© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin MANAGING MARKETING CHANNELS AND WHOLESALING 15 C HAPTER

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Explain what is meant by a marketing channel of distribution and why intermediaries are needed. Recognize differences between marketing channels for consumer and business products and services in domestic and global markets. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Describe the types and functions of firms that perform wholesaling activities. Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Describe factors considered by marketing executives when selecting and managing a marketing channel, including channel conflict and legal restrictions. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin AVON’S MAKEOVER IS MORE THAN COSMETIC MANAGING MARKETING CHANNELS AND WHOLESALING

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Defining Marketing Channels of DistributionMarketing Channels NATURE AND IMPORTANCE OF MARKETING CHANNELS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Value Created by Intermediaries NATURE AND IMPORTANCE OF MARKETING CHANNELS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Value Created by Intermediaries (cont) Functions Performed by Intermediaries NATURE AND IMPORTANCE OF MARKETING CHANNELS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Value Created by Intermediaries (cont) Consumer Benefits from Intermediaries NATURE AND IMPORTANCE OF MARKETING CHANNELS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 1. What is meant by a marketing channel? A: A marketing channel consists of the individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 2. What are the three basic functions performed by intermediaries? A: Intermediaries perform transactional, logistical, and facilitating functions.

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Marketing Channels for Consumer Goods and Services  Direct channel Direct channel  Indirect channels Indirect channels CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Marketing Channels for Business Goods and Services  Industrial distributor Industrial distributor CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Electronic Marketing Channels CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Direct Marketing Channels Multiple Channels and Strategic Alliances  Dual distribution Dual distribution  Strategic channel alliances Strategic channel alliances CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A Closer Look at Channel Intermediaries Merchant Wholesalers Agents and Brokers  Manufacturer’s agents Manufacturer’s agents  Selling agents Selling agents  Brokers Brokers Manufacturer’s Branches and Offices CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Vertical Marketing Systems and Channel PartnershipsVertical Marketing Systems CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Vertical Marketing Systems and Channel Partnerships (cont)Vertical Marketing Systems Corporate Systems Contractual Systems  Franchising Franchising Administered Systems Channel Partnerships CHANNEL STRUCTURE AND ORGANIZATION

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 1. What is the difference between a direct and an indirect channel? A: With direct channels, a producer and ultimate consumers deal directly with each other. With indirect channels, intermediaries are situated between the producer and consumers.

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 2. Why are channels for business products typically shorter than channels for consumer products? A: Channels are typically shorter for industrial products, since these users are fewer in number, tend to be more concentrated geographically, and buy in larger quantities.

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 3. What is the principal distinction between a corporate vertical marketing system and an administered vertical marketing system? A: Corporate vertical marketing systems achieve coordination at successive stages of production and distribution by ownership, whereas administered vertical marketing systems achieve the same thing by the size and influence of one channel member.

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Factors Affecting Channel Choice and Management Environmental Factors Consumer Factors Product Factors Company Factors CHANNEL CHOICE AND MANAGEMENT

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel Design Considerations Target Market Coverage  Intensive distribution Intensive distribution  Exclusive distribution Exclusive distribution  Selective distribution Selective distribution Satisfying Buyer Requirements Profitability Global Dimensions of Marketing Channels CHANNEL CHOICE AND MANAGEMENT

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel Relationships: Conflict, Cooperation, and Law Conflict in Marketing Channels  Disintermediation Disintermediation Cooperation in Marketing Channels  Channel captain Channel captain Legal Considerations CHANNEL CHOICE AND MANAGEMENT

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 1. What are the three degrees of distribution intensity? A: Intensive, exclusive, selective

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Check 2. What are the three questions marketing executives consider when choosing a marketing channel and intermediaries? A: 1. Which channel and intermediaries will provide the best coverage of the target market? 2. Which channel and intermediaries will best satisfy the buying requirements of the target markets? 3. Which channel and intermediaries will be the most profitable?

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A: When a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products. Concept Check 3. What is meant by “exclusive dealing”?

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Marketing Channel

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A marketing channel where a producer and ultimate consumer deal directly with each other. Direct Channel

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A marketing channel where intermediaries are inserted between the producer and consumers and perform numerous channel functions. Indirect Channels

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing. Industrial Distributor

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Employ the Internet to make goods and services available for consumption or sue by consumers or industrial buyers. Electronic Marketing Channels

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson. Direct Marketing Channels

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin An arrangement by which a firm reaches buyers by employing two or more different types of channels for the same basic product. Dual Distribution

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A practice whereby one firm’s marketing channel is used to sell another firm’s products. Strategic Channel Alliances

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Independently owned firms that take title to the merchandise they handle. Merchant Wholesalers

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Manufacturer’s Agents

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Represents a single producer and is responsible for the entire marketing function of that product. Selling Agents

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Independent firms or individuals whose principal function is to bring buyers and sellers together to make sales. Brokers

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. Vertical Marketing Systems

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchise to operate a certain type of business under an established name and according to specific rules. Franchising

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Agreements and procedures among channel members for ordering and physically distributing a producers product through the channel to the ultimate consumer. Channel Partnership

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A firm tries to place its products or services in as many outlets as possible. Intensive Distribution

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Only one retail outlet in a specific geographical area carries the firm’s products. Exclusive Distribution

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A firm selects a few retail outlets in a specific geographical area to carry its products. Selective Distribution

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Arises when one channel member believes another channel member is engaged in behavior that prevents it from meeting its goals. Channel Conflict

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel conflict that arises when a channel member bypasses another member and sells or buys products direct. Disintermediation

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A marketing channel member that coordinates, directs, and supports other channel members; may be a producer, wholesaler, or retailer. Channel Captain