Dr. Close

Introduction to Channels (1)  Channel: firms handling goods between production and consumption (Wal-Mart)  Importance:  Toughest “P” to change: expense (Sears)  Functions: producers & consumers are far apart (geographically & desires)

Introduction to Channels (2)  Adjusting Discrepancies (also customers generally do not want to shop separately)  Middlemen: Discrepancies of quantity  Producers make a lot of each item (examples??)  Consumers want just a few (P&G: toothpaste)  Middlemen: Discrepancies of Assortment  Consumers want many types of items (examples??)  Producers make a few types (Ford; diversity)

Introduction to Channels (3)  How we change quantity & assortment: regrouping activities  Middlemen: Adjusting quantity  Accumulating: collect products from many small producers (shipping firm; farmer market; what else??)  Bulk breaking: reducing quantity as products move to consumer (autos)

Introduction to Channels (4)  Middlemen: Adjusting assortment  Sorting: group by grade quality (mutual funds; agricultural products; bonds; what else??)  Assorting: put items together in attractive offering (K-Mart)  Many other types of intermediaries

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Intermediaries  Middleman – independent link between producers and consumers  Merchant middleman – actually buys goods and takes title/ownership  Agent – business unit that negotiates purchases and sales but does not take ownership  Wholesaler – a merchant who primarily stores and handles goods in large quantities  Retailer – merchant middleman who sells to final consumers  Broker – middleman who serves as a go-between for the buyer and seller

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Intermediaries  Manufacturer’s agent – an agent who operates by contract serving a geographic territory  Distributor – wholesale middleman in lines with selective or exclusive distribution  Jobber – a middleman who buys from manufacturers and sells to retailers  Facilitating agent – a firm that performs distribution tasks other than buying, selling and transferring

Channels & the Customer (1)  Traditional: no cooperation  Vertical marketing system  Entire channel focuses on customer  Over 60% of consumer products  Any examples?

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Vertical Marketing System Types of Vertical Marketing Systems

Channels & the Customer (2)  Variations on vertical marketing system  Corporate channel: AKA vertical integration  Buy/create own channel members (Wal-Mart, Motorola)  Adv: greater control  Dis: need great skill  Administration channel  Informal agreement to cooperate  Grocery store  Ordering: restock  Promotion: displays

Channels & the Customer (3)  Variations on vertical marketing system (cont…)  Contractual Channel: formal, written agreement to cooperate (joint venture)  Short term agreements also possible (movies, cereals, and what else??)

Outcomes (1)  Goal: ideal market exposure – product available enough to meet (not exceed) needs.  Alternatives:  Intensive (Candy, gum)  Good available at all suitable outlets  Not necessarily all  Adv: exposure  Seen in growth and market maturity

Outcomes (2)  Alternatives:  Selective (Levi’s and what else??)  Only “better” outlets (those giving push)  Gaining relative to intensive (80-20 rule)  Exclusive (fast food; Rolex; autos)  One intermediary/area  Expansion? (buy first, McDonald’s)

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Channels of Distribution Conventional Channels of Distribution of Consumer Goods

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Some Benefits of Wholesalers for Various Channel Members

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Major Functions Performed in Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  In either the presence or the absence of a traditional channel, a primary constraint is that of the availability of various types of middlemen  Selecting a channel of distribution can hinge on one of these factors  Distribution coverage required  Degree of control desired  Total distribution cost  Channel flexibility

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  Distribution coverage – Channel selection may depend upon the nature of market coverage desired  Intensive distribution – Using as many wholesalers and retailers as possible  Selective distribution – Using only the best available per geographic area  Exclusive distribution – Selected intermediaries are given exclusive rights within a particular territory

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  Degree of control desired – Achieved by the seller is proportionate to the directness of channel  Total distribution cost – Channel should be viewed as a total system composed of interdependent subsystems  Objective should be to optimize total system performance  Generally assumed that the total system should be designed to minimize costs, other things being equal  Channel flexibility – Ability of the manufacturer to adapt to changing conditions

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Franchising: An Alternative to Conventional Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Franchising: An Alternative to Conventional Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Store Retailing  Mass merchandisers – Carry broad assortments of goods and compete based on selection and price  Specialty stores – Handle deep assortments in a limited number of product categories  Limited-line stores  Single-line stores  Category killers  Convenience stores – Retailers whose primary advantages are location convenience, close-in parking, and easy entry and exit

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Non-Store Retailing  Catalogs and direct mail  Vending machines  Television home shopping  Direct sales  Electronic exchange  E-cart abandonment

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Annual Nonstore Retail Sales

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Electronic Commerce: Advantages and Disadvantages for Marketers