1. Chapter Eleven Marketing Channels and Supply Chain Management
Marketing: An Introduction Second Canadian Edition Armstrong, Kotler, Cunningham, Mitchell and Buchwitz
Chapter Eleven
Marketing Channels and Supply Chain Management
Copyright © 2007 Pearson Education Canada

2. Copyright © 2007 Pearson Education Canada
Looking Ahead
Explain why companies use distribution 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 supply chain management.
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3. Marketing or Distribution Channel
A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.
Chapter 11, page 421
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4. Why Use Channel Members
The use of intermediaries results from their greater efficiency in making goods available to target markets.
Offers the firm more than it can achieve on its own through the intermediaries:
Contacts.
Experience.
Specialization.
Scale of operation.
Chapter 11, page 421
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Channel Functions
Information.
Promotion.
Contact.
Matching.
Negotiation.
Physical distribution.
Financing.
Risk taking.
Chapter 11, page 422
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6. Wholesalers/Retailers
Merchant wholesalers.
Agents and brokers.
Manufacturer’s sales branches & offices.
Retailers.
Amount of service .
Product line.
Relative prices.
Retail organization.
Chapter 11, page 424
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7. Copyright © 2007 Pearson Education Canada
Types of Wholesalers
Merchant wholesalers.
Largest group of wholesalers.
Account for 50% of wholesaling.
Two broad categories:
Full-service wholesalers.
Limited-service wholesalers.
Chapter 11, page 424
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8. Copyright © 2007 Pearson Education Canada
Types of Wholesalers
Brokers and agents.
Do not take title to goods.
Perform fewer functions.
Brokers bring buyers and sellers together.
Agents represent buyers on more permanent basis.
Manufacturers’ agents are most common type of agent wholesaler.
Chapter 11, page 424
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Types of Wholesalers
Manufacturers’ sales branches and offices.
Wholesaling by sellers or buyers themselves rather than through independent wholesalers.
Chapter 11, page 424
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10. Wholesaler Marketing Decisions
Wholesaler strategy.
Target market.
Service positioning.
Wholesaler marketing mix.
Product and service assortment.
Prices.
Promotion.
Place (location).
Chapter 11, page 427
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11. Copyright © 2007 Pearson Education Canada
What is Retailing?
Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, non-business use.
Chapter 11, page 427
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Retailing Functions
Information function – to customers and manufacturers.
Product function – help define products.
Price function – promotions, negotiation.
Place function – convenience to consumers.
Promotion function – run their own promos.
Ownership function – take title and absorb the risk.
Chapter 11, page
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13. Classifying Retailers
Amount of service they offer.
Breadth and depth of product lines.
Relative prices charged.
How they are organized.
Chapter 11, page
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14. Copyright © 2007 Pearson Education Canada
Amount of Service
Self-service retailers:
Serve customers who are willing to perform their own “locate-compare-select” process to save money.
Limited-service retailers:
Provide more sales assistance because they carry more shopping goods about which customers need information.
Full-service retailers:
Usually carry more specialty goods for which customers like to be “waited on.”
Chapter 11, page
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15. Product Line Retailers
Specialty stores.
Narrow product line, deep assortment.
Department stores.
Wide variety of product lines.
Supermarkets.
Wide variety of food, laundry, household products.
Convenience stores.
Limited line of high-turnover goods.
Chapter 11, page
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16. Product Line Retailers (cont’d)
Superstores.
Large assortment of food and non-food items.
Category killer.
Big box specialty store.
Service retailers.
Provide services rather than tangible goods.
Chapter 11, page
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17. Relative Price Retailers
Discount stores.
Sells standard merchandise at lower prices by accepting lower margins and selling at higher volume.
Off-price retailers.
Buys at below wholesale sells at less than retail.
Independents.
Factory outlets.
Warehouse clubs.
Chapter 11, page
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18. Copyright © 2007 Pearson Education Canada
Retail Organizations
Corporate chains.
Two or more outlets that owned and controlled in common.
Voluntary chain.
Wholesale-sponsored group of independent retailers that engages in group buying.
Retailer cooperative.
Independent retailers set up a jointly owned central warehouse operation.
Chapter 11, page
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19. Retail Organizations (cont’d)
Merchandising conglomerates.
A free-form corporation that combines several diversified retailers under central ownership.
Franchise organizations.
Contractual association between a manufacturer, wholesaler and independent business people.
Chapter 11, page
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20. Retailer Marketing Decisions
Retailer strategy.
Target market.
Retail store positioning.
Retailer marketing mix.
Product assortment.
Prices.
Promotion.
Place (location).
Chapter 11, page
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21. Copyright © 2007 Pearson Education Canada
Channel Behaviour
The channel is most effective when:
Each member is assigned tasks it can do best.
All members cooperate to attain channel goals.
If this does not happen, conflict occurs:
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.
Chapter 11, page
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Channel Conflict
Disagreement between members over goals and roles.
Horizontal conflict.
Conflict between firms on the same level.
Vertical conflict.
Conflict between firms on different levels.
Disintermediation.
Displacement of a traditional member from the marketing channel.
Selling direct via the Internet.
Chapter 11, page
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23. Copyright © 2007 Pearson Education Canada
Types of Channels
Conventional channel.
Channel members independently owned.
Vertical channel.
Channel members act as a unified system.
Horizontal channel.
Two or more companies on the same level join together for mutual gain.
Hybrid channel.
Combination to serve different segments.
Chapter 11, page
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24. Vertical Marketing System
A distribution channel structure in which producers, wholesalers and retailers act as a unified system.
