1. Marketing Channels: Delivering Customer Value
Chapter

2. Chapter Outline Supply Chains and the Value Delivery Network
The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Channel Design Decisions
Channel Management Decisions
Marketing Logistics and Supply Chain Management
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 2

3. Previewing the Concepts
Explain why companies use marketing channels and discuss the functions these channels perform.
Discuss how channel members interact and how they organize to perform the work of the channel.
Identify the major channel alternatives open to a company.
Explain how companies select, motivate, and evaluate channel members.
Discuss the nature and importance of marketing logistics and integrated supply chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

4. Supply Chains and the Value Delivery Network
Producing and making products available to buyers requires building relationships with “upstream” and “downstream” supply chain partners.
Upstream: Firms that supply the raw materials, components, parts, and other elements necessary to create a good.
Downstream: Marketing channel partners that link the firm to the customer.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

5. Value Delivery Network
The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system in delivering customer value.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

6. Supply Chains and the Value Delivery Network
Marketing channels, such as retailers, represent the “downstream” side of the value delivery network.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

7. Marketing Channels
A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

8. Nature and Importance of Marketing Channels
Marketing channel decisions:
Affect other marketing decisions, such as pricing or product design.
Can lead to competitive advantage.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

9. Figure 10.1: How Adding A Distributor Reduces the Number of Channel Transactions
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

10. Nature and Importance of Marketing Channels
How channel members add value:
The use of intermediaries results from their greater efficiency in making goods available to target markets.
Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

11. The Nature and Importance of Marketing Channels
How channel members add value:
Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations.
From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

12. Nature and Importance of Marketing Channels
How channel members add value:
Channel members can offer more:
Contacts.
Experience.
Specialization.
Scale of operation.
Channel members may perform many functions.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

13. Nature and Importance of Marketing Channels
Key functions performed by channel members:
Transaction completion:
Information
Promotion
Contact
Matching
Negotiation
Transaction fulfillment:
Physical distribution
Financing
Risk taking
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

14. The Nature and Importance of Marketing Channels
Key functions performed by channel members:
Promotion refers to the development and spreading persuasive communications about an offer.
Contacts refers to finding and communicating with prospective buyers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

15. The Nature and Importance of Marketing Channels
Key functions performed by channel members:
Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.
Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

16. The Nature and Importance of Marketing Channels
Key functions performed by channel members:
Physical distribution refers to transporting and storing goods.
Financing refers to acquiring and using funds to cover the costs of carrying out the channel work.
Risk taking refers to assuming the risks of carrying out the channel work.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

17. Figure 10.2: Customer and Business Marketing Channels
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

18. Nature and Importance of Marketing Channels
Number of channel levels:
The number of intermediary levels indicates the length of a channel.
Direct marketing channels
Have no intermediary levels between the manufacturer and the customer.
Indirect marketing channels
Contains one or more intermediaries.
All channel institutions are connected by several types of flows.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

19. Channel Behavior and Organization
The channel will be most effective when:
Each member is assigned tasks it can do best.
All members cooperate to attain overall channel goals.
Otherwise, channel conflict can occur:
Horizontal conflict occurs among firms at the same level of the channel (e.g., retailer to retailer).
Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).
Some conflict can be healthy competition.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

20. Horizontal conflict Vertical conflict Channel Behavior 20
Channel conflict is disagreement among marketing channel members on goals, roles, and rewards.
Horizontal conflict
Vertical conflict
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 20

21. Marketing in Action
Goodyear’s 1992 decision to sell tires via Sam’s, Wal-Mart, and Sears created conflict with it’s prized network of independent dealers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

22. Figure 10.3: Comparison of Conventional Distribution Channel with Vertical Marketing System
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

23. Channel Behavior and Organization
Conventional distribution channel:
Consists of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.
Vertical marketing system (VMS):
A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member either (i) owns the other, (ii) has contracts with them, or (iii) has so much power that they all cooperate.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

24. Types of Vertical Marketing Systems
Corporate VMS
Integrates successive stages of production and distribution under single ownership
Contractual VMS
Consists of independent firms at different levels of production and distribution who join together through contracts – includes franchises
Administered VMS
Leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members.
Many restaurant chains franchise to expand distribution.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 24

25. Channel Behavior and Organization
Franchise organizations are a common form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process.
Types of franchise organizations:
Manufacturer-sponsored retailer franchise.
Manufacturer-sponsored wholesaler franchise.
Service-firm sponsored retailer franchise.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

26. Marketing in Action
Almost every kind of business has been franchised. Visit to view the many opportunities.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

27. Channel Behavior and Organization
Horizontal marketing systems:
Two or more companies at one level join together to follow a new marketing opportunity.
McDonald’s now places “express” versions of their stores in many Wal-Marts.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

28. Figure 10.4: Multichannel Distribution System
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

29. Channel Behavior and Organization
Multichannel distribution system:
Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments.
Also called hybrid marketing channel system.
Offers many advantages.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

30. Marketing in Action
Multichannel distribution systems allow firms to expand sales and market coverage while tailoring products to diverse needs of market segments.
However, the decision to go multichannel often creates conflict. John Deere dealers complained loudly when Lowe’s began selling select products.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

31. Channel Behavior and Organization
Changing channel organization:
Disintermediation occurs when product and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

32. Channel Behavior and Organization
Changing channel organization:
Disintermediation presents both problems and opportunities for both producers and resellers.
Resellers and intermediaries must innovate to survive.
Producers must seek additional direct channels to remain competitive, though channel conflict often results.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

33. Channel Design Decisions
Designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major alternatives, and evaluating them.
Firms often struggle between what is ideal and what is practical.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

