2 Chapter 13 Marketing Channels Learning OutcomesLO 1 Explain what a marketing channel is and why intermediaries are neededLO 2 Define the types of channel intermediaries and describe their functions and activitiesLO 3 Describe the channel structures for consumer and business products and discuss alternative channel arrangementsLO 4 Discuss the issues that influence channel strategy
3 Chapter 13 Marketing Channels Learning OutcomesLO 5 Describe the different channel relationship types and their unique costs and benefitsLO 6 Explain channel leadership, conflict, and partneringLO 7 Discuss channels and distribution decisions in global marketsLO 8 Identify the special problems and opportunities associated with distribution in service organizations
4 Explain what a marketing channel is and why intermediaries are needed Chapter 13 Marketing ChannelsMarketing ChannelsExplain what a marketing channel is and why intermediaries are needed
5 Marketing Channels A Marketing Channel is… Chapter 13 Marketing ChannelsMarketing ChannelsA Marketing Channel is…a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or 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.
6 Marketing Channel Functions Chapter 13 Marketing ChannelsMarketing Channel FunctionsSpecialization and division of laborOvercoming discrepanciesProviding contact efficiencyNotes: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.LO1
7 Specialization and Division of Labor Chapter 13 Marketing ChannelsSpecialization and Division of LaborCreates greater efficiencyProvides lower production costsAchieves economies of scaleAids producers who lack resources to market directlyBuilds good relationships with customersNotes:Specialized expertise of channel members enhances the overall performance of the channel.
8 Overcoming Discrepancies Chapter 13 Marketing ChannelsOvercoming DiscrepanciesDiscrepancyofQuantityAssortmentThe difference between the amount of product producedand the amount an end userwants to buy.The lack of all the items acustomer needs to receive full satisfaction from a product or products.Notes:Marketing channels help overcome discrepancies of quantity, assortment, time, and space created by economies of scale in production.Discrepancy of Quantity: Efficient production for lower unit costs creates a much larger quantity produced than the end user wants to buy. Marketing channels store and distribute the product in appropriate amounts, and make the products available in quantities that consumers desire.Discrepancy of Assortment: Marketing channels assemble in one place many of the products necessary for a consumer’s needed assortment.
9 Overcoming Discrepancies Chapter 13 Marketing ChannelsOvercoming DiscrepanciesTemporalDiscrepancySpatialA situation that occurs when a product is produced but acustomer is not ready to buy it.The difference between thelocation of a producer and the location of widelyscattered markets.Notes:Temporal Discrepancy: Marketing channels overcome temporal discrepancies by maintaining inventories in anticipation of demand. This is particularly true of seasonal/holiday merchandise.Spatial Discrepancy: Marketing channels overcome spatial discrepancies by making products available in locations convenient to consumers.
10 Chapter 13 Marketing Channels Exhibit 13.1 How Marketing Channels Reduce the Number of Required TransactionsNotes:Exhibit 13.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Best Buy, the individual television manufacturers would have to make four contacts to reach the four buyers. With Best Buy as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers.
11 Channel Intermediaries and Their Functions Chapter 13 Marketing ChannelsChannel Intermediaries and Their FunctionsDefine the types of channel intermediaries and describe their functions and activities
12 Channel Intermediaries Chapter 13 Marketing ChannelsChannel IntermediariesRetailerA channel intermediary thatsells mainly to customers.MerchantWholesalerAn institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them.Agents andBrokersWholesaling 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.
13 Channel Intermediaries Chapter 13 Marketing ChannelsChannel IntermediariesRetailersMerchantWholesalersAgentsandBrokersTake Title to GoodsDo NOT Take Title to GoodsNotes: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.LO2
14 Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 13 Marketing ChannelsFactors Suggesting Type of Wholesaling Intermediary to UseProduct characteristicsBuyer considerationsMarket characteristicsNotes:Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.LO2
15 Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 13 Marketing ChannelsFactors Suggesting Type of Wholesaling Intermediary to UseFactorMerchant WholesalersAgents/ BrokersNature of productStandardNonstandard, customComplexity of productSimpleComplexProduct’s gross marginHighLowFrequency of orderingFrequentInfrequentTime between order and receipt of shipmentShorter lead timeLonger lead timeNumber of buyersManyFewConcentration of buyersDispersedConcentratedNotes:This slide shows the factors determining the type of wholesaling intermediary.
