1. Chapter 14 Marketing Channels MKTG9 Lamb, Hair, and McDaniel
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2. © 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
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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
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4. 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
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5. © 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.
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6. 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.
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7. 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.
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8. 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.
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9. 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.
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10. 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.
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11. 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.
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12. 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.
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13. 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
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Chapter 13 Marketing Channels
Channel Structures
14-2
Describe common channel structures and strategies, and the factors that influence their choice
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15. 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.
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16. 14.3 Channels for Business and Industrial Products
Chapter 13 Marketing Channels
Notes:
Exhibit 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.
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17. 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.
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18. 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.
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19. 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.
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20. 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.
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21. 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.
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22. 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.
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23. 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.
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24. 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.
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25. © 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
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26. 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.
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27. © 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.
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28. 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.
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29. 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.
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30. 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.
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31. 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.
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32. © 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.
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33. 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
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34. 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.
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35. 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.
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36. © 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
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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.
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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
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