1. 1 Copyright ©2009 by Cengage Learning Inc. All rights reserved Designed by Eric Brengle B-books, Ltd. CHAPTER 13 Prepared by Amit Shah Frostburg State University Marketing Lamb, Hair, McDaniel 10 Marketing Channels

2. Copyright ©2009 by Cengage Learning Inc. All rights reserved Learning Outcomes 2 LO I LO 2 LO 3 Explain what a marketing channel is and why intermediaries are needed Define the types of channel intermediaries and describe their functions and activities Describe the channel structures for consumer and business products and discuss alternative channel arrangements

3. Copyright ©2009 by Cengage Learning Inc. All rights reserved Learning Outcomes 3 Discuss the issues that influence channel strategy Describe the different channel relationship types and their unique costs and benefits Explain channel leadership, conflict, and partnering Discuss channels and distribution decisions in global markets LO 5 LO 6 LO 4 LO 7

4. Copyright ©2009 by Cengage Learning Inc. All rights reserved Learning Outcomes 4 Identify the special problems and opportunities associated with distribution in service organizations LO 8

5. Copyright ©2009 by Cengage Learning Inc. All rights reserved Marketing Channels 5 Explain what a marketing channel is and why intermediaries are needed LO I

6. Copyright ©2009 by Cengage Learning Inc. All rights reserved Marketing Channels 6 Marketing Channel Marketing Channel LO I A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.

7. Copyright ©2009 by Cengage Learning Inc. All rights reserved Marketing Channel Functions 7 LO I Specialization and division of labor Overcoming discrepancies Providing contact efficiency

8. Copyright ©2009 by Cengage Learning Inc. All rights reserved Specialization and Division of Labor 8 LO I  Creates greater efficiency  Provides lower costs  Achieves economies of scale  Aids producers who lack resources to market directly  Builds good relationships with customers

9. Copyright ©2009 by Cengage Learning Inc. All rights reserved Overcoming Discrepancies 9 LO I Discrepancy of Quantity Discrepancy of Quantity Discrepancy of Assortment Discrepancy of Assortment The difference between the amount of product produced and the amount an end user wants to buy. 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. The lack of all the items a customer needs to receive full satisfaction from a product or products.

10. Copyright ©2009 by Cengage Learning Inc. All rights reserved Overcoming Discrepancies 10 LO I Temporal Discrepancy Temporal Discrepancy Spatial Discrepancy Spatial Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. 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. The difference between the location of a producer and the location of widely scattered markets.

11. Copyright ©2009 by Cengage Learning Inc. All rights reserved Providing Contact Efficiency 11 LO I

12. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Marketing Channels 12 LO I Providing Specialization and Division of Labor Providing Specialization and Division of Labor Overcoming Discrepancies Providing Contact Efficiency Marketing Channel Supply Chain

13. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Intermediaries 13 Define the types of channel intermediaries and describe their functions and activities LO 2

14. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Intermediaries 14 LO 2 Retailer A channel intermediary that sells mainly to customers. A channel intermediary that sells mainly to customers. Merchant Wholesaler Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product from producer to end user by representing retailers, wholesalers, or manufacturers.

15. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Intermediaries 15 LO 2 Retailers Merchant Wholesalers Merchant Wholesalers Agents and Brokers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods

16. Copyright ©2009 by Cengage Learning Inc. All rights reserved Factors Suggesting Type of Wholesaling Intermediary to Use 16 LO 2 Product characteristics Buyer considerations Market characteristics

17. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Functions Performed by Intermediaries 17 LO 2 Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions Logistical Functions

18. Copyright ©2009 by Cengage Learning Inc. All rights reserved Logistics 18 LO 2 Logistics The efficient and cost- effective forward and reverse flow as well as storage of goods, services, and related information, into, through, and out of channel member companies.

19. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Channel Intermediaries and Functions 19 LO 2 CHANNEL INTERMEDIARIES Retailers Wholesalers Agents and Brokers Retailers Wholesalers Agents and Brokers CHANNEL FUNCTIONS Transactional Logistical Facilitating Transactional Logistical Facilitating Perform

20. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Structures 20 Describe the channel structures for consumer and business products and discuss alternative channel arrangements LO 3

21. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channels for Consumer Products 21 LO 3 Direct Channel A distribution channel in which producers sell directly to consumers.

22. Copyright ©2009 by Cengage Learning Inc. All rights reserved 22 Producer Consumers Retailers Wholesalers Agents or BrokersWholesalerChannelRetailerChannelDirectChannelAgent/BrokerChannel Channels for Consumer Products LO 3

23. Copyright ©2009 by Cengage Learning Inc. All rights reserved 23 LO 3 Channels for Business Products Producer Industrial User DirectChannel Producer Govt. BuyerDirectChannel Producer Industrial User Industrial Distributor Agents or Brokers Agents or BrokersAgent/BrokerChannel Industrial Distributor Agent/Broker Industrial Channel

24. Copyright ©2009 by Cengage Learning Inc. All rights reserved Business-to-Business Exchanges on the Internet 24 LO 3 Agents link buyers and sellers Companies drop the intermediary from the supply chain “Private exchanges” with select suppliers automate the supply chain Online http://www.sherwinwilliams.com

