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Chapter 1 Marketing Channel Concepts
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Major Points for Ch. 1 1 1. Key Terms and Definitions
Let’s Learn about: 1. Key Terms and Definitions 2. Why Marketing Channels and Intermediaries?** 3. Marketing Channels and other Marketing Concepts 4. The Flows in the Marketing Channels** 5. Basic Principles for Marketing Channels** 6. Evolution of Marketing Channel Concept
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Marketing Channels Originally meant: Paths through which goods or materials can move from producers to users. Cf) Distribution Channels vs. Marketing Channels
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Middleman (Intermediaries)
create value by reducing the spatial separation* – the physical distance between the point of production and point of consumption *A question
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What is a marketing channel? (Textbook version)
1 What is a marketing channel? (Textbook version) Firm involved in negotiatory functions Internal *& External contactual organization that management operates to achieve its distribution objectives What are the distribution objectives?**
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Marketing Channels Act as Exchange Facilitators
We define a Marketing Channel as “exchange relationships that create customer value in the acquisition, consumption*, and disposition* of products and services”
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Four Basic Components: Form Utility Place Utility Possession Utility
Point 2: Why Marketing Channels and Intermediaries?** Create Higher Exchange Utility by Providing More Customer Value* Four Basic Components: Form Utility Place Utility Possession Utility Time Utility New Focus: Developing and Enhancing Customer Relationships
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c r a M Create utility by contributing to Contactual efficiency*
Facilitating Routinization Simplifying Assortment Minimizing uncertainty within marketing channels
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FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES Selling Directly (Without Intermediaries) Manufacturers 40 Contact Lines Retailers
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FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES Selling Through One Wholesaler Manufacturers 14 Contact Lines Wholesaler Retailers ex) one-stop shopping
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FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET
WITH AND WITHOUT INTERMEDIARIES Selling Through Two Wholesalers Manufacturers Wholesalers 28 Contact Lines Retailers
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Why the growing importance of marketing channels?
1 Why the growing importance of marketing channels? 1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs
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The explosion of information technology and E-commerce
1. 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs 1 The prediction: Disintermediation — reduction/deletion of number of intermediaries Yahoo! eBay Amazon.com The reality: Reintermediation — evolution of a new type of intermediary
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A greater difficulty in gaining a sustainable competitive advantage
1 The explosion of information technology and E- commerce 2. The growing power of distributors, especially retailers in marketing channels The need to reduce distribution costs A greater difficulty in gaining a sustainable competitive advantage Place (distribution), or Marketing Channel Strategy Sustainable competitive advantage Potential for gaining competitive advantage because place is more difficult for competitors to copy
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The growing power of distributors
1 The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage 3. The need to reduce distribution costs The growing power of distributors Power retailers as of consumer markets gatekeepers Act as buying agents for customers rather than as selling agents for manufacturers Ex) Recent Changes in IT industry
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The need to reduce distribution costs
1 The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage The growing power of distributors 4. The need to reduce distribution costs Marketing channels are the most recent target for reducing distribution costs. The focus is on channel structure and management.
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Point 3: 1 How does marketing channel strategy relate to the rest of the marketing mix? Marketing Mix or the four Ps Challenges Product Limited ability to gain and hold competitive advantage Price Price wars erode profitability & provide unstable basis for sustaining competitive advantage Promotion Expensive and short-lived Place (Distribution) Marketing channels support & enhance other Ps to meet demands of target markets
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Marketing Channels Originally defined as: Paths through which goods or materials can move from producers to users. ©McGraw-Hill Companies, Inc. 2002
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Marketing Channel Flows**
1 Point 4: Marketing Channel Flows** Product Flow* Negotiation Flow Ownership Flow Information Flow* * Unbundling Flows Promotion Flow
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Transportation Company
1 Product Flow Manufacturer Transportation Company Wholesalers Retailers Consumers
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1 Negotiation Flow Manufacturer Wholesalers Retailers Consumers
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Ownership Flow 1 Manufacturer Wholesalers Retailers Consumers
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Transportation Company
Information Flow 1 Manufacturer Transportation Company Wholesalers Retailers Consumers
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Promotion Flow 1 Manufacturer Advertising Agency Wholesalers Retailers
Consumers
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FIGURE : MARKETING FLOWS IN CHANNELS Commercial Channel Subsystem
FIGURE : MARKETING FLOWS IN CHANNELS Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment Consumers Industrial and Household Producers Wholesalers Retailers Commercial Channel Subsystem
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Marketing Channel and Logistics Management: Same or Different?
1 Marketing Channel and Logistics Management: Same or Different? Part of distribution variable • Concerned with entire process of starting and operating contactual organization • Formulated before logistics management Focused specifically on providing product availability at appropriate time & place
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Foundations on Distribution through intermediaries (Basic Principles)
point 5: 1 Foundations on Distribution through intermediaries (Basic Principles) Factors that determine/influence the role of intermediaries Economic Specialization & Considerations Division of Labor.* Contactual Efficiency New Technology New channels Social Considerations Relationships
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The Evolution of Marketing Channel Concepts
Point 6 The Evolution of Marketing Channel Concepts 1. The Production Era And Distributive Practices 2. The Institutional Period Selling Orientation 3. The Marketing Concept 4. Relationship Marketing Era 1900s 1940s 1950s 1990s
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The change of focus on channel strategy
1 Creates competitive advantage with long-term viability Builds strong relationships between manufacturers and (selected) channel members Use of Multichannel Strategy IT-enabled, open channel systems
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