Marketing Channels Chapter 12, 13

15-2 Marketing Channels Sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

15-3 Why do they need the marketing channel? Many producers lack the financial resources to carry out direct marketing. Producers who do establish their own channels can often earn a greater return by increasing investment in their main business. In some cases direct marketing simply is not feasible. Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target markets.

15-4 Increasing Efficiency

15-5 Nature & Importance of Marketing Channels Channel choices affect other decisions in the marketing mix –Pricing, Marketing communications A strong distribution system can be a competitive advantage Channel decisions involve long-term commitments to other firms

15-6 Nature & Importance of Marketing Channels How Channel Members Add Value –Intermediaries require fewer contacts to move the product to the final purchaser. –Intermediaries help match product assortment demand with supply. –Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

15-7 Channel Member Functions Gather information Develop and disseminate persuasive communications Reach agreements on price and terms Acquire funds to finance inventories Assume risks Provide for storage Provide for buyers’ payment of their bills Oversee actual transfer of ownership

15-8 Marketing Channel Flows

15-9 Consumer Marketing Channels

15-10 Channel Design Decisions Step 1: Analyzing Consumer Needs Lot size. Waiting and delivery time. Spatial convenience. Product variety. Service backup. –Cost and feasibility of meeting needs must be considered Step 2: Setting Channel Objectives –Set channel objectives in terms of targeted level of customer service –Serving which segment by using which channel?

15-11 Channel Design Decisions Step 3: Identifying Major Alternatives –Types of intermediaries Company sales force, manufacturer ’ s agency, industrial distributors –Number of marketing intermediaries Intensive, selective, and exclusive distribution –Responsibilities of channel members

15-12 Channel Design Decisions Step 4: Evaluating Major Alternatives –Economic criteria –Control issues –Adaptive criteria

15-13 The Value-Adds Versus Costs of Different Channels

15-14 Break-Even Chart for the Choice Between A Company Sales Force and Manufacturer’s Sales Agency

15-15 Channel Management Decisions Selecting Channel Members –Identify characteristics that distinguish the best channel members Years in business, Lines carried, Growth and profit record, Cooperativeness and reputation, Type of customer, location Managing and Motivating Channel Members –Partner relationship management (PRM) is key Evaluating Channel Members –Performance should be checked against standards –Channel members should be rewarded or replaced as dictated by performance

Retailing Amount of service Product lines Relative prices Organizational approach Self-service retailers –Customers are willing to self- serve to save money –Convenience stores and fast moving shopping goods Limited-service retailers –Most department stores Full-service retailers –Salespeople assist customers in every aspect of shopping experience –High-end department stores and specialty stores Retailers Are Classified By: Goal 2: Know the major types of retailers

Retailing Amount of service Product lines Relative prices Organizational approach Specialty stores –Narrow product lines with deep assortments Department stores –Wide variety of product lines Supermarkets Convenience stores –Limited line Superstores –Food, nonfood, and services Category killers –Giant specialty stores Retailers Are Classified By: Goal 2: Know the major types of retailers

Retailing Amount of service Product lines Relative prices Organizational approach Discount stores –Low margins are offset by high volume Off-price retailers –Independent off-price retailers TJ Maxx, Marshall’s –Factory outlets Levi Strauss, Reebok –Warehouse clubs Sam’s Club, Costco Retailers Are Classified By: Goal 2: Know the major types of retailers

Retailing Corporate chain stores –Commonly owned / controlled Voluntary chains –Wholesaler-sponsored groups of independent retailers Retailer cooperatives –Groups of independent retailers who buy in bulk Franchise organizations –Based on something unique Merchandising conglomerates –Diversified retailing lines and forms under central ownership Amount of service Product lines Relative prices Organizational approach Retailers Are Classified By: Goal 2: Know the major types of retailers

Definitions Wholesaling –All activities involved in selling goods and services to those buying for resale or business use. Wholesaler –A firm engaged primarily in wholesaling activity. Goal 3: Know the major types of wholesalers

Wholesaling Wholesalers add value by performing the following functions: –Selling and promoting –Buying and assortment building –Bulk-breaking –Warehousing –Transportation –Financing –Risk bearing –Market information –Management services and advice Goal 3: Know the major types of wholesalers

Wholesaling Trends in Wholesaling –Price competition is still intense –Successful wholesalers must add value by increasing efficiency and effectiveness –The distinction between large retailers and wholesalers continues to blur –More services will be provided to retailers –Many wholesalers are going global Goal 3: Know the major types of wholesalers

15-23 Channel Integration and System Channel Conflict –Occurs when channel members disagree on roles, activities, or rewards. –Types of Conflict: Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels Goal 1: Know why companies use channels and understand their functions

15-24 Channel Integration and System Conventional Distribution Channels –Consists of one or more independent channel members –Lack leadership and power –Often result in poor performance Vertical Marketing Systems –Consists of members acting as a unified system –Use contracts, ownership or power Goal 1: Know why companies use channels and understand their functions

15-25 Channel Behavior and Organization Conventional Marketing Channel Vertical Marketing System Manufacturer Retailer Manufacturer Retailer Wholesaler Manufacturer Wholesaler Retailer Consumer VS

15-26 Channel Behavior and Organization Corporate VMS Contractual VMS Administered VMS Corporation owns production and distribution Coordination and conflict through regular organizational channels Vertical Marketing Systems

15-27 Channel Behavior and Organization Corporate VMS Contractual VMS Administered VMS Individual firms who join through contracts Franchise organizations –Manufacturer- sponsored retailer franchise system – Manufacturer- sponsored wholesaler franchise system –Service-firm-sponsored retailer franchise system Vertical Marketing Systems

15-28 Channel Behavior and Organization Corporate VMS Contractual VMS Administered VMS Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer Vertical Marketing Systems

15-29 E-commerce E-commerce means that the company or site offers to transact or facilitate the selling of products and services online. We can distinguish between pure-click companies and brick-and-click companies.

15-30 Pure-Click Companies Search engines. Internet Service Providers (ISPs). Commerce sites. Transaction sites. The Internet is most useful for products and services when the shopper seeks: –Greater ordering convenience. –Lower cost. –When buyers need information about product features and prices. The Internet is less useful for: Products that must be touched or examined in advance.

15-31 Brick-and-Click Companies Adding an e-commerce channel creates the treat of a backlash from retailers, brokers, agents, or other intermediaries. ->channel conflict There are at least three strategies for trying to gain acceptance from intermediaries: –Offer different brands or products on the Internet. –Offer the off-line partners higher commissions to cushion the negative impact on sales. –Take orders on the Web site but have retailers deliver and collect payment. Some pure or predominately online companies have invested in brick-and-mortar sites.

15-32 Brick and Mortar stores’ response to the E-tailers. Exercise its power over manufacturers. Focus on the natural advantages over e- tailers. 1) Products that consumers can actually see, touch, and test. 2) Real-life customer service. 3) No delivery lag time. Unique and interesting shopping experience.

15-33 Private Labels A private label (also called reseller, store, house, or distributor brands) is one retailer’s and wholesalers develop. In the confrontation between manufacturers’ and private label brands, retailers have many advantages and increasing market power. Response of National brand?