1. CHAPTER 13 Marketing Channels
Lamb, Hair, McDaniel
Chapter 12 Marketing Channels and Supply Chain Management
CHAPTER 13
Marketing Channels
Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.

2. Chapter 12 Marketing Channels and Supply Chain Management
Learning Outcomes
LO 1 Explain what a marketing channel is and why intermediaries are needed
LO 2 Define the types of channel intermediaries and describe their functions and activities
LO 3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements
LO 4 Discuss the issues that influence channel strategy

3. Chapter 12 Marketing Channels and Supply Chain Management
Learning Outcomes
LO 5 Describe the different channel relationship types and their unique costs and benefits
LO 6 Explain channel leadership, conflict, and partnering
LO 7 Discuss channels and distribution decisions in global markets
LO 8 Identify the special problems and opportunities associated with distribution in service organizations

4. Explain what a marketing channel is and why intermediaries are needed
Chapter 12 Marketing Channels and Supply Chain Management
Marketing Channels
Explain what a marketing channel is and why intermediaries are needed
Notes:
The term channel is derived from the Latin word, canalis, which means canal.
LO1

5. Chapter 12 Marketing Channels and Supply Chain Management
Marketing Channel: A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.
Notes:
A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer.
An important aspect of marketing channels is the joint effort of all channel members to create a continuous and seamless supply chain.
Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix.
LO1

6. 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.
LO1

7. Specialization and Division of Labor
Chapter 12 Marketing Channels and Supply Chain Management
Specialization and Division of Labor
Creates greater efficiency
Provides lower costs
Achieves economies of scale
Aids producers who lack resources to market directly
Builds good relationships with customers
Notes:
Specialized expertise of channel members enhances the overall performance of the channel.
LO1

8. 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.
LO1

9. Overcoming Discrepancies
Chapter 12 Marketing Channels and Supply Chain Management
Overcoming Discrepancies
Temporal
Discrepancy
Spatial
A situation that occurs when a product is produced but a
customer is not ready to buy it.
The difference between the
location of a producer and the location of widely
scattered markets.
Notes:
Temporal Discrepancy: Marketing channels overcome temporal discrepancies by maintaining inventories in anticipation of demand. This is particularly true of seasonal/holiday merchandise.
Spatial Discrepancy: Marketing channels overcome spatial discrepancies by making products available in locations convenient to consumers. For example, automobile manufacturers franchise dealerships close to consumers.
LO1

10. Providing Contact Efficiency
Chapter 12 Marketing Channels and Supply Chain Management
Providing Contact Efficiency
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.
LO1

11. Channel Intermediaries
Chapter 12 Marketing Channels and Supply Chain Management
Channel Intermediaries
Define the types of channel intermediaries and describe their functions and activities
LO2

12. Channel Intermediaries
Chapter 12 Marketing Channels and Supply Chain Management
Channel Intermediaries
Retailer
A channel intermediary that
sells mainly to customers.
Merchant
Wholesaler
An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them.
Agents and
Brokers
Wholesaling intermediaries who facilitate the sale of a product by representing channel members.
Notes:
Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final end user.
LO2

13. 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.
LO2

14. Sysco: Merchant Wholesaler
Chefs, like any retailer, need large amounts of product inexpensively. Enter Sysco: with more than 400,000 items in their catalogue, Sysco inexpensively provides chefs what they need. From frozen prepared food to regionally grown produce, Sysco supplies fast food and high end hotels, and many restaurants between.
Compare a 25 lb bag of Uncle Ben’s Converted Rice for $20.95 (84 cents/lb) to Amazon grocery’s $2.09 for a pound of the same rice, and it’s easy to see why Sysco dominates as the food wholesaler.
Source: Boser, Ulrich. “Every Bite You Take: How Sysco came to monopolize mos of what you eat,” Slate.com, February 21, 2007.
LO2