34. Channel Design Decisions
Analyzing consumer needs:
Do consumers want to buy from nearby locations or are they willing to travel?
Do they want to buy-in person, by phone, or online?
Do they value breadth of assortment or do they prefer specialization?
Do consumers want many add-on services?
Firm must balance needs against costs and consumer price preferences.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

35. Channel Design Decisions
Setting channel objectives:
Objectives are stated in terms of targeted levels of customer service.
Channel objectives are influenced by:
Cost of customer-service requirements.
Nature of the company.
The firm’s products.
Marketing intermediaries.
Competitors.
Environment.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

36. Channel Design Decisions
Identifying major alternatives:
Types of intermediaries:
Retailers, “value-added” retailers, independent distributors, dealers, etc.
Number of marketing intermediaries (distribution strategies):
Intensive, selective, or exclusive distribution.
Responsibilities of channel members.
Price policies, conditions of sale, territories and services to be performed.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

37. Channel Design Decisions
Number of Marketing Intermediaries (Distribution Strategies)
Intensive distribution
Candy and toothpaste
Exclusive distribution
Luxury automobiles and prestige clothing
Selective distribution
Television and home appliance
Note to Instructor
In any channel producers and intermediaries need to agree on price policies, conditions of sale, territorial rights, and services provided by each party.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 37

38. Channel Design Decisions
Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

39. Channel Design Decisions
Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g.
Luxury automobiles
High-end apparel =
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

40. Channel Design Decisions
Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products.
Televisions
Electrical appliances =
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

41. Marketing in Action
Rolex sells its watches exclusively through only a handful of authorized dealers in any given market.
Such limited distribution enhances the brand’s image and generates stronger retailer support.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

42. Channel Design Decisions
Evaluating the major alternatives involves comparing each alternative to:
Economic criteria:
A company compares the likely sales, costs, and profitability of different channel alternatives.
Control issues:
How and to whom should control be given?
Adaptive criteria:
Consideration of long-term channel commitment vs. channel flexibility.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

43. Designing International Channels
Channel design decisions can be very challenging:
Each country has its own unique distribution system.
Distribution systems can be complex with many layers and a large number of intermediaries.
Distribution systems in developing countries may be scattered or inefficient.
Customs and government regulation can restrict distribution in global markets.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

44. Marketing in Action
When the Chinese government banned door-to-door selling, Avon had to abandon its traditional direct marketing approach and sell through retail shops.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

45. Channel Management Decisions
Marketing channel management:
Selecting channel members.
Managing and motivating channel members:
Partner relationship management.
Evaluating channel members.
Caterpillar works closely with its worldwide network of independent dealers to find better ways to bring value to customers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

46. Marketing Logistics
Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.
Involves supply chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

47. Figure 10.5: Supply Chain Management
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

48. Marketing Logistics and Supply Chain Management
Greater emphasis has been placed on logistics recently because:
Firms can gain a competitive advantage when logistics result in better service or lower prices.
Improved logistics can lower costs.
Increased product variety has created a need for improved logistics management.
Improvements in information technology have created the means for major gains in distribution efficiency.
Logistics effect the environment as well as the firm’s environmental sustainability efforts.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

49. Marketing in Action
Cost considerations of logistics are becoming increasingly important.
At any given time, Ford has more than 500 million tons of finished vehicles, production parts, and aftermarket parts in transit, running up an annual logistics bill of around $ 4 billion.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

50. Marketing Logistics and Supply Chain Management
Goals of the logistics system:
Deliver a targeted level of customer service at the least cost.
Major logistics functions:
Warehousing.
Inventory management.
Transportation.
Logistics information management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

51. Marketing in Action
More than 80% of American communities depend solely on the trucking industry for the delivery of their goods. “Good stuff. Trucks bring it.”
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

52. Marketing Logistics and Supply Chain Management
Warehousing:
How many, what types, and where?
Storage warehouses
Distribution centers
Inventory management:
Balance between too much and too little inventory
Just-in-time logistics systems
RFID or “smart tag” technology
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

53. Marketing Logistics and Supply Chain Management
Warehousing is the storage function that overcomes difference in need quantities and timing, ensuring that the products are available when customers are ready to buy them.
Storage warehouses are designed to store goods, not move them.
Distribution centers are designed to move goods, not store them.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

54. Marketing Logistics and Supply Chain Management
Just-in-time logistics systems allow producers and retailers to carry small amounts of inventories of parts of merchandise.
RFID (radio frequency identification devices) are small transmitter chips embedded in or placed on products or packages to provide greater inventory control.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

55. Marketing Logistics and Supply Chain Management
Transportation alternatives:
Trucks
Railroads
Water carriers
Pipelines
Air carriers
Internet
Intermodal transportation
Piggyback, fishyback, trainship, airtruck
Transportation affects the pricing of products, delivery performance, and condition of the goods when they arrive
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

56. Marketing Logistics and Supply Chain Management
Intermodal transportation combines two or more modes of transportation.
Piggyback uses rail and truck.
Fishyback uses water and truck.
Airtruck uses air and truck.
Trainship uses rail and water.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

57. Integrated Logistics Management
The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

58. Integrated Logistics Management
Integrated logistics management requires:
Cross-functional teamwork inside the company.
Building logistics partnerships.
Outsourcing to third-party logistics providers.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

59. Marketing in Action
Third-party logistics companies such as Ryder help clients to tighten up sluggish, overstuffed supply chains, slash inventories, and get products to customers more quickly and reliably.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

60. Reviewing the Concepts
Explain why companies use marketing channels and discuss the functions these channels perform.
Discuss how channel members interact and how they organize to perform the work of the channel.
Identify the major channel alternatives open to a company.
Explain how companies select, motivate, and evaluate channel members.
Discuss the nature and importance of marketing logistics and integrated supply chain management.
Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall