Chapter 13 Marketing Channels

The Place Component of the Marketing Mix: Channels of Distribution Logistics Materials Management Physical Distribution

Marketing Channels A set of interdependent organizations that facilitate the transfer of ownership as products move from producer to business user or consumer

Marketing Channel Functions Chapter 12 Marketing Channels and Supply Chain Management Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency Notes: As products move through the supply chain, channel members facilitate the distribution process by providing: Specialization and division of labor: Breaking a complex task into smaller, simpler ones creates greater efficiency and lower production costs. Overcoming discrepancies of quantity, assortment, time, and space. Providing contact efficiency by cutting the number of transactions required to get products to consumers and making an assortment of goods available in one location.

Overcoming Discrepancies Chapter 12 Marketing Channels and Supply Chain Management Overcoming Discrepancies Discrepancy of Quantity Assortment The difference between the amount of product produced and the amount an end user wants to buy. The lack of all the items a customer needs to receive full satisfaction from a product or products. Notes: Marketing channels help overcome discrepancies of quantity, assortment, time, and space created by economies of scale in production. Discrepancy of Quantity: Efficient production for lower unit costs creates a much larger quantity produced than the end user wants to buy. Marketing channels store and distribute the product in appropriate amounts, and make the products available in quantities that consumers desire. Discrepancy of Assortment: Marketing channels assemble in one place many of the products necessary for a consumer’s needed assortment.

Providing Contact Efficiency Chapter 12 Marketing Channels and Supply Chain Management Notes: Exhibit 12.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Circuit City, the individual television manufacturers would have to make four contacts to reach the four buyers. With Circuit City as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers.

Channel members - Intermediaries Retailers – Organizations whose activities are directed toward sales to final (ultimate) consumers Wholesalers – Organizations that sell to retailers or other wholesalers, and/or to businesses or institutions for use in the conduct of business

Channel Intermediaries Chapter 12 Marketing Channels and Supply Chain Management Channel Intermediaries Retailers Merchant Wholesalers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods Notes: The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Agents and brokers do not take title to goods.

Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 12 Marketing Channels and Supply Chain Management Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.

Channels for Consumer Products Chapter 12 Marketing Channels and Supply Chain Management Channels for Consumer Products Producer Consumers Retailers Wholesalers Agents or Brokers Wholesaler Channel Retailer Direct Agent/Broker Notes: Exhibit 12.4 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Discussion/Team Activity: Identify various products and discuss the channel for distribution utilized by each.

Channels for Business Products Chapter 12 Marketing Channels and Supply Chain Management Channels for Business Products Producer Industrial User Direct Channel Govt. Buyer Industrial Distributor Agents or Brokers Agent/Broker Industrial Channel Notes: Exhibit 12.5 illustrates the five channel structures common in business and industrial markets. Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel. Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products.

Alternative Channel Arrangements Chapter 12 Marketing Channels and Supply Chain Management Alternative Channel Arrangements Multiple channels Strategic channel alliances Nontraditional channels Notes: Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances. Multiple channels: Two or more channels selected is called multiple or dual distribution. Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition. Strategic channel alliances: Producers use another manufacturer’s already-established channel.

Benefits of Supply Chain Management Chapter 12 Marketing Channels and Supply Chain Management Benefits of Supply Chain Management Means of differentiation Greater supply chain flexibility Improved customer service Higher revenues Reduced costs Notes: Supply chain management is a key means of differentiation for a firm and a critical component in marketing and corporate strategy. Research has shown a clear relationship between supply chain performance and profitability. Leaders in supply chain management report a 20 percent improvement in cash flow, a more than 50 percent increase in flexibility of supply chain activities, and a reduction of 5 to 10 percent in supply chain costs.

Channel Strategy Decisions Chapter 12 Marketing Channels and Supply Chain Management Channel Strategy Decisions Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity Notes: Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows.

Consumer or Industrial Chapter 12 Marketing Channels and Supply Chain Management Market Factors Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location Notes: Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy? Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service. If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive. In general, a large market requires more intermediaries.

Product Standardization Chapter 12 Marketing Channels and Supply Chain Management Product Factors Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price Notes: Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries. The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels. Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling.

Producer Factors Producer Resources Number of Product Lines Chapter 12 Marketing Channels and Supply Chain Management Producer Factors Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control Notes: Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers. Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products. A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity.

Levels of Distribution Intensity Chapter 12 Marketing Channels and Supply Chain Management Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area

Channel Leadership, Conflict, & Partnering Chapter 12 Marketing Channels and Supply Chain Management Channel Leadership, Conflict, & Partnering Channel Relationship Synergy Channel Conflict Horizontal Vertical Channel Power, Control, Leadership Channel Partnering