16 Channel Functions Performed by Intermediaries Chapter 13 Marketing ChannelsChannel Functions Performed by IntermediariesContacting/PromotionNegotiatingRisk TakingResearchingFinancingPhysically distributingStoringSortingFacilitating FunctionsTransactional FunctionsLogisticalFunctionsNotes:The three basic functions—transactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 13.2.
17 Chapter 13 Marketing Channels LogisticsLogisticsThe efficient and cost-effective forward and reverse flow and storage of goods, services, and related information, into through, and out of channel member companies.
18 Channel Intermediaries and Functions Chapter 13 Marketing ChannelsChannel Intermediaries and FunctionsCHANNEL INTERMEDIARIESRetailersWholesalersAgents and BrokersCHANNEL FUNCTIONSTransactionalLogisticalFacilitatingPerform
19 Chapter 13 Marketing Channels Channel StructuresDescribe the channel structures for consumer and business products and discuss alternative channel arrangements
20 Exhibit 13.3 Marketing Channels for Consumer Products Chapter 13 Marketing ChannelsExhibit 13.3 Marketing Channels for Consumer ProductsNotes:Exhibit 13.3 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.LO3
22 Exhibit 13.4 Channels for Business and Industrial Products Chapter 13 Marketing ChannelsExhibit 13.4 Channels for Business and Industrial ProductsNotes:Exhibit 13.4 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.
23 Business-to-Business Exchanges on the Internet Chapter 13 Marketing ChannelsBusiness-to-Business Exchanges on the InternetCompanies drop the intermediary from the supply chain“Private exchanges” with select suppliers automate the supply chainThe Internet has forced traditional distributors to expand their model.Notes:More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliers
24 Alternative Channel Arrangements Chapter 13 Marketing ChannelsAlternative Channel ArrangementsMultiple channelsStrategic channel alliancesNontraditional channelsNotes:Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances.Multiple channels: Two or more channels selected is called multiple or dual distribution.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.
25 Making Channel Strategy Decisions Chapter 13 Marketing ChannelsMaking Channel Strategy DecisionsDiscuss the issuesthat influencechannel strategy
26 Channel Strategy Decisions Chapter 13 Marketing ChannelsChannel Strategy DecisionsFactorsAffectingChannelChoiceProducer FactorsProduct FactorsMarket FactorsExclusive DistributionSelective DistributionIntensive DistributionLevel of Distribution IntensityNotes: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.
27 Consumer or Industrial Chapter 13 Marketing ChannelsMarket FactorsMarket Factors That AffectChannel ChoicesCustomer profilesConsumer or IndustrialCustomerSize of marketGeographic locationNotes: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.
28 Product Standardization Chapter 13 Marketing ChannelsProduct FactorsProduct Factors That AffectChannel ChoicesProduct ComplexityProduct StandardizationProduct Life CycleProduct DelicacyProduct PriceNotes: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.
29 Number of Product Lines Desire for Channel Control Chapter 13 Marketing ChannelsProducer FactorsProducer Factors That AffectChannel ChoicesProducer ResourcesNumber of Product LinesDesire for Channel ControlNotes: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.
30 Levels of Distribution Intensity Chapter 13 Marketing ChannelsIntensiveA form of distribution aimed at having a product available inevery outletSelectiveA form of distribution achievedby screening dealers to eliminate all but a few in any single areaExclusiveA form of distribution thatestablished one or a few dealers within a given areaNotes:Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution.
