1. Marketing Channels

2. Establish channels for different target markets and
aim for efficiency, control, and adaptability.

3. Marketing Channels Most firms ğ single link in a larger supply chain
Supply chain with “make & sell” view vs. demand chain with “sense & respond” view
A value network ğ a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings
upstream and downstream partners

4. Marketing Channels
Marketers ğ focusing on the downstream part of the supply chain --- the mktg channels that look forward toward the customer
Marketing channels ğ Sets of interdependent organizations (marketing intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user
called also: “distribution channels” or “trade channels”

5. Marketing Channels Reasons to use marketing intermediaries
Lack of financial resources for direct marketing;
Direct mktg may not be feasible;
Producer’s greater return by increasing the investment in the main business.
The use of intermediaries results from their greater efficiency in making goods available to target markets.

6. Marketing Channels
Offer the firm more than it can achieve on its own, through the intermediaries’:
Contacts,
Experience,
Specialization,
Scale of operation.
Purpose: match supply from producers to demand from consumers.

7. Importance of Marketing Channels
How Channel Members Add Value
Fewer contacts
Match product assortment demand with supply
Bridge, time, place, and possession gaps that separate products from users.

8. Channel Functions Risk Taking Information Financing Promotion Physical
Distribution
Contact
Negotiation
Matching

9. Flows in the Marketing Channel

10. Consumer Marketing Channels
Channel Level ğ Each layer of marketing intermediaries that perform some work in bringing the product and its ownership closer to the final buyer.
Manufacturer
Consumer
0-level channel
Direct Channel
Manufacturer
Retailer
Consumer
1-level channel
Indirect Channel
Manufacturer
Wholesaler
Retailer
Consumer
2-level channel
Manufacturer
Wholesaler
Jobber
Retailer
Consumer
3-level channel

11. Industrial Marketing Channels
Manufacturer
Consumer
Industrial
distributors
Manufacturer’s
representative
Manufacturer’s
sales branch

12. Channel Design Decisions
Push strategy ğ the manufacturer using its salesforce and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users
Pull strategy ğ the manufacturer using advertising and promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it.

13. Channel Design Decisions
Analyzing customers’ service needs (customers’ desired service output levels)
Setting channel objectives and constraints
Identifying the major channel alternatives
Evaluating the major channel alternatives

14. Channel Design Decisions Analysis of Customers’ Desired Service Output Levels
Lot size
Waiting time
Spatial convenience
Product variety
Service backup

15. Channel Design Decisions Channel Objectives and Constraints
Channel objectives should be stated in terms of:
Targeted service output levels
Product characteristics
Company policies
Intermediaries’ characteristics
Competitors’ channels and policies
Environmental factors

16. Channel Design Decisions Identification of Channel Alternatives
Major channel alternatives have to be identified in terms of:
Types of Intermediaries
Number of Intermediaries
Terms and Responsibilities of Channel Members

17. Channel Design Decisions Identification of Channel Alternatives
Types of Intermediaries
Example: A test-equipment manufacturer- alternatives:
Expand the company’s salesforce
Hire manufacturers’ agents in different regions
Find industrial distributors and give them exclusive distribution

18. Channel Design Decisions Identification of Channel Alternatives
Number of Intermediaries
Intensive distribution
Selective distribution
Exclusive distribution

19. Channel Design Decisions Identification of Channel Alternatives
Responsibilities of Channel Members
Price policy ğ to establish a price list and determine discounts for intermediaries
Conditions of sales ğ refer to payment terms and producer guarantees
Distributors’ territorial rights
Mutual services and responsibilities

20. Channel Design Decisions Evaluation of Channel Alternatives
Each alternative needs to be evaluated against:
Economic criteria
To determine whether a company’s salesforce or a sales agency will produce more sales
To estimate the costs of selling different volumes through each channel
To compare sales and costs
Control and adaptive criteria

21. Example: Evaluation of Channel Alternatives Break-Even Cost Chart

22. Channel Management Decisions
Selecting Channel Members
Training Channel Members
Motivating Channel Members
Producers can use:
Coercive power
Reward power
Legitimate power
Expert power
Referent power
Evaluating Channel Members
Modifying Channel Arrangements

23. Channel Management Decisions Motivating Channel Members
Coercive power ğ when a manufacturer threatens to withdraw a resource or to terminate the relationship if intermediaries fail to cooperate
Reward power ğ the manufacturer offers an extra benefit for performing specific acts or functions
Legitimate power ğ the manufacturer requests a behavior that is warranted under the contract
Expert power ğ the manufacturer has special knowledge that the intermediaries value
Referent power ğ the manufacturer is so higly respected that the intermediaries are proud to be associated with it

24. Changing Channel Organization
A major trend ğ toward “disintermediation”:
Product and service producers are bypassing intermediaries and going directly to final buyers or;
New types of channel intermediaries are emerging to displace traditional ones

25. Channel Dynamics Conventional Vertical Marketing Marketing Channel
System (VMS)
Manufacturer
Manufacturer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
Consumer

26. Channel Dynamics Types of Vertical Marketing Systems
Systems (VMS)
Contractual
VMS
Retailer
Cooperatives
Franchise
Organizations
Wholesaler Sponsored
Voluntary Chains
Service-Firm-
Sponsored
Manufacturer-
Sponsored Wholesaler
Sponsored Retailer
Corporate
VMS
Administered
VMS

27. Channel Dynamics: Innovations in Marketing Systems
Horizontal Marketing System
Two or more companies at one channel level join together to follow a new marketing opportunity.
e.g. banks in food retailers
Multichannel (Hybrid) Marketing System
A Single firm sets up two or more marketing channels to reach one or more customer segments
e.g. Supermarkets, traditional stores, and sales force

28. Channel Dynamics: Conflict, Cooperation, and Competition
The channel will be most effective when:
Each member is assigned tasks it can do best
All members cooperate to attain overall channel goals and satisfy the target market
When this does not happen ğ “conflict” occurs
For the channel to perform well, each channel member’s role must be specified and conflict must be managed.

29. Channel Dynamics: Types of Conflict
Channel conflict ğ disagreements among mktg channel members on goals and roles
Vertical conflict ğ conflict between different levels within the same channel
Horizontal conflict ğ conflict between members at the same level within the channel
Multichannel conflict ğ conflict between two or more different channels that are used by the same manufacturer

30. Channel Dynamics: Causes of Channel Conflict
Goal Incompatibility ğ differences in expectations
Unclear Roles and Rights ğ territory boundaries, credit for sales, etc.
Differences in Perception
Dependence

31. Channel Dynamics: Managing Channel Conflict
The challenge ğ not to eliminate conflict, but to manage it!
Some mechanisms for effective conflict management:
Diplomacy
Mediation
Arbitration

32. Channel Dynamics: Legal and Ethical Issues
Exclusive distribution
Only certain outlets are allowed to carry a firm’s products
Exclusive dealing
Exclusive territorial agreements
Tying agreements