McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO: Explain what is meant by a marketing channel of distribution and why intermediaries are needed. LO1 Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems. LO2 15-2

LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO: Describe the factors and considerations that affect a company’s choice and management of a marketing channel. LO3 Recognize how conflict, cooperation, and legal considerations affect marketing channel relationships. LO4 15-3

FIGURE 15-1 The variety of terms used for marketing intermediaries that vary in specificity and use in consumer and business markets 15-4

FIGURE 15-2 Intermediaries minimize transactions and the cost of distribution for producers and customers 15-5

Functions Performed by Intermediaries NATURE AND IMPORTANCE OF MARKETING CHANNELS THE VALUE CREATED BY INTERMEDIARIES LO1 Marketing Channel Functions Performed by Intermediaries Transactional Function Logistical Function Facilitating Function Utilities Received by Consumers 15-6

FIGURE 15-3 Marketing channel intermediaries perform three functions, each consisting of different activities 15-7

Direct Channel Indirect Channel CHANNEL STRUCTURE & ORGANIZATION MARKETING CHANNELS FOR CONSUMER GOODS AND SERVICES LO2 Direct Channel Indirect Channel Retailers WholesalersRetailers AgentsWholesalersRetailers 15-8

FIGURE 15-4 Common marketing channels for consumer offerings by the kind and number of intermediaries 15-9

Direct Channel Indirect Channel CHANNEL STRUCTURE & ORGANIZATION MARKETING CHANNELS FOR BUSINESS GOODS AND SERVICES LO2 Direct Channel Indirect Channel Industrial Distributor Agents AgentsIndustrial Distributors 15-10

FIGURE 15-5 Common marketing channels for business offerings by the kind and number of intermediaries 15-11

FIGURE 15-6 Consumer electronic marketing channels are similar to those for consumer and business offerings 15-12

Strategic Channel Alliances CHANNEL STRUCTURE & ORGANIZATION DUAL DISTRIBUTION & STRATEGIC CHANNEL ALLIANCES LO2 Dual Distribution Strategic Channel Alliances 15-13

FIGURE 15-7 Functions performed by independent wholesaler types 15-14

CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2 Merchant Wholesalers Full-Service Wholesalers General Merchandise (Full-Line) Wholesalers Specialty Merchandise (Limited-Line) Wholesalers 15-15

CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2 Merchant Wholesalers Limited-Service Wholesalers Rack Jobbers Cash and Carry Wholesalers Drop Shippers/Desk Jobbers 15-16

CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2 Agents and Brokers Manufacturer’s Agents Selling Agents Brokers Manufacturers Branch Offices Sales Offices 15-17

CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2 Vertical Marketing Systems Corporate Systems Forward Integration Backward Integration Contractual Systems Wholesaler-Sponsored Voluntary Chains Retailer-Sponsored Cooperatives 15-18

CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2 Contractual Systems Franchising Manufacturer-Sponsored Retail Franchise Systems Manufacturer-Sponsored Wholesale Systems Service-Sponsored Retail Franchise Systems Service-Sponsored Franchise Systems 15-19

CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2 Administered Systems Channel Partnership 15-20

FIGURE 15-8 Three types of vertical marketing systems: corporate, contractual (most popular), and administered 15-21

CHANNEL CHOICE AND MANAGEMENT CHANNEL CHOICE CONSIDERATIONS LO3 Target Market Coverage Intensive Distribution Exclusive Distribution Selective Distribution 15-22

Retail Store Distribution Intensive -many outlets as possible -Convenience Goods Selective -Preferred group of outlets in an area -Shopping Goods Exclusive -One retail outlet per area -Specialty Goods

CHANNEL CHOICE AND MANAGEMENT CHANNEL RELATIONSHIPS LO4 Channel Captain Channel Influence Economic Identification Expertise Legitimate Right 15-24

FIGURE 15-9 The Clayton Act and Sherman Act place legal restrictions on specific marketing channel strategies and practices 15-25

Marketing Channel A marketing channel consists of Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. 15-26

Industrial Distributor An industrial distributor is an intermediary that performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing. 15-27

Electronic Marketing Channels Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumers or business buyers. 15-28

Direct Marketing Channels Direct marketing channels allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson. 15-29

Multichannel Marketing Multichannel marketing involves the blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional intermediaries and online. 15-30

Dual Distribution Dual distribution involves an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. 15-31

Strategic Channel Alliances Strategic channel alliances is a practice whereby one firm’s marketing channel is used to sell another firm’s products. 15-32

Merchant Wholesalers Merchant wholesalers are independently owned firms that take title to the merchandise they handle. 15-33

Manufacturer’s Agents Manufacturer’s agents are agents who work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Also called manufacturer’s representatives. 15-34

Selling Agents Selling agents are agents who represent a single producer and are responsible for the entire marketing function of that producer. 15-35

Brokers Brokers are independent firms or individuals whose principal function is to bring buyers and sellers together to make sales. 15-36

Vertical Marketing Systems Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. 15-37

Franchising Franchising involves a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules. 15-38

Channel Partnership A channel partnership consists of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer. 15-39

Intensive Distribution Intensive distribution is a level of distribution density whereby a firm tries to place its products and services in as many outlets as possible. 15-40

Exclusive Distribution Exclusive distribution is a level of distribution density whereby only one retail outlet in a specific geographical area carries the firm’s products. 15-41

Selective Distribution Selective distribution is a level of distribution density whereby a firm selects a few retail outlets in a specific geographical area to carry its products. 15-42

Channel Conflict Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. 15-43

Disintermediation Disintermediation involves channel conflict that arises when a channel member bypasses another member and sells or buys products direct. 15-44

Channel Captain A channel captain is a channel member (producer, wholesaler, or retailer) that coordinates, directs, and supports other channel members. 15-45