marketing channels:

Copyright © 2012 Pearson Canada Inc.11 - 1

Marketing Channels:

Retailing and Wholesaling

Chapter 11


1. Explain why companies use marketing channels, and describe the functions channels perform

2. Explain how channels are organized, designed, and managed

3. Define retailing and the major types of retailers, and explain the role of retailers in the distribution channel

4. Describe the major types of wholesalers and their marketing decisions

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

Previewing the Concepts


Marketing Channels and Supply Chain

• Producing and making products available to buyers requires building relationships with 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


Marketing Channels and Supply Chain

• Value delivery network:– Comprised of the company, suppliers,

distributors, and customers who “partner” with each other to improve the performance of the entire system in delivering customer value

• Marketing channels represent the downstream side of the value delivery network


Nature and Importance of Marketing Channels

• Marketing (or distribution) channel:– A set of interdependent organizations that

help make a product or service available for use or consumption by the consumer or business users

• Channel decisions affect other marketing decisions• Channel decisions can lead to competitive

advantage



• How channel members add value:– Intermediaries create greater efficiency in

making goods available to target markets– Channel members offer the firm more than it

can achieve on its own in terms of:• Contacts• Experience• Specialization• Scale of operation



Functions performed by channel members:

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

• Transaction fulfillment:– Physical

distribution– Financing– Risk taking



• Channel levels:– The number of intermediary levels indicates

the length of a channel• Direct marketing channels• Indirect marketing channels

• All channel institutions are connected by several types of flows


Channel Behavior and Organization

• The channel will be most effective when:– Each member assumes tasks it can do best– Members co-operate to attain channel goals

• Channel conflict can occur:– Horizontally among firms at the same channel

level (e.g., retailer to retailer)– Vertically between different levels of the same

channel (e.g., wholesaler to retailer)• Some conflict can be healthy competition



• Goodyear created channel conflict by selling through mass-merchant retailers:



• Conventional distribution channel compared to vertical marketing system:



• Types of vertical marketing systems:– Corporate VMS– Contractual VMS– Administered VMS



• Corporate VMS:– Combines successive stages of production

and distribution under single ownership• Contractual VMS:

– Independent firms at different levels of production/distribution contract together to obtain more economies of scale than each could alone



• Franchise organizations are a common form of contractual VMS

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



• Administered VMS:– Leadership is assumed through the size and

power of one or a few dominant channel members

– Manufacturers of a top brand can obtain strong co-operation from resellers



• Horizontal marketing systems:– Two or more companies at one level join

together to follow a new marketing opportunity• Multichannel distribution system:

– A single firm sets up two or more marketing channels to reach one or more customer groups

– Also called hybrid marketing channel system– Offers many advantages



• Changing channel organization:– Disintermediation occurs when product and

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

– E.g., Airline firms sell tickets directly to consumers cutting out travel agents

– Disintermediation presents problems and opportunities for producers and resellers


Channel Design Decisions• Marketing channel design:

– Intensive: stocking the product in as many outlets as possible

– Selective: the use of more than one, but fewer than all of the intermediaries who are willing to carry the company’s product

– Exclusive: very limited number of dealers with exclusive distribution within their territory


Retailing• Retailing:

– All activities involved in selling products or services directly to final consumers for their personal, non-business use

• Most retailing is done by retailers• Retailing plays an important role in most

marketing channels


Types of Retailers• Major types of retailers:

– Specialty stores– Department stores– Supermarkets– Convenience stores– Discount stores– Off-price retailers– Superstores


Types of Retailers• Retailers can be classified by the amount

of service they offer: – Self-service retailers– Limited-service retailers– Full-service retailers


Types of Retailers• Retailers can be classified by product line:

– Specialty stores– Department stores– Supermarkets– Convenience stores– Superstores


Types of Retailers• Retailers can be classified by the prices

they charge:– Low price retailers include:

• Discount stores• Off-price retailers• Factory outlets• Warehouse clubs


Types of Retailers• Retailers can be classified by type of

organization:– Corporate chain stores– Voluntary chain stores– Retailer co-operatives– Franchise organizations


Retail Trends and Developments

• New retail forms, but shorter retail life cycles– Innovations explained by the wheel of retailing

• Slowed economy and consumer spending• Growth of online retailing• Retail technologies providing competitive

tools


Retail Trends and Developments

• The wheel of retailing:


Wholesaling• Wholesaling:

– All activities involved in selling goods and services to those buying for resale or business use

• Wholesalers add value for producers by performing one or more channel functions


Wholesaling• Functions performed by wholesalers:

– Market information– Sales and promotion– Assortment building and bulk-breaking– Warehousing– Absorb risk– Transportation and delivery– Financing and management services


Types of Wholesalers• Merchant wholesaler:

– An independent wholesaler business that takes title to the merchandise it handles

– Largest group of wholesalers accounting for 50% of all wholesaling

– Two broad categories:• Full-service wholesalers• Limited-service wholesalers


Types of Wholesalers• Brokers and agents:

– Do not take title to goods– Perform only a few functions– Specialize by product line or customer type

• Brokers bring buyers and sellers together• Agents represent buyers on a more

permanent basis– Manufacturers’ agents are the most common

type of agent wholesaler


Wholesaler Marketing Decisions

• Wholesaler strategy:– Segmentation, targeting, differentiation,

and positioning• Wholesaler marketing mix:

– Product assortment and services– Price– Promotion– Distribution (location)


Marketing Logistics and Supply Chain Management

• Marketing logistics (physical distribution):– Planning, implementing, and controlling the

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

• Involves supply chain management



• Supply chain management:



• 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 channels:

Documents

marketing decisionsdiscuss

marketing channel partners

pearson canada

organizationthe channel

channel behavior

supply chain partners

supply chainproducing

major types of retailers