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

2. The Nature of Marketing Channels Types of Marketing Channels
Agenda
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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3. 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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4. 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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5. 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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6. 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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7. Efficiency in Exchanges Provided by an Intermediary
FIGURE 15.1
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8. 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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9. Typical Marketing Channels for Consumer Products
FIGURE 15.2
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10. Typical Marketing Channels for Business Products
FIGURE 15.3
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11. Does cutting out the intermediary cut costs?
Debate Issue
Does cutting out the intermediary cut costs?
YES
Intermediaries make a significant profit on the products they carry.
Some wholesalers are inefficient and tend to be parasitic.
Eliminating intermediaries can cut these costs and decrease the time it takes for products to reach consumers.
Companies that are truly concerned about customer service will eliminate intermediaries and take responsibility for performing their tasks. NO
Intermediaries make significantly less profit than retailers.
Wholesalers survive by providing certain functions more efficiently than other channel members.
Producers would have to provide additional functions, often at greater expense and time than using wholesalers.
To survive, wholesalers must be more efficient and more customer-focused than alternative marketing institutions.
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12. 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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13. Is This Product Distributed Through Multiple Marketing Channels?
Courtesy of Neutrogena Corp.
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14. 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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15. 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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16. 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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17. Are iPods Distributed Through Intensive, Selective, or Exclusive Distribution?
Reprinted with permission of Apple Computer, Inc. All rights reserved.
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18. Exercise
Identify the intensity of market coverage for each of the following products:
Potato chips
Gucci handbags
Large-screen televisions
Rolex watches
Clinique cosmetics
Carbonated beverages
The purpose of this exercise is to improve students’ understanding of the intensities of market coverage. Answers:
1. Potato chips intensive
2. Gucci handbags exclusive
3. Large-screen televisions selective
4. Rolex watches exclusive
5. Clinique cosmetics selective
6. Carbonated beverages intensive
7. Range Rover vehicles exclusive
8. Stereo systems selective
9. Levi jeans selective
10. IBM personal computers selective
11. Gasoline intensive
12. Cannondale bicycles selective
13. Jaguar automobiles exclusive
14. Nintendo video games selective
15. Reebok shoes selective
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19. 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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20. 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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21. 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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22. Legal Issues in Channel Management
Certain practices have legal ramifications; laws are there to protect others in channel, customers, and free trade in general.
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
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23. 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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24. 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.
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. Exercise
Many manufacturers sell products in outlet stores at 25% to 70% off retail prices. Retailers do not like the added competition from their own suppliers despite manufacturers’ claims that they are only selling last season’s merchandise.
How could business objectives, buyer behavior, product attributes, or environmental forces affect a manufacturer’s decision to distribute through outlet stores?
The objective of this class exercise is to aid student understanding of the dimensions of channel selection and their possible relationships with channel conflict.
Question 1. These manufacturers have the resources to control their own channels and apparently have altered objectives to include increased coverage in new segments. Many manufacturers suggest that since outlet stores are located outside metro areas, they are not competing directly with retailers. The buyer behavior of outlet store shoppers is different from that of upscale department store shoppers: for outlet store shoppers, price is the deciding factor and customer service is unimportant. Because most items in an outlet store are past season, retailers are usually unwilling to carry them (product attributes are different). The economy and social forces (environmental forces) may encourage people to shop for value rather than for status.
Question 2. If market coverage is seen as a continuum, then these manufacturers have moved from a selective or exclusive intensity to a more intensive coverage. As coverage intensifies, customer service is decreased (particularly at outlet stores). Additionally, consumers’ perceptions of brand quality typically decrease as coverage intensity increases.
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26. Exercise (cont’d)
By selling in outlet stores, how have these manufacturers changed their intensity of market coverage? How is customer service different at an outlet store?
Which of the following may be responsible for the conflict between manufacturers and retailers?
Lack of clear communication
Deviation from role expectations
Diversification into product lines traditionally handled by other intermediaries
Question 3. Retailers expect manufacturers to supply relatively exclusive rights to distribute their branded goods. In the case of outlet stores, manufacturers have deviated from their role as producer to the role of retailer. (This might be a good time to define wholesaling and retailing.) Additionally, it appears that some manufacturers are selling some new items through outlet stores. It is also likely that manufacturers did not effectively or honestly communicate their distribution intentions to retailers.
Question 4. If retailers try to use coercive power, they will most likely hurt themselves by eliminating some of their best-selling brands. The conflict might be resolved by specifying the roles of each channel member (i.e., who sells what season’s merchandise).
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27. Exercise (cont’d)
Should retailers develop store brands, refuse to stock certain items, or focus their buying power on one supplier or group of suppliers? How should the conflict be resolved?
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