marketing channels and distribution. learning objectives understand how marketing channels add time,...

• Marketing Channels and Distribution

LEARNING OBJECTIVES

• Understand how marketing channels add time, place, and possession utilities for final customer and how channel structure evolves to provide these utilities effectively and efficiently.

• Identify the five major flows in marketing channels and how each contributes to making products conveniently available to many millions of customers.

Understand how marketing channels add time, place, and possession utilities for final customer and how channel structure evolves to provide these utilities effectively and efficiently

Identify the five major flows in marketing channels and how each contributes to making products conveniently available to many millions of customers

LEARNING OBJECTIVES

• Realize that marketing channels are not only economic systems, but also social systems, in which power and conflict play an important role.

• Recognize and explain all six decision areas of channel management and be familiar with the main issues associated with each of those decisions.

• Appreciate the crucial role played by logistics in the creation and operation of high-performance marketing channels.

Realize that marketing channels are not only economic systems, but also social systems, in which power and conflict play an important role

Recognize and explain all six decision areas of channel management and be familiar with the main issues associated with each of those decisions

Appreciate the crucial role played by logistics in the creation and operation of high-performance marketing channels

MARKETING CHANNEL DEFINED

• Marketing channel is the network of organizations that creates time, place, and possession utilities.

Utilities

• Form Utility – created by manufacturing

• Time Utility – having products available for use when consumers want them.

• Place Utility – having products where consumers want them.

• Possession Utility – having the ability to take possession of products.

MARKETING CHANNEL STRUCTURE

• Channel structure consists of all the businesses and institutions (including producers or manufacturers and final customers) who are involved in performing the functions of buying, selling, or transferring title.


Len

gth

of c

han

nel

Intensity at various levels Types of interm

ediaries

Three Dimensions


Manufacturer Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer Consumer

Retailer Retailer Retailer

Wholesaler Wholesaler

Agent

2 level2 level 3 level3 level 4 level4 level 5 level5 level

Length of marketing channel


Exclusive Distribution

Selective Distribution

Intensive Distribution

Intensity at various levels


Practiced when a manufacturer restricts product distribution to a single retailer in a particular market or just a relatively few retailers

Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are the most likely candidates for exclusive distribution

Exclusive Distribution



• Selectively distributed brands are available in multiple retail outlets in a particular market

• Shopping products, or those that consumers seek out, are sold through selective distribution

Selective Distribution



• Used when convenience products are sold through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettes

Intensive Distribution



• Types of Intermediaries – include the different kinds of intermediary institutions that can be used at the various levels of the channel.

DETERMINANTS OF CHANNEL STRUCTURE

• Determinants of channel structure include:Distribution tasksEconomics of distribution tasksManagement's desire for distribution

control

Distribution Tasks

• Discrepancies in quantity – buffer mass produced goods.

• Discrepancies in assortment – allow producers to focus while providing customer selection.

Distribution Tasks

• Discrepancies in time – hold goods until ready.

• Discrepancies in place – connects producers and consumers.

The Economics of Performing Distribution Tasks

Mfg. A Mfg. A Mfg. B Mfg. B Mfg. C Mfg. C

11 22 33 44 55 66 77 88

Without Without intermediariesintermediaries

• Economics of distribution tasksTransaction efficiency

The Economics of Performing Distribution Tasks

• Economics of distribution tasksTransaction efficiency

Mfg. AMfg. A Mfg. BMfg. B Mfg. CMfg. C

IntermediaryIntermediary

11 22 33 44 55 66 77 88

With With intermediariesintermediaries

Management’s Desire for Control of Distribution

• The shorter the channel structure the higher the control

• Needed when a manufacturer must protect product image, etc.

FLOWS IN MARKETING CHANNELS

• Product FlowThe movement of the product from

manufacturer through all parties who take physical possession

• Negotiation FlowInterplay of buying/selling tasks

associated with title transfer


• Ownership FlowMovement of title of the product

• Information FlowInformation to and from the

manufacturer

• Promotion FlowFlow of persuasive communication

(advertising, personal selling, etc.)

MARKETING CHANNELS AS SOCIAL SYSTEMS

• Power in Marketing Channels – the capacity of one channel member to influence the behavior of another channel member.

• Conflict in Marketing Channels – when one channel member believes that another channel member is impeding the attainment of its goals.

MARKETING CHANNEL MANAGEMENT

• Marketing channel management – the analysis, planning, organizing, and controlling of a firm’s marketing channels.

• Interorganizational context – channel management that extends beyond a firm’s own organization into independent businesses.