31 Levels of Distribution Intensity Chapter 13 Marketing ChannelsLevels of Distribution IntensityIntensiveAchieve mass market selling.Convenience goods.ManySelectiveExclusiveWork with selectedintermediaries.Shopping and somespecialty goods.Work with single intermediary. Specialty goods and industrialequipment.SeveralOneIntensity LevelObjectiveNumber of IntermediariesNotes: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.
32 Types of Channel Relationships Chapter 13 Marketing ChannelsTypes of Channel RelationshipsDescribe the different channel relationship types and their unique costs and benefits
33 Types of Channel Relationships Chapter 13 Marketing ChannelsBenefitsHazardsArm’s Length RelationshipFulfills a one time or unique need; low involvement/riskParties unable to develop relationship; low trust levelCooperative RelationshipFormal contract without capital investment/long-term commitment; “happy medium”Some parties may need more relationship definitionIntegrated RelationshipClosely bonded relationship; explicitly defined relationshipsHigh capital investment; any failure could affect every channel memberNotes: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.
35 Social Dimensions of Channels Chapter 13 Marketing ChannelsSocial Dimensions of ChannelsPartneringConflictLeadershipControlPowerNotes: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.
36 Channel Power, Control, and Leadership Chapter 13 Marketing ChannelsChannel Power, Control, and LeadershipChannelPowerA channel member’s capacity to control orinfluence the behavior of other channel membersControlA situation that occurs when one marketingchannel member intentionally affects another member’s behaviorChannel LeaderA member of a marketing channel that exercisesauthority/power over the activities of other members
37 Chapter 13 Marketing Channels Channel ConflictChannelConflictA clash of goals and methods between distribution channel membersNotes:Inequitable channel relationships often lead to channel conflict. 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.
38 Channel Conflict Conflicts may occur if channel members: Chapter 13 Marketing ChannelsChannel ConflictConflicts may occur if channel members:Have conflicting goalsFail to fulfill expectations of other channel membersHave ideological differencesHave different perceptions of realityNotes:Conflicts arise because channel members have conflicting goals, or when channel members fail to fulfill expectations of other channel members.Further, different perceptions of reality can cause conflict among members.Conflict within a channel can be either horizontal or vertical. Horizontal conflict occurs among channel members at the same level, such two or more different retailers that handle the same manufacturer’s brands. Vertical conflict occurs between different levels in a marketing channel.
39 Channel Partnering Channel Partnering (Channel Cooperation) is… Chapter 13 Marketing ChannelsChannel PartneringChannel Partnering (Channel Cooperation) is…the joint effort of all channel members to create a channel that serves customers and creates a competitive advantage.By COOPERATING, channel members can speed up inventory replenishment, improve customer service, and reduce the total costs of the marketing channel.Notes:Channel alliances and partnerships help managers create the parallel flow of materials and information required to leverage the channel’s intellectual, material, and marketing resources.
40 Channels and Distribution Decisions for Global Markets Chapter 13 Marketing ChannelsChannels and Distribution Decisions for Global MarketsDiscuss channels and distribution decisions in global markets
41 Channel structure and type differ Gray marketing channels Chapter 13 Marketing ChannelsChannels and DistributionDecisions for Global MarketsGlobal ChannelDevelopmentChannel structure and type differGray marketing channelsNotes:With the spread of free-trade agreements, such as the European Union and the North American Free Trade Agreement, global marketing channels have become increasingly important to U.S. corporations.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.Distribute directly or through foreign partners
42 Channels and Distribution Decisions for Services Chapter 13 Marketing ChannelsChannels and Distribution Decisions for ServicesIdentify the special problems and opportunities associated with distribution in service organizations
43 Distribution in Service Organizations Chapter 13 Marketing ChannelsNotes:The fastest-growing part of our economy is the service sector. Service distribution focuses on three major areas:Minimizing wait timesManaging service capacity.Improving service deliveryDiscussion/Team Activity:Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?