1. Marketing Channels and Supply Chain Management15
Marketing Channels and Supply Chain Management

2. To describe the nature and functions of marketing channels
Objectives
To describe the nature and functions of marketing channels
To explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers
To identify the types of marketing channels
To examine the major levels of marketing coverage
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3. To specify how channel integration can improve channel efficiency
Objectives (cont’d)
To explore the concepts of leadership, cooperation, and conflict in channel relationships
To specify how channel integration can improve channel efficiency
To examine the legal issues affecting channel management
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4. The Nature of Marketing Channels Types of Marketing Channels
Chapter Outline
The Nature of Marketing Channels
Types of Marketing Channels
Intensity of Market Coverage
Supply Chain Management
Legal Issues in Channel Management
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5. The Nature of Marketing Channels
Distribution
The activities that make products available to customers when and where they want to purchase them
Marketing Channel
A group of individuals and organizations directing products from producers to customers
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7. The Nature of Marketing Channels (cont’d)
Marketing Intermediary
A middleman linking producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products
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8. The Nature of Marketing Channels (cont’d)
Marketing Channels Create Utility
Time utility: have products available when the customer wants them (newspaper delivery).
Place utility: making products available in locations where the customers wish to purchase them (convenience stores).
Possession utility: the customer has access to the product to use or to store for future use (raincoats).
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9. The Nature of Marketing Channels (cont’d)
Marketing Channels Facilitate Exchange Efficiencies
Reduce the overall costs of marketing exchanges
Reduce search costs for customers
Maintain order in the marketplace
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10. Efficiency in Exchanges Provided by an Intermediary
FIGURE 15.1
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11. Marketing Channels Form a Supply Chain
Supply Chain Management
Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers
Optimizes costs throughout the whole channel for efficiency and service
Includes all entities that facilitate product distribution and benefit from cooperative efforts
Arises from the need to achieve a more competitive position
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12. Typical Marketing Channels for Consumer Products
FIGURE 15.2
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13. Typical Marketing Channels for Business Products
FIGURE 15.3
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14. Distribution Intermediaries
Industrial Distributor
An independent business that takes title to business products and carries inventories
Advantages
Perform needed selling activities in local markets
Are aware of local needs and can pass market information on to producers
Reduce producers’ capital requirements by holding inventories for local markets.
Disadvantages
Difficult to control
Stocking of competing brands
Less likely to handle bulky and slow-selling items
Lack of technical knowledge
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15. Distribution Intermediaries (cont’d)
Manufacturers’ Agent
An independent businessperson who sells, on commission, the complementary products of several producers; does not take title to or hold inventories.
Advantages
Possesses technical and market information
Has an established set of customers
Serves as a substitute for a sales force
Disadvantages
Difficult to control
Concentration on only large accounts
Sales focus limited to commission-related activities
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16. Multiple Marketing Channels and Channel Alliances
Dual Distribution
The use of two or more channels to distribute the same product to the same target market
Strategic Channel Alliance
An agreement whereby the products of one organization are distributed through the marketing channels of another
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17. Intensity of Market Coverage
Intensive Distribution
Using all available outlets to distribute a product.
Convenience products with high replacement rates
Provides availability and reduces search time
Availability is more important than outlet type
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18. Intensity of Market Coverage (cont’d)
Selective Distribution
Using only some available outlets to distribute a product
Shopping products and durable goods with low replacement rates
High qualification requirements for intermediaries to distribute, sell, service, and support products
Tuscaloosa’s Only Authorized Dealer
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19. Intensity of Market Coverage (cont’d)
Exclusive Distribution
Using a single outlet in a fairly large geographic area to distribute a product
Expensive, high-quality products purchased infrequently
Exclusive outlets provide an incentive to sellers in limited markets
Dealers carry complete inventory and have trained staff for sales and service
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20. Supply Chain Management: Channel Leadership
Channel Captain
The dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain
Establishes channel policies and coordinates development of the marketing mix
Channel Power
The ability of one channel member to influence another member’s goal achievement
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21. Supply Chain Management: Channel Cooperation
Benefits of Cooperation
Speeds up inventory replacement
Improves customer service
Reduces distribution costs
Improving Channel Cooperation
Unifying channel to maintain market order
Agreeing to direct efforts toward common objectives
Precisely defining each channel member’s tasks
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22. Supply Chain Management: Channel Conflict
Sources of Channel Conflict
Disagreements arising among channel members
Communication difficulties jeopardizing coordination
Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers
Intermediaries diversifying into and offering competing products
Producers attempting to circumvent intermediaries and dealing directly with retailers
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23. Supply Chain Management: Channel Integration
Vertical Channel Integration
Two or more stages of the marketing channel are under one management
Channel members coordinate their efforts to reach a target market
Vertical Marketing System (VMS)
A marketing channel managed by a single channel member to achieve efficient, low-cost distribution
Corporate VMS
Administered VMS
Contractual VMS
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24. Legal Issues in Channel Management
Dual Distribution
A producer can use two different channels to reach the same target market as long as it is not trying to engage in unfair competition and put its independent distributors out of business
Restricted Sales Territories
Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade
Tying Arrangements
Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier
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25. Legal Issues in Channel Management (cont’d)
Full-Line Forcing
Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products
Exclusive Dealing
Forbidding an intermediary to carry products of a competing manufacturer
Is anticompetitive if
it blocks competitors from 10% of the market
sales revenues are sizable
the manufacturer is larger than the dealer
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26. Legal Issues in Channel Management (cont’d)
Refusal to Deal
Suppliers can choose their distributors and refuse to deal with others so long as their decisions are not based on anticompetitive motives or are not part of an organized refusal-to-deal with certain channel members.
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27. After reviewing this chapter you should:
Be able to describe the nature and functions of marketing channels.
Be able to explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers.
Be able to identify the types of marketing channels.
Be familiar with the major levels of marketing coverage.
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28. After reviewing this chapter you should:
Understand the concepts of leadership, cooperation, and conflict in channel relationships.
Be able to specify how channel integration can improve channel efficiency.
Be aware of the legal issues affecting channel management.
Copyright © Houghton Mifflin Company. All rights reserved.