15. 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.
LO2

16. Factors Suggesting Type of Wholesaling Intermediary to Use
Chapter 12 Marketing Channels and Supply Chain Management
Factors Suggesting Type of Wholesaling Intermediary to Use
Factor
Merchant Wholesalers
Agents/ Brokers
Nature of product
Standard
Nonstandard, custom
Technicality of product
Complex
Simple
Product’s gross margin
High
Low
Frequency of ordering
Frequent
Infrequent
Time between order and receipt of shipment
Shorter lead time
Longer lead time
Number of customers
Many
Few
Concentration of customers
Dispersed
Concentrated
Notes:
This slide shows the factors determining the type of wholesaling intermediary.
LO2

17. Channel Functions Performed by Intermediaries
Chapter 12 Marketing Channels and Supply Chain Management
Contacting/Promotion
Negotiating
Risk Taking
Researching
Financing
Physically distributing
Storing
Sorting
Facilitating Functions
Transactional Functions
Logistical
Functions
Notes:
The three basic functions—transactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 12.2.
LO2

18. Logistics LO2 Logistics
Chapter 12 Marketing Channels and Supply Chain Management
Logistics
Logistics
The process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption.
LO2

19. Channel Intermediaries and Functions
Chapter 12 Marketing Channels and Supply Chain Management
CHANNEL INTERMEDIARIES
Retailers
Wholesalers
Agents and Brokers
CHANNEL FUNCTIONS
Transactional
Logistical
Facilitating
Perform
LO2

20. Chapter 12 Marketing Channels and Supply Chain Management
Channel Structures
Describe the channel structures for consumer and business products and discuss alternative channel arrangements
LO3

21. 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 12.3 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.
LO3

22. Channels for Consumer Products
Chapter 12 Marketing Channels and Supply Chain Management
Channels for Consumer Products
Direct
Channel
A distribution channel in which producers sell directly to consumers.
LO3

23. 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 12.4 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.
LO3

24. Business-to-Business Exchanges on the Internet
Chapter 12 Marketing Channels and Supply Chain Management
Business-to-Business Exchanges on the Internet
Companies drop the intermediary from the supply chain
“Private exchanges” with select suppliers automate the supply chain
The Internet has forced traditional distributors to expand their model.
On Line
Sherwin-Williams
Visit Sherwin-Williams’s home page to see how and where it sells its products. Are there different channels for its consumer products and its business products?
Notes:
The traditional industrial distributor is facing many challenges. Manufacturers are getting bigger due to growth, mergers, and consolidation. Technology is making access to information available to manufacturers and customers. Consequently, many are bypassing distributors and going direct, often via the Internet.
More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliers
Online
LO3

25. 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.
LO3

26. REVIEW LEARNING OUTCOME
Chapter 12 Marketing Channels and Supply Chain Management
REVIEW LEARNING OUTCOME
Channel Structures
CONSUMER CHANNELS
Direct
Retail
Wholesaler
Agent/broker
BUSINESS CHANNELS
Industrial
Agent/broker industrial
ALTERNATIVE CHANNELS
Multiple
Nontraditional
Strategic alliances
LO3

27. Making Channel Strategy Decisions
Chapter 12 Marketing Channels and Supply Chain Management
Making Channel Strategy Decisions
Discuss the issues
that influence
channel strategy
LO4

28. 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.
LO4

29. 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.
LO4

30. 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.
LO4

31. Number of Product Lines Desire for Channel Control
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.
LO4

32. 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
LO4

33. Levels of Distribution Intensity
Chapter 12 Marketing Channels and Supply Chain Management
Levels of Distribution Intensity
Intensive
Achieve mass market selling.
Convenience goods.
Many
Selective
Exclusive
Work with selected
intermediaries.
Shopping and some
specialty goods.
Work with single intermediary. Specialty goods and industrial
equipment.
Several
One
Intensity Level
Objective
Number of Intermediaries
Notes:
This slide compares the three options for intensity of distribution.
Discussion/Team Activity:
Discuss product examples in each of the intensity levels, and in which stores the products are stocked.
LO4

34. Types of Channel Relationships
Describe the different channel relationship types and their unique costs and benefits
LO5

35. Types of Channel Relationships
Benefits
Hazards
Arm’s Length Relationship
Fulfills a one time or unique need; low involvement/risk
Parties unable to develop relationship; low trust level
Cooperative Relationship
Formal contract without capital investment/long-term commitment; “happy medium”
Some parties may need more relationship definition
Integrated Relationship
Closely bonded relationship; explicitly defined relationships
High capital investment; any failure could affect every channel member
LO5

