Chapter 11 Participation and Leadership in the Marketing–Procurement Channels

Channels  Channel defined: A sequence of firms through which a product moves from producer to consumer.  Process deals with both marketing and procurement; hence, marketing– procurement (M–P) channels

Selected Variations in M–P Channels

Channel Variations— Complexity and Length  Direct marketing channel: One extreme (simple and short channels)  Marketing of major commodities in domestic markets: Involves intermediaries  Marketing to foreign consumers: Other extreme (longest and least understood channels)

Types of Intermediary Operations  Merchants  Brokers (agents)  Vertically integrated operations of sellers  Vertically integrated operations of buyers

Merchants vs. Brokers  Merchants: take title to goods and take physical and financial risks  Brokers: intermediaries who arrange transactions but do not take ownership or finance customers

Assemblers  Definition: Collect small shipments from producers into larger-volume units for sale and shipment to processors or wholesalers.  Ownership: Independent, or owned from above or below  Marketing cooperatives: Assemblers owned by farmers

Wholesale Distribution  Processors must make sure that their products flow smoothly and efficiently through the market channel  Processors use wholesalers, or they may sell directly to larger-volume retailers  Options: –Independent wholesalers –Integrated wholesaler–retailer (i.e., Wal-Mart) –Agents or brokers –Processors may organize a warehousing/wholesaling operation

Channel Leadership  Some markets may have completely free and open competition  Some markets may have some monopolistic competition, and participants who provide leadership to others in that market  Types of leadership: –One extreme: vertical control and dominance –Ownership and contracts at several stages in channel –Smaller degree of market influence—with innovative leaders

More on Channel Leadership  Leadership is essential to improving productivity  Leadership may reside at any level of marketing channel—anyone could be a leader  Channel leaders: –Take the initiative in getting things done –Make decisions and motivate the others in the channel to go along

Demanded Brands  Branding: the identification by brand names, trademarks, and so on of products or services by a seller (or sales group)  Battle of the brands: manufacturers’ brands vs. private labels  Successful brands: offer homogeneous quality over time, can be easily identified, backed by aggressive promotional campaign

Changes in Channel Organization: The Livestock-Meat Industry  Packers and railroad management organized national systems of livestock procurement and distribution; farmers were too disunited  Livestock-procurement system reorganized when trucking became competitive  Recently, retail groups have challenged packers’ system of distribution  Advent of boxed beef example of changes

Class Exercise  For your group’s agricultural commodity and agribusiness, research the agribusiness’s efforts to develop branded products. Find out: –Why the business has or has not pursued branding –The level of concentration for the industry segment of your commodity, using USDA and Census Bureau data