Chapter 14 Marketing Channels MKTG9 Lamb, Hair, and McDaniel © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels LEARNING OUTCOMES 14-1 Explain what marketing channels and channel intermediaries are, and describe their functions and activities 14-2 Describe common channel structures and strategies, and the factors that influence their choice 14-3 Discuss channel relationship types and roles, and their unique benefits and drawbacks © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 15 Retailing LEARNING OUTCOMES 14-4 Discuss multichannel and omnichannel marketing in both B2B and B2C structures and explain why these concepts are important 14-5 Discuss new developments in channel management and the effects on existing channel activities and structures © 2016 Cengage Learning. All Rights Reserved.

Marketing Channels and Channel Intermediaries Chapter 13 Marketing Channels Marketing Channels and Channel Intermediaries 14-1 Explain what marketing channels and channel intermediaries are, and describe their functions and activities © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels Marketing Channel A set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. Channel Members Negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer. Notes: A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer. Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix. © 2016 Cengage Learning. All Rights Reserved.

Marketing Channel Functions Chapter 13 Marketing Channels Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency Notes: As products move through the supply chain, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency. © 2016 Cengage Learning. All Rights Reserved.

Specialization and Division of Labor Chapter 13 Marketing Channels Specialization and Division of Labor Creates greater efficiency Provides lower production costs Create time, place, form, and exchange utility Notes: Specialized expertise of channel members enhances the overall performance of the channel. Time and place utility is created when a transport company moves boxes from the place of manufacture to the store near customers. Form utility is created when channel members transform raw materials into a consumable form for customers. Exchange utility is created when channel members (usually retailers) swap the product for money. © 2016 Cengage Learning. All Rights Reserved.

Contact Efficiency Retailer Firms in the channel that sell directly to customers Retailers simplify distribution by cutting the number of transactions required by consumers, making an assortment of goods available in one location. © 2016 Cengage Learning. All Rights Reserved.

14.1 How Marketing Channels Reduce the Number of Required Transactions Chapter 13 Marketing Channels Notes: Exhibit 14.1 demonstrates the purchase of a television set by four consumers. © 2016 Cengage Learning. All Rights Reserved.

Channel Intermediaries Chapter 13 Marketing Channels Channel Intermediaries Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members. Notes: Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final consumer. © 2016 Cengage Learning. All Rights Reserved.

Channel Intermediaries Chapter 13 Marketing Channels Channel Intermediaries Merchant Wholesalers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods Notes: The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Retailers and merchant wholesalers take title to goods, while agents and brokers do not. © 2016 Cengage Learning. All Rights Reserved.

Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 13 Marketing Channels Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use. Each of these will determine which type of intermediary is appropriate for a product. Product characteristics include such aspects of a product as standardization and customization, complexity, and gross margin. Buyer considerations include purchase frequency and how long the buyer is willing to wait for a product. Market characteristics include number of buyers and buyer concentration levels. © 2016 Cengage Learning. All Rights Reserved.

Channel Functions Performed by Intermediaries Chapter 13 Marketing Channels Channel Functions Performed by Intermediaries Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions Notes: The three basic functions—transactional, logistical, and facilitating—are performed by intermediaries © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels Channel Structures 14-2 Describe common channel structures and strategies, and the factors that influence their choice © 2016 Cengage Learning. All Rights Reserved.

14.2 Marketing Channels for Consumer Products Chapter 13 Marketing Channels Notes: Exhibit 14.2 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Discussion/Team Activity: Identify various products and discuss the channel for distribution utilized by each. © 2016 Cengage Learning. All Rights Reserved.

14.3 Channels for Business and Industrial Products Chapter 13 Marketing Channels Notes: Exhibit 14.3 illustrates the five channel structures common in business and industrial markets. Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel. Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products. © 2016 Cengage Learning. All Rights Reserved.

Alternative Channel Arrangements Chapter 13 Marketing Channels Alternative Channel Arrangements Dual or multiple distribution Strategic channel alliances Nontraditional channels Notes: Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances. Dual channels: Two or more channels selected is called dual or multiple distribution. Dual distribution systems differ from single channel systems, and managers should recognize those differences. Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition. Strategic channel alliances: Producers use another manufacturer’s already-established channel. © 2016 Cengage Learning. All Rights Reserved.