25. Copyright ©2009 by Cengage Learning Inc. All rights reserved Alternative Channel Arrangements 25 LO 3 Multiple channels Strategic channel alliances Nontraditional channels

26. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Channel Structures 26 LO 3 CONSUMER CHANNELS  Direct  Retail  Wholesaler  Agent/broker  Direct  Retail  Wholesaler  Agent/broker BUSINESS CHANNELS  Direct  Industrial  Agent/broker  Agent/broker industrial  Direct  Industrial  Agent/broker  Agent/broker industrial ALTERNATIVE CHANNELS  Multiple  Nontraditional  Strategic alliances  Multiple  Nontraditional  Strategic alliances

27. Copyright ©2009 by Cengage Learning Inc. All rights reserved Making Channel Strategy Decisions 27 Discuss the issues that influence channel strategy LO 4

28. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Strategy Decisions 28 LO 4 FactorsAffectingChannelChoiceFactorsAffectingChannelChoice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity

29. Copyright ©2009 by Cengage Learning Inc. All rights reserved Market Factors 29 LO 4 Market Factors That Affect Channel Choices Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Consumer or Industrial Customer Size of market Geographic location

30. Copyright ©2009 by Cengage Learning Inc. All rights reserved Product Factors 30 LO 4 Product Factors That Affect Channel Choices Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price

31. Copyright ©2009 by Cengage Learning Inc. All rights reserved Producer Factors 31 LO 4 Producer Factors That Affect Channel Choices Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control

32. Copyright ©2009 by Cengage Learning Inc. All rights reserved Levels of Distribution Intensity 32 LO 4 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 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

33. Copyright ©2009 by Cengage Learning Inc. All rights reserved Levels of Distribution Intensity 33 LO 4 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

34. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Issues Influencing Channel Strategy 34 LO 4

35. Copyright ©2009 by Cengage Learning Inc. All rights reserved Types of Channel Relationships 35 Describe the different channel relationship types and their unique costs and benefits LO 5

36. Copyright ©2009 by Cengage Learning Inc. All rights reserved Types of Channel Relationships 36 Cooperative Integrated Arm’s Length LO 5

37. Copyright ©2009 by Cengage Learning Inc. All rights reserved Arm’s Length, Integrated, and Cooperative 37 LO 5 Arm’s Length Relationship Arm’s Length Relationship A relationship between companies that is loose, characterized by low Relational investment and trust, and usually taking the form of a series of discrete transactions with no/low expectation of future interaction or service. A relationship between companies that is loose, characterized by low Relational investment and trust, and usually taking the form of a series of discrete transactions with no/low expectation of future interaction or service. Integrated Relationship Integrated Relationship A relationship between companies that is tightly connected, with linked processes across and between firm boundaries, and high levels of trust and inter-firm commitment. A relationship between companies that is tightly connected, with linked processes across and between firm boundaries, and high levels of trust and inter-firm commitment.

38. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Conflict and Partnering 38 LO 5 Cooperative Relationship Cooperative Relationship A relationship between companies that takes the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals. A relationship between companies that takes the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals.

39. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Types of Channel Relationships 39 LO 5

40. Copyright ©2009 by Cengage Learning Inc. All rights reserved Managing Channel Relationships 40 Explain channel leadership, conflict, and partnering LO 6

41. Copyright ©2009 by Cengage Learning Inc. All rights reserved Managing Channel Relationships 41 Partnering Conflict Leadership Control Power LO 6

42. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Power, Control, and Leadership 42 LO 6 Channel Power Channel Power The capacity of a particular marketing channel member to control or influence the behavior of other channel members The capacity of a particular marketing channel member to control or influence the behavior of other channel members Channel Control Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader (channel captain) Channel Leader (channel captain) A member of a marketing channel that exercises authority/power over the activities of other members A member of a marketing channel that exercises authority/power over the activities of other members

43. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Conflict and Partnering 43 LO 6 Channel Conflict Channel Conflict A clash of goals and methods between distribution channel members Channel Partnering (channel cooperation) Channel Partnering (channel cooperation) The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

44. Copyright ©2009 by Cengage Learning Inc. All rights reserved 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 44 LO 6

45. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channel Partnering 45 LO 6 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 Minimal High

46. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Channel Leadership, Conflict, & Partnering 46 LO 6 Channel Relationship Synergy Channel Relationship Synergy Channel Conflict HorizontalVertical Channel Power, Control, Leadership Channel Partnering

47. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channels and Distribution Decisions for Global Markets 47 Discuss channels and distribution decisions in global markets LO 7

48. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channels and Distribution Decisions for Global Markets 48 LO 7 Global Channel Development Global Channel Development Channel structure and type differ Gray marketing channels

49. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME 49 LO 7 Global Market Channel & Distribution Decisions Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray” marketing channels Legal and infrastructure differences

50. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channels and Distribution Decisions for Services 50 Identify the special problems and opportunities associated with distribution in service organizations LO 8

51. Copyright ©2009 by Cengage Learning Inc. All rights reserved Channels and Distribution Decisions for Services 51 LO 8 Minimizing wait times Managing service capacity Improving service delivery

52. Copyright ©2009 by Cengage Learning Inc. All rights reserved REVIEW LEARNING OUTCOME Distribution in Service Organizations 52 LO 8