PERSPECTIVES FOR CHANNEL MANAGEMENT

• Down the channel toward the product

• Up the channel toward the manufacturer

DECISION AREAS OF CHANNEL MANAGEMENT

Formulating channel strategy

Design channel structure

Select channel members

Motivate channel members

Coordinate with marketing mix

Evaluate member performance

• Realize only the place ‘P’ provides protection from imitation

• Distribution strategies can provide sustainable competitive advantage



Design

channel structure





Set distribution objectives

Specify tasks to be performed by the channel

Consider alternative structures

Choose optimal structure








• Optimal structure identified by considering:Market variablesProduct variablesCompany variablesIntermediary variablesBehavioral variablesExternal environment

variables








• Develop selection criteria

Prospective channel member

Management succession

SalesPerformance

MarketCoverage

Reputation

ProductLines

SalesStrength

Credit andFinancialCondition

Size

Attitude

ManagementAbility








• Find prospective channel members

• Evaluate prospective channel members

• Convert prospectives into actual channel members








• Learn about the needs and problems of channel membersAdvisory committees

• Offer supportInformal supportStrategic alliances,

partnerships• Provide ongoing leadership

Continuing focus








• Product and ChannelRetailers (a channel

member) play an important role in product positioning

Display fixturesPersonal selling








• Pricing and ChannelRelevant to channel

members:•Profit margins available

to channel members•Pricing policies• Incentives








• Promotion and ChannelPromotions interface with

channel membersPoint-of-purchase displaysInventory levelsSales person training








• Assessment of success of channel members in implementing strategiesRequires good information

flows between membersPoint-of-sale systems, EDI

LOGISTICS IN MARKETING CHANNELS

• Logistics make products available to customers

Also called physical distribution (PD)

Supply chain management (SCM) are logistical systems that facilitate close cooperation among firms in a channel


• Total Cost Approach and Systems Concept

Managementviews logistics as

a system of interrelatedcomponents

Managementtries to reduce

cost of using thecomponentsas a whole

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

Systems Concept

Total CostApproach

• INSERT Table 10.1


Marketing Channel Logistics

• Almost all products must be moved

• Generally one of the highest percentage costs

• Use in-house transport or common carriers?

• What rates are available?

• What are competitors doing?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging


• Growing use of cross-docking

• How to minimize distances?

• What equipment should be used?

• How to use labor efficiently?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging


• Order cycle time (time between order and delivery)

• How to reduce errors in order processing?

• How to develop standards for different product types?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging


• Economic order quantity (EOQ) is the lowest total cost (inventory carry cost + ordering costs)

• How to balance inventory levels with order sizes?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging


• Growth of single item shipments

• Where to locate a warehouse?

• Number of warehousing units and size of units?

• Ownership question?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging


• Effective packaging can help control inventory carry costs and help logistics efficiency

• What type of package is required (sturdiness, etc.)?

Transportation

Materials Handling

Order Processing

Inventory Control

Warehousing

Packaging

OUTPUT OF THE LOGISTICS SYSTEM

• Customer service is the output of logistics systems

Supplemental Material

Channel Structure

Types of intermediaries

FunctionalMiddlemenMerchant Middlemen

Channel Structure


FunctionalMiddlemen

Do not take title to products; Do not take title to products; they simply facilitate the they simply facilitate the exchange process by performing exchange process by performing buying and/or selling functions.buying and/or selling functions.

Channel Structure


Merchant Middlemen

Take title to products and Take title to products and resell them.resell them.

Social Aspects of Marketing Channels

• Marketing channel powerThe influence one channel

member has over other members’ behaviors

• Marketing channel conflictGoal impeding behavior by one or

more channel membersTerritorial encroachment

Determinants of Power

• Reward Power• Reward Power

• Coercive Power

• Legitimate Power

• Expert Power

• Referent Power

Ability to offer an award (e.g. granting of exclusive distribution)

• Reward Power

• Coercive Power• Coercive Power

Threat of punishment (e.g. a manufacturer might threaten a retailer with loss of exclusive distribution)• Legitimate Power

• Expert Power

• Referent Power


• Legitimate Power• Legitimate Power

Power from contract agreement or organizational relationships

• Expert Power

• Referent Power

• Coercive Power

• Reward Power


Power resulting from technological expertise or proprietary reasons

• Expert Power• Expert Power

• Referent Power

• Coercive Power


• Reward Power


Power resulting from ability to influence further action

• Referent Power• Referent Power


• Expert Power

• Coercive Power

• Reward Power


• Corporate Systems• Administered VMS• Administered VMS

• Conventional channel with one channel member (a manufacturer, wholesaler, or retailer) informally acting as the channel leader.

• Contractual Systems

Vertical Marketing Systems

• Corporate Systems• Corporate Systems• Administered VMS

• Contractual Systems


• Combines all levels of the marketing channel under one company’s ownership

• Corporate Systems• Administered VMS

• Contractual Systems• Contractual Systems


• Are integrated via contractual agreement• Franchising is the major form of contractual

VMS. Others include voluntary chains and cooperatives

marketing channels and distribution. learning objectives understand how marketing channels add time,...

Documents

possession of products

possession utilities

products available

possession utility

place utility

economic systems

social systems

manufacturingtime utility