C H A P T E R © 2007 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Marketing Channels 13

13-2 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Learning Objectives After studying this chapter, you should be able to:  Explain the functions and key activities of marketing channels.  Discuss the role of intermediaries in marketing channels.  Distinguish between direct and indirect marketing channels.  Illustrate how some firms use multiple channels successfully.  See how marketing channel decisions are related to other key marketing decision variables.  Understand how power, conflict, and cooperation affect the operation of a marketing channel.  Give examples of ethical and legal issues encountered in the operations of marketing channels.

13-3 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Timbuk 2 Timbuk2, a San Francisco–based manufacturer of urban shoulder bags, iPod holsters, tote bags, and yoga mat carriers, has learned that having the right channels for distributing its products is every bit as important for success as having cutting-edge products. When CompUSA agreed to carry Timbuk2 bags, CEO Mark Dwight thought his company had hit the jackpot. Four months later, Timbuk2 was hard pressed to keep up with the high volume demand and remain profitable given its low selling price to CompUSA.

13-4 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Consumer and B2B Channels The marketing channel is a combination of organizations and individuals who perform the required activities to link producers of products to users of those products to accomplish marketing objectives. Exhibit 13-1

13-5 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Functions of Marketing Channels By performing five critical functions, marketing channels play an important role in accomplishing the key marketing activities. Exhibit 13-2

13-6 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Direct Marketing Channels A direct channel describes movement of the product from the producer to the user without intermediaries. Exhibit 13-3

13-7 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Indirect Marketing Channels An indirect channel requires intermediaries between the originator and the user to perform some functions related to buying or selling. Exhibit 13-4

13-8 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Vertical Marketing Systems Vertical marketing systems. are centrally coordinated, highly integrated operations that work together to serve the ultimate consumer. The word vertical refers to the flow of the product from the producer to the customer. This flow is “down the channel” or “downstream,” meaning that the product flows down from the producer to the customer. Exhibit 13-5

13-9 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Corporate Channel Systems BackwardIntegration Backward Integration aims to improve the efficiency and effectiveness of marketing channels through ownership of one or more of their suppliers, not their buyers. ForwardIntegration A corporate channel system in which one channel member owns one or more of its buyers downstream is called forward integration.

13-10 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Contractual Channel Systems Wholesaler-sponsored voluntary groups consist of independent retailers that operate under the name of a sponsoring wholesaler. Retailer-owned cooperative groups operate like wholesaler-sponsored voluntary groups, but the retailers actually own the wholesaler. The third type of contractual channel system is the franchise system. One party, the franchisor, grants another party, the franchisee, the right to distribute and sell specified goods and services.

13-11 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Franchise Channels Exhibit 13-6

13-12 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Managing Marketing Channels Exhibit 13-7

13-13 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Managing Marketing Channels DevelopStrategy EvaluateAlternativesDetermineStructureImplementStrategy Evaluate Performance Channel objectives should be specifically stated, measurable, and consistent with the firm’s marketing objectives. Channel strategy is an expression of a general action plan and guidelines for allocating resources to achieve the channel objectives. BuyerPreferencesRelationshipOrientation Degree of MarketCoverage

13-14 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed DevelopStrategy Managing Marketing Channels 1.Evaluation of Capabilities and Costs 2.Evaluation of Channel Compatibility:  Product Considerations  Pricing Considerations  Marketing Communications Considerations 3.Evaluation of Availability DetermineStructureImplementStrategyEvaluatePerformance Evaluate Alternatives

13-15 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed DetermineStructure Managing Marketing Channels EvaluateAlternativesImplementStrategyEvaluatePerformance The key question is “What channel structure is best for us to use?”  Direct or Indirect Channels  Single or Multiple Channels  Vertical Marketing Systems DevelopStrategy

13-16 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Managing Marketing Channels EvaluateAlternativesDetermineStructureEvaluatePerformanceDevelopStrategyImplementStrategy 1.Run a Trial Period 2.Set Performance Expectations 3.Create Communication Networks

13-17 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed EvaluatePerformance Managing Marketing Channels 1.Financial Evaluation 2.Evaluate Working Relationship 3.Ethical and Legal Issues Channel Power  Reward Power  Legitimate Power  Expert Power  Referent Power  Coercive Power  Channel Leader Power Channel Conflict Channel Cooperation EvaluateAlternativesDetermineStructureImplementStrategyDevelopStrategy

13-18 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Ethical Problems in Marketing Channels

13-19 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed Channel Conflict It is inevitable that channel members experience conflict with one another. Channel conflict may result from poor communications, a struggle over power in the channel, or incompatible objectives.

13-20 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5 th Ed SummarySummary After studying this chapter, you should be able to:  Explain the functions and key activities of marketing channels.  Discuss the role of intermediaries in marketing channels.  Distinguish between direct and indirect marketing channels.  Illustrate how some firms use multiple channels successfully.  See how marketing channel decisions are related to other key marketing decision variables.  Understand how power, conflict, and cooperation affect the operation of a marketing channel.  Give examples of ethical and legal issues encountered in the operations of marketing channels.