1. Marketing Channels: Delivering Customer Value
Chapter 10

2. Rest Stop: Previewing the Concepts
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

3. Rest Stop: Previewing the Concepts
Explain how companies select, motivate, and evaluate channel members
Discuss the nature and importance of marketing logistics and integrated supply chain management

4. Enterprise is an industry leader through:
First Stop: Enterprise: Leaving Car-Rental Competitors in the Rearview Mirror
Enterprise Holdings captures 48 percent of the total rental-car market, with Hertz a distant second at 20 percent
Unlike its competitors, Enterprise focused on providing off-airport services
Enterprise is an industry leader through:
Better prices and better marketing
A customer-driven distribution strategy

5. Supply Chains and the Value Delivery Network
Producing 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 product or service
Downstream: Marketing channel partners that link the firm to the customer

6. Value Delivery Network
Network composed of the company, suppliers, distributors, and ultimately customers who partner to help the entire system deliver better customer value
In making and marketing its many models, Honda manages a huge network of people within Honda plus thousands of suppliers and dealers outside the company who work together to bring value to final customers

7. Marketing Channels
Set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users
Marketing channel decisions:
Affect other marketing decisions, such as pricing or product design
Can lead to competitive advantage

8. Figure 10.1 - How Adding a Distributor Reduces the Number of Channel Transactions
Note to Instructor: The figure shows how using intermediaries can provide economies. Figure 10.1A shows three manufacturers, each using direct marketing, to reach three customers. This system requires nine different contacts. Figure 10.1B shows the three manufacturers working through one distributor, which contacts the three customers. This system requires only six contacts. In this way, intermediaries reduce the amount of work that must be done by both producers and consumers.

9. How Channel Members Add Value
The use of intermediaries results from their greater efficiency in making goods available to target markets
Channel members can offer
Contacts and experience
Specialization
Scale of operation

10. Key Functions Performed by Channel Members
Transaction completion:
Information
Promotion
Contact
Matching
Negotiation
Transaction fulfillment:
Physical distribution
Financing
Risk taking

11. A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer
Channel level
A marketing channel that has no intermediary levels
Direct marketing channel
A marketing channel containing one or more intermediary levels
Indirect marketing channel

12. Figure 10.2 - Customer and Business Marketing Channels
Note to Instructor: Figure 10.2 shows both consumer and business channels of different lengths. Figure 10.2A shows several common consumer distribution channels. Channel 1, called a direct marketing channel, has no intermediary levels—the company sells directly to consumers. Figure 10.2B shows some common business distribution channels. The business marketer can use its own sales force to sell directly to business customers. Or it can sell to various types of intermediaries, who in turn sell to these customers.

13. Channel Behavior and Organization
The channel will be most effective when:
Each member is assigned tasks it can do best
All members cooperate to attain overall channel goals
The success of individual channel members depends on the overall channel’s success

14. Channel Behavior and Organization
Horizontal conflict occurs among firms at the same level of the channel (e.g., between different dealers of the same brand)
Vertical conflict occurs between different levels of the same channel (e.g., between a brand and its franchisee)

15. Channel Conflict
Disagreements among marketing channel members on goals, roles, and rewards—who should do what and for what rewards
In recent years, Burger King has had a steady stream of conflicts with its franchised dealers over everything from advertising content to the price of its cheeseburgers

16. Conventional distribution channel
A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole
Conventional distribution channel

17. Vertical marketing system (VMS)
A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate
Vertical marketing system (VMS)

18. Figure 10.3 - Comparison of Conventional Distribution Channel with Vertical Marketing System

19. Types of Vertical Marketing Systems
A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership
Corporate VMS
A vertical marketing system in which independent firms at different levels of production and distribution jointogether through contracts
Contractual VMS
A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties
Administered VMS

20. Franchising Systems
A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process
Almost every kind of business has been franchised—from motels and fast-food restaurants to cleaning and handyman companies

21. Types of Franchise Systems
Manufacturer-sponsored retailer franchise
Manufacturer-sponsored wholesaler franchise
Service-firm sponsored retailer franchise

22. Horizontal Marketing Systems
Two or more companies at one level join together to follow a new marketing opportunity
McDonald’s now places “express” versions of their stores in Walmart stores

23. Figure 10.4 - Multichannel Distribution System
Note to Instructor: Most large companies distribute through multiple channels. For example, you could buy a familiar green and yellow John Deere lawn tractor from a neighborhood John Deere dealer or from Lowe’s. A large farm or forestry business would buy larger John Deere equipment from a premium full-service John Deere dealer and its sales force.

24. Multichannel Distribution Systems
A single firm sets up two or more marketing channels to reach one or more customer segments
Each new channel expands sales and marketing coverage
Helps tailor its products and services to specific needs of diverse customer segments
Hard to control; can generate conflicts

25. Disintermediation
Occurs when product and service producers cut out intermediaries or displace traditional resellers with radical new types of intermediaries
Note to Instructor: In many industries, traditional intermediaries are dropping by the wayside. For example, Southwest, JetBlue, and other airlines sell tickets directly to final buyers, cutting travel agents from their marketing channels altogether. In other cases, new forms of resellers are displacing traditional intermediaries. For example, online marketers have taken business from traditional brick-and-mortar retailers.
Avoiding disintermediation problems: Fender’s Web site provides detailed product information refers them to its resellers’ Web sites and stores

26. Marketing at Work
Online video content challenged Netflix’s DVD rental business model
Changed to a subscription-based digital-streaming service
Netflix faces dramatic changes in how movies and other entertainment content will be distributed; Netflix intends to lead them

27. Marketing Channel Design
Designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major alternatives, and evaluating them
Note to Instructor: Firms often struggle between what is ideal and what is practical.
Meeting customers’ channel service needs: A local hardware store probably provides more personalized service, a more convenient location, and less hassle than a huge Home Depot. But it may also charge higher prices

28. Channel Design Decisions
Analyzing consumer needs
Finding out what target consumers want from the channel
Balance needs against costs and consumer price preferences
Setting channel objectives
Stated in terms of targeted levels of customer service

29. Channel Design Decisions
Identifying major alternatives:
Types of intermediaries: Retailers, value-added retailers, independent distributors, dealers
Number of marketing intermediaries: Intensive, exclusive, and selective distribution
Responsibilities of channel members: Price policies, conditions of sale, territory rights and specific services to be performed

30. Number of Marketing Intermediaries
Stocking the product in as many outlets as possible
Intensive distribution
Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories
Exclusive distribution
The use of more than one but fewer than all of the intermediaries who are willing to carry the company’s products
Selective distribution

31. Channel Design Decisions
Evaluating the major alternatives involves comparing each alternative to:
Economic criteria
Control issues
Adaptive criteria
Note to Instructor: Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. What will be the investment required by each channel alternative, and what returns will result? The company must also consider control issues. Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others. Other things being equal, the company prefers to keep as much control as possible. Finally, the company must apply adaptability criteria. Channels often involve long-term commitments, yet the company wants to keep the channel flexible so that it can adapt to environmental changes.

32. Designing International Channels
Each country has its own unique distribution system
Distribution systems can have many layers and a large number of intermediaries
Distribution systems in developing countries may be scattered or inefficient
Customs and government regulation can restrict distribution in global markets

33. International Channel Differences
In low-income neighborhoods in Brazil, where consumers have limited access to supermarkets, Nestlé supplements its distribution with thousands of self-employed salespeople who sell Nestlé products door to door

34. Channel Management Decisions
Selecting channel members
Managing and motivating channel members:
Partner relationship management
Evaluating channel members
Caterpillar works closely with its worldwide network of independent dealers to find better ways to bring value to customers

35. Public Policy and Distribution Decisions
Laws affecting channels seek to prevent the exclusionary tactics of some firms that might keep another from using a desired channel
Some dealing contracts may come under the Clayton Act, if they lessen competition
Note to Instructor: Many producers and wholesalers like to develop exclusive channels for their products. When the seller allows only certain outlets to carry its products, this strategy is called exclusive distribution. When the seller requires that these dealers not handle competitors’ products, its strategy is called exclusive dealing. Exclusive dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. Producers of a strong brand sometimes sell it to dealers only if the dealers will take some or all of the rest of its line. This is called full-line forcing.

36. Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit
Marketing logistics
Note to Instructor: In the past, physical distribution planners typically started with products at the plant and then tried to find low-cost solutions to get them to customers. However, today’s customer-centered logistics starts with the marketplace and works backward to the factory or even to sources of supply. Marketing logistics involves not only outbound distribution (moving products from the factory to resellers and ultimately to customers) but also inbound distribution (moving products and materials from suppliers to the factory) and reverse distribution (reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers).

37. Figure 10.5 - Supply Chain Management
Note to Instructor: Marketing logistics involves entire supply chain management—managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers, as shown in the figure.

38. Supply chain management
Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers
Supply chain management

39. Marketing Logistics and Supply Chain Management
Goals of the logistics system:
Deliver a targeted level of customer service at the least cost
Major logistics functions:
Warehousing
Inventory management
Transportation
Logistics information management

40. Marketing Logistics and Supply Chain Management
Warehousing:
How many, what types, and where?
Storage warehouses
Distribution centers
Inventory management:
Balance between too much and too little inventory
Just-in-time logistics systems
RFID or smart tag technology

41. Distribution Center
An automated warehouse that receives goods from various suppliers, takes orders, fills them, and delivers goods to customers as quickly as possible
Staples employs a team of super-retrievers—in day-glo orange—to keep its warehouse humming

42. Transportation Trucks Railroads Water carriers Pipelines Air carriers
Internet
Intermodal transportation
Piggyback, fishyback, trainship, airtruck

43. Logistics Information Management
Channel partners often link up to share information and make better joint logistics decisions
Information can be shared and managed through
Electronic data interchange (EDI)
Vendor-managed inventory (VMI) systems

44. Integrated Logistics Management
Logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations
To maximize the performance of the entire distribution system
Note to Instructor: This concept recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. Inside, the company’s various departments must work closely together to maximize its own logistics performance. Outside, the company must integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution network.

45. Integrated Logistics Management
Requires:
Cross-functional teamwork inside the company
Building logistics partnerships
Outsourcing to third-party logistics providers
Many companies now employ sophisticated, system-wide supply chain management software, available from companies such as Logility

46. An independent logistics provider that performs any or all of the functions required to get a client’s product to market
Third-party logistics (3PL) provider

47. Marketing at Work
3PL providers help clients tighten up sluggish, overstuffed supply chains; slash inventories; and get products to customers more quickly and reliably
UPS has the resources to handle the logistics needs of just about any size business

48. Rest Stop: Reviewing the Concepts
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

49. Rest Stop: Reviewing the Concepts
Explain how companies select, motivate, and evaluate channel members
Discuss the nature and importance of marketing logistics and integrated supply chain management

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Copyright © 2013 Pearson Education, Inc.
Publishing as Prentice Hall