Factors Affecting Channel Choice Chapter 13 Marketing Channels Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Notes: Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows. © 2016 Cengage Learning. All Rights Reserved.

Consumer or Industrial Market Factors Chapter 13 Marketing Channels Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location Notes: Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy? Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service. If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive. In general, a large market requires more intermediaries. © 2016 Cengage Learning. All Rights Reserved.

Product Standardization Chapter 13 Marketing Channels Product Factors Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price Notes: Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries. The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels. Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling. © 2016 Cengage Learning. All Rights Reserved.

Number of Product Lines Chapter 13 Marketing Channels Producer Factors Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control Notes: Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers. Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products. A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity. © 2016 Cengage Learning. All Rights Reserved.

Levels of Distribution Intensity Chapter 13 Marketing Channels Intensive A form of distribution aimed at having a product available in every outlet. Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area. Exclusive A form of distribution that established one or a few dealers within a given area. Notes: Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution. © 2016 Cengage Learning. All Rights Reserved.

Levels of Distribution Intensity Chapter 13 Marketing Channels Levels of Distribution Intensity Intensive Achieve mass market selling. Convenience goods. Many Selective Exclusive Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Several One Intensity Level Objective Number of Intermediaries Notes: This slide compares the three options for intensity of distribution. Discussion/Team Activity: Discuss product examples in each of the intensity levels, and in which stores the products are stocked. © 2016 Cengage Learning. All Rights Reserved.

Emerging Distribution Structures Chapter 13 Marketing Channels Emerging Distribution Structures In recent years, rapid changes in technology and communication have led to the emergence of new, experimental distribution methods and channel structures. Notes: Fashion flash sale sites like Gilt, JackThreads, and RueLaLa have recently boomed in popularity. Another emerging channel structure involves renting items that are usually only sold to end consumers. More recently, subscription services have expanded far beyond books and magazines to include clothing (bombfell.com), shoes (shoedazzle.com), and beauty (birchbox.com). Digital marketplaces like Steam and the Google Play Store constitute another recent trend in marketing channels. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels Types of Channel Relationships 14-3 Describe channel relationship types and roles, and their unique benefits and drawbacks © 2016 Cengage Learning. All Rights Reserved.

Types of Channel Relationships Chapter 13 Marketing Channels Types of Channel Relationships Benefits Hazards Arm’s Length Relationship Fulfills a one time or unique need; low involvement/risk Parties unable to develop relationship; low trust level Cooperative Relationship Formal contract without capital investment/long-term commitment; “happy medium” Some parties may need more relationship definition Integrated Relationship Closely bonded relationship; explicitly defined relationships High capital investment; any failure could affect every channel member Notes: A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members. Companies may work with several different suppliers and customers, and so viewing the channel as a chain (with one company connected between two others) paints an incomplete picture. Instead, a distribution channel is more like a network than a chain. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels Co-opetition Co-opetition mixes elements of cooperation and competition between two partners. Two companies work together on some initiatives while still competing in other areas. © 2016 Cengage Learning. All Rights Reserved.

Four Basic Channel Configurations Chapter 13 Marketing Channels Four Basic Channel Configurations Manufacturers and retailers can be arranged into four basic channel configurations: Bilateral monopoly Retailer monopoly Manufacturing monopoly Multiple manufacturers and retailers working together and competing with one another for customers Notes: Manufacturers and retailers can be arranged into four basic channel configurations. The first, a bilateral monopoly, resembles an actual chain. One manufacturer supplies one retailer, offering a single supply and demand point throughout the chain. The remaining three channel structures involve multiple suppliers and/or multiple customers. A single retailer may use multiple suppliers (retailer monopoly); a single supplier may provide products to multiple retailers (manufacturer monopoly), or multiple manufacturers and retailers may work together and compete with one another for customers. © 2016 Cengage Learning. All Rights Reserved.

Global Channel Relationships Chapter 13 Marketing Channels Global Channel Relationships Global Channel Development Channel policies differ “Gray” marketing channels Notes: Global channel choices must be made with full understanding of economic and political policies because many countries have policies that regulate channel choices, particularly for foreign distributors. When designing marketing channels for foreign markets, the type of channel structure must be considered. The more highly developed a nation is economically, the more specialized its channel types. Marketers must be aware of “gray” marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels. © 2016 Cengage Learning. All Rights Reserved.