36. Managing Channel Relationships
Chapter 12 Marketing Channels and Supply Chain Management
Managing Channel Relationships
Explain channel leadership, conflict, and partnering
LO6

37. Social Dimensions of Channels
Chapter 12 Marketing Channels and Supply Chain Management
Social Dimensions of Channels
Partnering
Conflict
Leadership
Control
Power
Notes:
Social relationships play an important role in building unity among channel members. An aspect of supply chain management is managing the social relationships among channel members to achieve synergy.
The basic social dimensions are shown on this slide and defined on the following slides.
LO6

38. Channel Power, Control, and Leadership
Chapter 12 Marketing Channels and Supply Chain Management
Channel Power, Control, and Leadership
Channel
Power
A channel member’s capacity to control or
influence the behavior of other channel members
Control
A situation that occurs when one marketing
channel member intentionally affects another member’s behavior
Channel Leader
A member of a marketing channel that exercises
authority/power over the activities of other members
LO6

39. Channel Conflict and Partnering
Chapter 12 Marketing Channels and Supply Chain Management
Channel Conflict and Partnering
Channel
Conflict
A clash of goals and methods between distribution channel members
Partnering
The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage
Notes:
Inequitable channel relationships often lead to channel conflict. In a broad context, conflict may not be bad: if traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the supply chain.
Channel partnering is vital if each member gains something from the other members. Cooperation speeds up inventory replenishment, improves customer service, and reduces the total costs of the marketing channel.
LO6

40. Channel Conflict LO6 Conflicts may occur if channel members:
Chapter 12 Marketing Channels and Supply Chain Management
Channel Conflict
Conflicts may occur if channel members:
Have conflicting goals
Fail to fulfill expectations of other channel members
Have ideological differences
Have different perceptions of reality
Notes:
Conflicts arise because channel members have conflicting goals, or when channel members fail to fulfill expectations of other channel members.
Further, different perceptions of reality can cause conflict among members. For instance, retailers may have a liberal return policy, whereas wholesalers
LO6

41. Channel Partnering LO6 Transaction-Based Partnership-Based
Chapter 12 Marketing Channels and Supply Chain Management
Channel Partnering
Supplier / Manufacturer Relationships
Short-term
Adversarial
Independent
Price important
Long-term
Cooperative
Dependent
Value-added services
Number of Suppliers
Many
Few
Transaction-Based
Partnership-Based
Information Sharing
Minimal
High
Investment Required
Notes:
This table compares companies that approach the marketplace unilaterally and those that engage in channel cooperation and form partnerships.
LO6

42. Channels and Distribution Decisions for Global Markets
Chapter 12 Marketing Channels and Supply Chain Management
Channels and Distribution Decisions for Global Markets
Discuss channels and distribution decisions in global markets
LO7

43. Channel structure and type differ Gray marketing channels
Chapter 12 Marketing Channels and Supply Chain Management
Channels and Distribution
Decisions for Global Markets
Global Channel
Development
Channel structure and type differ
Gray marketing channels
Notes:
With the popularity of free-trade agreements such as the European Union and the North American Free Trade Agreement, global marketing channels have become important to U.S. corporations.
When designing marketing channels for foreign markets, the type of channel structure must be considered.
The more highly developed a nation is economically, the more specialized its channel types.
Marketers must be aware of gray marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels.
One of the most critical global logistics issues for importers is coping with the legalities of trade in other countries.
Transportation can be a major issue because of poor infrastructure and complications from government regulations.
Distribute directly or through foreign partners
Legal and infrastructure differences
LO7

44. Channels and Distribution Decisions for Services
Chapter 12 Marketing Channels and Supply Chain Management
Channels and Distribution Decisions for Services
Identify the special problems and opportunities associated with distribution in service organizations
LO8

45. Distribution in Service Organizations
Chapter 12 Marketing Channels and Supply Chain Management
Notes:
The fastest-growing part of our economy is the service sector. Customer service is a priority, with service distribution focused on three major areas:
Minimizing wait times
Managing service capacity.
Improving service delivery
Discussion/Team Activity:
Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?
LO8