Concerned with entire process of starting and operating contactual organization
• Formulated before logistics management
Focused specifically on providing product availability at appropriate time & place
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Objective 4: 11
5 Primary Marketing Channel Flows5 Primary Marketing Channel Flows
Product Flow
Promotion Flow
Information Flow
Ownership Flow
Negotiation Flow
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Product FlowProduct Flow
Manufacturer
Transportation Company*
Wholesalers
Retailers
Consumers
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Manufacturer
Wholesalers
Retailers
Consumers
Negotiation FlowNegotiation Flow
Ownership FlowOwnership Flow11
Manufacturer
Wholesalers
Retailers
Consumers
Information FlowInformation Flow11
Manufacturer
Wholesalers
Retailers
Consumers
Transportation Company
Promotion FlowPromotion Flow11
Manufacturer
Wholesalers
Retailers
Consumers
Advertising Agency
Distribution through intermediariesDistribution through intermediaries
Objective 5: 11
Technology the Internet
Economic Specialization &Considerations Division of Labor
Contactual Efficiency
Factors that determine the role of intermediaries
Objective 6: 11
Channel Structure Channel Structure v.v. Ancillary Ancillary StructureStructure
Channel Structure
The group of channel members to which aset of distribution tasks has been
allocated
Ancillary Structure
The group of institutions that assist channel members in performing
distribution tasks
Why are single-channel
structures currentlythe exception?
Why is managing the ancillary structure
most likely to be less complex than
managing the channel structure?