One channel member owns the other, has contracts with them or has so much power that they all cooperate.
Chapter 11, page
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25. Vertical Marketing Systems
Corporate VMS
Common ownership at different levels of the channel (e.g., Sears) – highest control
Contractual VMS
Contractual agreements among channel members (e.g., IDA Drugs) – medium control
Administered VMS
Leadership is assumed by one or a few dominant members (e.g., Kraft) – low control
Chapter 11, page 436
1]. Manufacturer-sponsored retailer franchise system (automobile industry).
2]. Manufacturer-sponsored wholesaler franchise system (soft-drink industry).
3]. Service-firm-sponsored retailer franchise system (auto-rentals, fast food, hotels business).
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26. Franchise Organization
Manufacturer-sponsored retailer franchise system.
Ford and its independent franchised dealers.
Manufacturer-sponsored wholesaler franchise system.
Coca-Cola’s licensed bottlers.
Service-firm sponsored retailer franchise system.
McDonald’s, Avis and Holiday Inn.
Chapter 11, page 436
1]. Manufacturer-sponsored retailer franchise system (automobile industry).
2]. Manufacturer-sponsored wholesaler franchise system (soft-drink industry).
3]. Service-firm-sponsored retailer franchise system (auto-rentals, fast food, hotels business).
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27. Copyright © 2007 Pearson Education Canada
Innovative Channels
Horizontal marketing system
Two or more companies at one channel level join together to follow a new marketing opportunity.
Example: Banks in grocery stores
Hybrid marketing system
A single firm sets up two or more marketing channels to reach one or more customer segments.
Example: Retailers and catalogues
Chapter 11, page 436
1]. Manufacturer-sponsored retailer franchise system (automobile industry).
2]. Manufacturer-sponsored wholesaler franchise system (soft-drink industry).
3]. Service-firm-sponsored retailer franchise system (auto-rentals, fast food, hotels business).
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28. Copyright © 2007 Pearson Education Canada
Disintermediation
Bypassing intermediaries and going directly to final buyers.
Radically new types of channel intermediaries that compete with or displace traditional ones.
Internet and e-commerce the most cause of disintermediation.
Chapter 11, page
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29. Channel Design Decisions
Analyzing consumer needs.
Setting channel objectives.
Identifying major alternatives.
Types of intermediaries.
Number of intermediaries.
Responsibilities of intermediaries.
Chapter 11, page 441
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30. Types of Intermediaries
Company sales force.
company employees provides the most control over selling activities, but high fixed costs and require supervision.
Manufacturer’s agency.
independent companies who sell non-competing, complementary products to a group of customers, paid a commission based on amount sold.
Industrial distributors.
independent companies specializing in the selling, storage and servicing of other business customers.
Chapter 11, page 442
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31. Number of Intermediaries
Intensive distribution.
As many distributors as possible.
Exclusive distribution.
Only one distributor in a given territory.
Selective distribution.
A select few distributors in a given territory.
Chapter 11, page 442
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32. Evaluating the Alternatives
Economic criteria:
A company compares the likely sales, costs and profitability of different channel alternatives.
Control issues:
How and to whom should control be given?
Adaptive criteria:
Consider long-term commitment vs. flexibility.
Chapter 11, page 443
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33. International Distribution
Exporting.
Direct.
Indirect.
Joint ventures.
Licensing.
Contract manufacturing.
Management contracting.
Joint ownership.
Direct investment.
Chapter 11, page 444
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34. Channel Design/Management
Selection.
Fit with channel objectives.
Motivation.
Maintain strong partnerships.
Reward good performance.
Assist or replace weaker ones.
Evaluation.
Compare performance against standards and objectives.
Chapter 11, page
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35. Copyright © 2007 Pearson Education Canada
Public Policy Issues
Exclusive distribution.
Leads to exclusive dealing.
Prohibiting dealers from handling competitors’ products.
Exclusive territorial agreements can result that prevent a dealer from selling outside of his territory.
Tying agreements.
Forcing a dealer to carry an entire product line rather than the ones he wishes to carry.
Chapter 11, page 451
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36. Logistics and Supply Chain
Planning, implementing and controlling the physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit.
Includes:
Outbound distribution.
Inbound distribution.
Reverse distribution.
Chapter 11, page 451
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37. Major Logistics Functions
Order processing.
Warehousing.
Inventory management.
Transportation.
Integrated supply chain management.
Cross-functional teamwork in company.
Building channel partnerships.
Chapter 11, page
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38. Copyright © 2007 Pearson Education Canada
Warehousing
How many, what types and where?
Storage warehouses.
Distribution centres.
Automated warehouses.
Chapter 11, page 453
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39. Copyright © 2007 Pearson Education Canada
Inventory Management
Must balance between too much and too little inventory.
Just-in-time logistics systems.
RFID, AutoID or Smart Tag technology.
Chapter 11, page 453
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40. Copyright © 2007 Pearson Education Canada
Transportation
Trucks.
Railroads.
Water carriers.
Pipelines.
Air.
Internet.
Intermodal.
Chapter 11, page 453
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41. Copyright © 2007 Pearson Education Canada
Integrated Logistics
Emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.
Cross-functional teamwork inside the company.
Building logistics partnerships.
Third-party logistics.
Chapter 11, page
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42. Copyright © 2007 Pearson Education Canada
Looking Back
Explain why companies use distribution 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 supply chain management.
Chapter 11, page
Copyright © 2007 Pearson Education Canada