Social Influences in Channels Chapter 13 Marketing Channels Social Influences in Channels Conflict Leadership Control Power Notes: In addition to considering the multiple different types of channel relationships and their costs and benefits, managers must also be aware of the social dimensions that are constantly impacting their relationships. The basic social dimensions of channels are shown on this slide and defined on the following slides. © 2016 Cengage Learning. All Rights Reserved.

Channel Power, Control, and Leadership Chapter 13 Marketing Channels Channel Power, Control, and Leadership Channel Power A channel member’s capacity to control or influence the behavior of other channel members. Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior. Channel Captain A member of a marketing channel that exercises authority and power over the activities of other members. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 13 Marketing Channels Channel Conflict Inequitable channel relationships often lead to channel conflict, which is a clash of goals and methods among the members of a distribution channel. Notes: In a broad context, conflict may not be bad. If traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the entire channel. Horizontal conflict is channel conflict that occurs among channel members on the same level. Vertical conflict is channel conflict that occurs between different levels in a marketing channel, most typically between the manufacturer and wholesaler or between the manufacturer and retailer. Opportunism is secretive behavior that improves a firm’s standing at the expense of a partner firm. Active opportunism occurs when a firm violates agreements and restrictions, or forces another firm to renegotiate existing agreements when new circumstances arise. Passive opportunism occurs when a firm refuses to meet specific obligations or fails to change when new situations arise. © 2016 Cengage Learning. All Rights Reserved.

Omnichannel Marketing Chapter 15 Retailing Multichannel and Omnichannel Marketing 14-4 Discuss multichannel and omnichannel marketing in both B2B and B2C structures and explain why these concepts are important © 2015 by Cengage Learning Inc. All rights reserved

Multichannel Marketing Chapter 13 Marketing Channels Multichannel Marketing Customers are offered information, goods, services, and/or support through one or more synchronized channels. While it can promote better consumer behavior, the multichannel design also creates redundancy and complexity in the firm’s distribution system. Notes: Selling through multiple channels is typified by multiple parallel supply chains, each with its own inventory, processes, and performance metrics. Each channel operates a transportation and distribution system, holds and accounts for its own inventory, and otherwise acts as an independent sales and profit center with little knowledge of the other channels’ operations. © 2016 Cengage Learning. All Rights Reserved.

Omnichannel Marketing Chapter 13 Marketing Channels Omnichannel Marketing Retailers make their inventory data available to customers in real time, effectively merging their distribution channels. This creates greater customer control over the shopping experience, leading to greater satisfaction and loyalty. Notes: Companies that use omnichannel marketing allow customers to reserve items online for pickup at nearby stores, offer a Web-based find-in-store feature that displays real-time stock information and prevents unnecessary trips to the store, and provide in-store computer terminals or iPads that customers can use to search company Web sites for products that local stores may not carry. © 2016 Cengage Learning. All Rights Reserved.

© 2015 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing New Developments in Channel Management 14-5 Discuss new developments in channel management and the effects on existing channel activities and structures © 2015 by Cengage Learning Inc. All rights reserved

© 2015 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing M-commerce M-commerce Purchasing goods through mobile devices. Online retailers offer greater variety of options for delivery, including one-use package delivery boxes. Notes: Retailers are adopting new strategies to better serve customers. M-commerce enables consumers using wireless mobile devices to connect to the Internet and shop. Along with developments in m-commerce and smartphone technology, companies are starting to look into new ways to connect with their customers. Social shopping allows multiple retailers to sell products to customers through social media sites. Facial recognition technology allows market researchers to record consumers’ non-verbal reactions to products and advertisements. Some retailers are also using facial recognition technology to display specific advertisements and recommendations to specific customers. © 2015 by Cengage Learning Inc. All rights reserved

© 2015 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Chapter 14 Video New Balance Hubway New Balance Hubway is a bike sharing system in the Boston area that uses automated stations to provide a bike service to people looking to go short distances. In this clip, employees discuss how the retailing model works for Hubway, and how the difference between brick and mortar and e-business models allowed them to succeed in the Boston area. CLICK TO PLAY VIDEO © 2015 by Cengage Learning Inc. All rights reserved