1. Channels of Distribution Chapter Twelve

2. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-2 Key Learning Points The functions of channels of distribution Key factors affecting the choice among alternative channel structures Channel options Managing channels of distribution and resolving channel member conflict Special topics in channels of distribution Channel decisions in high-tech and global contexts

3. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-3 - Russell S. Winer “ Customers must have access to your product or service to be able to purchase it. The purpose of a system of distribution channels is to provide an efficient means of getting your products to customers and customers to your products. ”

4. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-4 Importance of Channels of Distribution Channels imply physical distribution, also called logistics. Distribution applies to services as well as products.

5. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-5 Figure 12.1 The Value-Added Chain of Distribution Channels

6. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-6 Illustration Purchased in 1993 for $1.7 billion by Quaker Oats, Snapple was sold in 1997 to Triarc Beverages for $300 million. Purchased in 1993 for $1.7 billion by Quaker Oats, Snapple was sold in 1997 to Triarc Beverages for $300 million. In 2000, Triarc sold Snapple for $1 billion to Cadbury Schweppes. In 2000, Triarc sold Snapple for $1 billion to Cadbury Schweppes. Distribution issues are at the heart of Snapple’s widely fluctuating value. Distribution issues are at the heart of Snapple’s widely fluctuating value.

7. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-7 Importance of Channels of Distribution Major Types of Marketing Intermediaries Middleman Merchant middleman AgentWholesalerRetailer Broker Manufacturers’ agent DistributorJobber Facilitating agent

8. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-8 Figure 12.2, Part A Alternate Channel System for Consumer Products

9. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-9 Figure 12.2, Part B Alternate Channel System for Industrial Products

10. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-10 Figure 12.3 Channel System for a Manufacturer of Food Service Disposables

11. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-11 Channel Dynamics Channel structures must adapt to changes in the environment. Structural changes can impact the entire industry.

12. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-12 Functions and Services Performed by Channel Members Marketing research CommunicationsContactMatching/customizingNegotiation Physical distribution Financing Risk taking Service Relationship management Product assembly Channel Functions

13. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-13 Table 12.2 Channel Function Analysis

14. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-14 Table 12.3 Customer Wants and Needs Driving the Saturn Distribution System

15. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-15 Customer behavior Competitors Marketing strategy Resources Changes in technology Factors Affecting the Channel System

16. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-16 Channel Options Direct and indirect channels Direct channels Indirect channels Strengths and weaknesses Channel option considerations

17. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-17 Instances When Direct Channels Are Preferable Information needs are high. Customization is important. Quality assurance matters. Purchase orders are large. Transportation and storage are complex. Channel Options

18. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-18 Instances When Indirect Channels Are Preferable One-stop shopping for many products is important. Availability is important. After-sales service is important. Channel Options

19. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-19 Factors Influencing Choice of Direct or Indirect Channels Profitability Level of intermediary commitment Customer loyalty Likelihood that the channel member will compete with your product Disintermediation Channel Options

20. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-20 Discussion Disintermediation is becoming more common in many industries. Disintermediation is becoming more common in many industries. Name some examples of products or services that are now selling directly to consumers and bypassing traditional channel members such as retailers. Name some examples of products or services that are now selling directly to consumers and bypassing traditional channel members such as retailers.

21. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-21 Figure 12.4 Multiple Channels

22. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-22 Figure 12.6 Hybrid Channel Design

23. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-23 Figure 12.7 Hybrid Channel Design

24. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-24 Factors Influencing Channel Member Power Sales volume of channel member Product differentiated Channel switching costs Channel may integrate backwards or become a competitor Quality of channel information about market conditions Channel Power and Management

25. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-25 Channel Power and Management Channel power: Mega-retailers and category killers: Use information-intensive operations Use information-intensive operations Cut out intermediaries Cut out intermediaries Channel power can lead to hardball tactics.

26. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-26 Figure 12.9 Levels of Conflict between Manufacturers & Channel Members

27. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-27 Channel Power and Management Sources of channel conflict: Goal divergence Domain dissensus Differing perceptions of reality Misuse of power

28. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-28 Conflict resolution methods: Demarcating product lines Jointly developing solutions Increasing push and pull activities Developing financial arrangements Charging higher prices in the direct channel Using channel power Channel Power and Management

29. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-29 Use of Channel Power in Conflict Resolution ThreatsPromises Legalistic pleas RequestsRecommendations Information exchange Channel Power and Management

30. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-30 Table 12.4 OEM vs. Branded Marketing

31. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-31 Channel Issues in High-Tech Marketing High-tech marketing: Original equipment manufacturers Value-added resellers (VARs) Differences between OEMs and VARs

32. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-32 Global Channel Issues Cultural, economic, and regulatory issues impact global channels. Western Europe Russia and former Soviet Bloc countries Japan China and other Asian markets

33. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-33 - Russell S. Winer “ The gray market is where trademarked goods are sold through channels of distribution that are not authorized by the holder of the trademark. It is common that gray markets develop across country lines. This phenomenon is often called parallel importing. ”

34. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-34 Discussion Questions 1.What are the repercussions of counterfeit branding to customers, channel members, and the legitimate brand manufacturer? 2.Are people who purchase counterfeit brands realistically members of the true brand ’ s target market? Why or why not? Counterfeit products are not the same as gray market goods. Counterfeit products are low-quality trademark infringing “ knock-off ” versions of branded products created by firms other than the brand manufacturer (typically in foreign markets).

35. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-35 Special Topics in Channels of Distribution Supermarket issues Retailers have gained power. Category management is important.

36. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-36 “The need to be efficient has driven category management and created two concepts initially introduced in the United States in the early 1990’s: efficient consumer response (ECR) and continuous replenishment program (CRP).” - Russell S. Winer

37. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-37 Special Topics Strategies for intermediaries Disintermediation threatens intermediaries. Many intermediaries continue to survive and even thrive.

38. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-38 Executive Summary The distribution system is part of the value chain. Many channel structures exist. Channel structure is determined by many factors. Channel members perform many functions. A common decision sequence is followed.

39. Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-39 Executive Summary Hybrid channel systems have different channel types. Channel power is important. Channel management involves two key factors. Conflict can be resolved in multiple ways. New channel opportunities are arising.