marketing channels: marketing channels: delivering customer value chapter 10
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Delivering Customer ValueChapter 10
Chapter OutlineSupply Chains and the Value Delivery NetworkThe Nature and Importance of Marketing ChannelsChannel Behavior and OrganizationChannel Design DecisionsChannel Management DecisionsMarketing Logistics and Supply Chain Management
Explain why companies use marketing channels and discuss the functions these channels perform.Discuss how channel members interact and how they organize to perform the work of the channel.Identify the major channel alternatives open to a company.Explain how companies select, motivate, and evaluate channel members.Discuss the nature and importance of marketing logistics and integrated supply chain management.Previewing the Concepts
Supply Chains and the Value Delivery NetworkProducing and making products available to buyers requires building relationships with upstream and downstream 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.
Value Delivery Network The network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system in delivering customer value.
Supply Chains and the Value Delivery NetworkMarketing channels, such as retailers, represent the downstream side of the value delivery network.
Marketing Channels A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users.
Nature and Importance of Marketing ChannelsMarketing channel decisions:Affect other marketing decisions, such as pricing or product design.Can lead to competitive advantage.
Figure 10.1: How Adding A Distributor Reduces the Number of Channel Transactions
Nature and Importance of Marketing ChannelsHow channel members add value:The use of intermediaries results from their greater efficiency in making goods available to target markets. Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.
How channel members add value:Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations.From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers.The Nature and Importance of Marketing Channels
Nature and Importance of Marketing ChannelsHow channel members add value:Channel members can offer more:Contacts.Experience.Specialization.Scale of operation.Channel members may perform many functions.
Nature and Importance of Marketing ChannelsTransaction completion:InformationPromotionContactMatchingNegotiationTransaction fulfillment:Physical distributionFinancingRisk taking
Key functions performed by channel members:
Key functions performed by channel members:Promotion refers to the development and spreading persuasive communications about an offer.Contacts refers to finding and communicating with prospective buyers.The Nature and Importance of Marketing Channels
Key functions performed by channel members:Matching refers to shaping and fitting the offer to the buyers needs, including activities such as manufacturing, grading, assembling, and packaging.Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.The Nature and Importance of Marketing Channels
Key functions performed by channel members:Physical distribution refers to transporting and storing goods.Financing refers to acquiring and using funds to cover the costs of carrying out the channel work.Risk taking refers to assuming the risks of carrying out the channel work.The Nature and Importance of Marketing Channels
Figure 10.2: Customer and Business Marketing Channels
Nature and Importance of Marketing ChannelsNumber of channel levels:The number of intermediary levels indicates the length of a channel.Direct marketing channelsHave no intermediary levels between the manufacturer and the customer.Indirect marketing channelsContains one or more intermediaries.All channel institutions are connected by several types of flows.
Channel Behavior and OrganizationThe channel will be most effective when:Each member is assigned tasks it can do best.All members cooperate to attain overall channel goals.Otherwise, channel conflict can occur:Horizontal conflict occurs among firms at the same level of the channel (e.g., retailer to retailer).Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).Some conflict can be healthy competition.
Marketing in Action Goodyears 1992 decision to sell tires via Sams, Wal-Mart, and Sears created conflict with its prized network of independent dealers.
Figure 10.3: Comparison of Conventional Distribution Channel with Vertical Marketing System
Channel Behavior and OrganizationConventional distribution channel:Consists of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.Vertical marketing system (VMS):A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member either (i) owns the other, (ii) has contracts with them, or (iii) has so much power that they all cooperate.
Types of Vertical Marketing SystemsMany restaurant chains franchise to expand distribution.
Channel Behavior and OrganizationFranchise organizations are a common form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process.Types of franchise organizations:Manufacturer-sponsored retailer franchise.Manufacturer-sponsored wholesaler franchise.Service-firm sponsored retailer franchise.
Marketing in Action Almost every kind of business has been franchised. Visit www.franchise.com to view the many opportunities.
Channel Behavior and OrganizationHorizontal marketing systems:Two or more companies at one level join together to follow a new marketing opportunity.McDonalds now places express versions of their stores in many Wal-Marts.
Figure 10.4: Multichannel Distribution System
Channel Behavior and OrganizationMultichannel distribution system:Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments.Also called hybrid marketing channel system.Offers many advantages.
Marketing in Action Multichannel distribution systems allow firms to expand sales and market coverage while tailoring products to diverse needs of market segments. However, the decision to go multichannel often creates conflict. John Deere dealers complained loudly when Lowes began selling select products.
Channel Behavior and OrganizationChanging channel organization:Disintermediation occurs when product and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries.
Channel Behavior and OrganizationChanging channel organization:Disintermediation presents both problems and opportunities for both producers and resellers.Resellers and intermediaries must innovate to survive.Producers must seek additional direct channels to remain competitive, though channel conflict often results.
Channel Design Decisions Designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major alternatives, and evaluating them.Firms often struggle between what is ideal and what is practical.
Channel Design DecisionsAnalyzing consumer needs:Do consumers want to buy from nearby locations or are they willing to travel?Do they want to buy-in person, by phone, or online?Do they value breadth of assortment or do they prefer specialization?Do consumers want many add-on services?Firm must balance needs against costs and consumer price preferences.
Channel Design DecisionsSetting channel objectives:Objectives are stated in terms of targeted levels of customer service.Channel objectives are influenced by:Cost of customer-service requirements.Nature of the company.The firms products.Marketing intermediaries.Competitors.Environment.
Channel Design DecisionsIdentifying major alternatives:Types of intermediaries:Retailers, value-added retailers, independent distributors, dealers, etc.Number of marketing intermediaries (distribution strategies):Intensive, selective, or exclusive distribution.Responsibilities of channel members.Price policies, conditions of sale, territories and services to be performed.
Channel Design DecisionsNumber of Marketing Intermediaries (Distribution Strategies)
Channel Design DecisionsIntensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.
Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g.Luxury automobilesHigh-end apparelChannel Design Decisions
Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermedi