©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Part 1: Marketing Channel Systems ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Marketing Channel Concepts 1 CHAPTER Marketing Channels A Management View 8e Rosenbloom Part 1: Marketing Channel Systems

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives ① The growing importance of marketing channels ② The definition of marketing channels ③ How marketing channels relate to strategic variables in the marketing mix ④ The flows in the marketing channels and their relationship to channel management ⑤ The principles of specialization, division of labor, and contactual efficiency ⑥ The difference between the concepts of channel structure and of ancillary structure 2

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective Why the growing importance of marketing channels? 1 The explosion of information technology and E-commerce 2 A greater difficulty in gaining a sustainable competitive advantage 3 The growing power of distributors, especially retailers in marketing channels 4 The need to reduce distribution costs 3 1

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 The prediction: Disintermediation – reduction of number of intermediaries The reality: Reintermediation – evolution of a new type of intermediary Yahoo! eBay Amazon.com 1 The explosion of information technology and E- commerce 2 A greater difficulty in gaining a sustainable competitive advantage 3 The growing power of distributors, especially retailers in marketing channels 4 The need to reduce distribution costs

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1 The explosion of information technology and E-commerce 2 A greater difficulty in gaining a sustainable competitive advantage (see pg.9) 3 The growing power of distributors, especially retailers in marketing channels 4 The need to reduce distribution costs 5 Place (distribution), or Marketing Channel Strategy Potential for gaining competitive advantage because place is more difficult for competitors to copy Sustainable competitive advantage

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1 The explosion of information technology and E-commerce 2 A greater difficulty in gaining a sustainable competitive advantage 3 The growing power of distributors, especially retailers in marketing channels 4 The need to reduce distribution costs Power retailers as of consumer markets Act as buying agents for customers rather than as selling agents for manufacturers Gatekeepers

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1 The explosion of information technology and E-commerce 2 A greater difficulty in gaining a sustainable competitive advantage 3 The growing power of distributors, especially retailers in marketing channels 4 The need to reduce distribution costs Marketing channels are the most recent target for reducing distribution costs. The focus is on channel structure and management.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective What is a marketing channel? 8 2 Outside the firm (1) Firm involved in negotiatory Functions (2) Management’s involvement in the process (3) Goals that change, causing variations in contactual organization & the way in which management operates it (4) External contactual organization that management operates to achieve its distribution objectives (see pg.10)

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What is a channel manager? (see page 12, figure 1.3) Anyone in a firm or organization who is involved in marketing channel decision making

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective How does marketing channel strategy relate to the rest of the marketing mix? (see figure 1.4) – read story of STIHL Marketing Mix or the four Ps Challenges ProductLimited ability to gain and hold competitive advantage PricePrice wars erode profitability & provide unstable basis for sustaining competitive advantage PromotionExpensive and short-lived Place (Distribution) Marketing channels support & enhance other Ps to meet demands of target markets 3

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The change of focus to channel strategy Creates competitive advantage with long-term viability Builds strong relationships between manufacturers and channel members Based on trust, confidence, and people power 11

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Strategy and Logistics Management (see pg.15) – read the continuance story of STIHL Part of distribution variable Concerned with entire process of starting and operating contactual organization Formulated before logistics management Focused specifically on providing product availability at appropriate time & place

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective Marketing Channel Flows (see page 17-figure 1.7) Product Flow Promotion Flow Information Flow Ownership Flow Negotiation Flow 4

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Flow- the actual physical movement of the product from manufacturer through all of the parties who take physical possesion of the product, from its point of production to final consumers Manufacturer Transportation Company Wholesalers Retailers Consumer

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Negotiation Flow – the interplay of the buying and selling functions associated with the transfer of title Manufacturer Wholesalers Retailers Consumer

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ownership Flow – the movement of the title to the product as it is passed along from the manufacturer to final consumers Manufacturer Wholesalers Retailers Consumer

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Information Flow - Manufacturer Transportation Company Wholesalers Retailers Consumer

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Promotion Flow – the persuasive communications Manufacturer Advertising Agency Wholesalers Retailers Consumer

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective Distribution through intermediaries Technology The Internet Economic Specialization & Considerations Division of Labor Contactual Efficiency Disintermediation – eliminate the middleman Factors that determine the role of intermediaries 5

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Specialization & Division of Labor Distribution Tasks Production Tasks Distributed Inter-organizationally Distributed intraorganizationally

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Contactual Efficiency Granada Guitar Co. Negotiation Effort Estimated Dollar Costs of Inputs Distribution Objective (Output) Contactual Efficiency 100 sales visits 100 phone calls 20 magazine $50 = 3 = = 20,000 $25,300 Get 500 music stores to carry new guitar line Negotiation effort in dollar terms relative to achieving the distribution objective = $25,300

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Objective Channel Structure v. Ancillary Structure Channel Structure The group of channel members to which a set of distribution tasks has been allocated Ancillary Structure The group of institutions that assist channel members in performing distribution tasks Why are single- channel structures currently the exception? Why is managing the ancillary structure most likely to be less complex than managing the channel structure? 6