Chapter 10 slides

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Marketing Channels:
Delivering Customer Value
Chapter 10
Rest Stop: 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
Identify the major channel alternatives open to
a company
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Rest Stop: Previewing the Concepts
Explain how companies select, motivate, and
evaluate channel members
Discuss the nature and importance of
marketing logistics and integrated supply chain
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First Stop: Enterprise: Leaving Car-Rental
Competitors in the Rearview Mirror
• Enterprise Holdings captures 48 percent of
the total rental-car market, with Hertz a
distant second at 20 percent
• Unlike its competitors, Enterprise focused on
providing off-airport services
• Enterprise is an industry leader through:
• Better prices and better marketing
• A customer-driven distribution strategy
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Supply Chains and the
Value Delivery Network
• Producing and making products available to
buyers requires building relationships with
upstream and downstream supply chain
• Upstream: Firms that supply the raw materials,
components, parts, and other elements
necessary to create a product or service
• Downstream: Marketing channel partners that
link the firm to the customer
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Value Delivery Network
• Network composed
of the company,
distributors, and
ultimately customers
who partner to help
the entire system
deliver better
customer value
In making and marketing its many
models, Honda manages a huge network
of people within Honda plus thousands
of suppliers and dealers outside the
company who work together to bring
value to final customers
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Marketing Channels
• Set of interdependent organizations that help
make a product or service available for use or
consumption by the consumer or business
• Marketing channel decisions:
• Affect other marketing decisions, such as pricing
or product design
• Can lead to competitive advantage
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Figure 10.1 - How Adding a Distributor
Reduces the Number of Channel Transactions
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How Channel Members Add Value
• The use of intermediaries results from their
greater efficiency in making goods available
to target markets
• Channel members can offer
• Contacts and experience
• Specialization
• Scale of operation
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Key Functions Performed by Channel
• Transaction
• Transaction
• Physical distribution
• Financing
• Risk taking
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Channel level
• A layer of intermediaries that performs some work in
bringing the product and its ownership closer to the
final buyer
Direct marketing channel
• A marketing channel that has no intermediary levels
Indirect marketing channel
• A marketing channel containing one or more
intermediary levels
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Figure 10.2 - Customer and Business
Marketing Channels
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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
• The success of individual channel members
depends on the overall channel’s success
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Channel Behavior and Organization
• Horizontal conflict occurs among firms at the
same level of the channel (e.g., between
different dealers of the same brand)
• Vertical conflict occurs between different
levels of the same channel (e.g., between a
brand and its franchisee)
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Channel Conflict
• Disagreements
among marketing
channel members on
goals, roles, and
should do what and
for what rewards
In recent years, Burger King has had a
steady stream of conflicts with its
franchised dealers over everything
from advertising content to the price
of its cheeseburgers
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Conventional distribution channel
• A channel consisting of one or more
independent producers, wholesalers, and
retailers, each a separate business seeking to
maximize its own profits, perhaps even at the
expense of profits for the system as a whole
Vertical marketing system (VMS)
• A channel structure in which producers,
wholesalers, and retailers act as a unified
system. One channel member owns the
others, has contracts with them, or has so
much power that they all cooperate
Figure 10.3 - Comparison of Conventional
Distribution Channel with Vertical Marketing
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Types of Vertical Marketing Systems
Corporate VMS
• A vertical marketing system that combines successive stages of production
and distribution under single ownership—channel leadership is established
through common ownership
Contractual VMS
• A vertical marketing system in which independent firms at different levels of
production and distribution jointogether through contracts
Administered VMS
• A vertical marketing system that coordinates successive stages of production
and distribution through the size and power of one of the parties
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Franchising Systems
• A contractual vertical
marketing system in
which a channel
member, called a
franchisor, links
several stages in the
productiondistribution process
Almost every kind of business has
been franchised—from motels and
fast-food restaurants to cleaning
and handyman companies
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Types of Franchise Systems
• Manufacturer-sponsored retailer franchise
• Manufacturer-sponsored wholesaler franchise
• Service-firm sponsored retailer franchise
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Horizontal Marketing Systems
• Two or more
companies at one
level join together to
follow a new
McDonald’s now places
“express” versions of their stores
in Walmart stores
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Figure 10.4 - Multichannel Distribution
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Multichannel Distribution Systems
• A single firm sets up two or more marketing
channels to reach one or more customer
• Each new channel expands sales and
marketing coverage
• Helps tailor its products and services to
specific needs of diverse customer segments
• Hard to control; can generate conflicts
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• Occurs when
product and service
producers cut out
intermediaries or
displace traditional
resellers with radical
new types of
Avoiding disintermediation problems:
Fender’s Web site provides detailed
product information refers them to its
resellers’ Web sites and stores
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Marketing at Work
• Online video
content challenged
Netflix’s DVD rental
business model
• Changed to a
Netflix faces dramatic
changes in how movies and
other entertainment content
will be distributed; Netflix
intends to lead them
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Marketing Channel Design
• Designing effective
marketing channels
by analyzing
consumer needs,
setting channel
identifying major
alternatives, and
evaluating them
Meeting customers’ channel service
needs: A local hardware store probably
provides more personalized service, a
more convenient location, and less
hassle than a huge Home Depot. But it
may also charge higher prices
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Channel Design Decisions
• Analyzing consumer needs
• Finding out what target consumers want from
the channel
• Balance needs against costs and consumer price
• Setting channel objectives
• Stated in terms of targeted levels of customer
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Channel Design Decisions
• Identifying major alternatives:
• Types of intermediaries: Retailers, value-added
retailers, independent distributors, dealers
• Number of marketing intermediaries: Intensive,
exclusive, and selective distribution
• Responsibilities of channel members: Price
policies, conditions of sale, territory rights and
specific services to be performed
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Number of Marketing Intermediaries
Intensive distribution
• Stocking the product in as many outlets as possible
Exclusive distribution
• Giving a limited number of dealers the exclusive right to
distribute the company’s products in their territories
Selective distribution
• The use of more than one but fewer than all of the
intermediaries who are willing to carry the company’s products
Channel Design Decisions
• Evaluating the major alternatives involves
comparing each alternative to:
• Economic criteria
• Control issues
• Adaptive criteria
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Designing International Channels
• Each country has its own unique distribution
• Distribution systems can have 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
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International Channel Differences
In low-income neighborhoods in Brazil, where consumers have limited access to
supermarkets, Nestlé supplements its distribution with thousands of self-employed
salespeople who sell Nestlé products door to door
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Channel Management Decisions
• Selecting channel
• Managing and
motivating channel
Caterpillar works closely with its
worldwide network of independent
dealers to find better ways to bring value
to customers
• Partner relationship
• Evaluating channel
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Public Policy and Distribution
• Laws affecting channels seek to prevent the
exclusionary tactics of some firms that might
keep another from using a desired channel
• Some dealing contracts may come under the
Clayton Act, if they lessen competition
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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
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Figure 10.5 - Supply Chain
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Supply chain management
• Managing upstream and downstream
value-added flows of materials, final
goods, and related information among
suppliers, the company, resellers, and final
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Marketing Logistics and Supply Chain
• Goals of the logistics system:
• Deliver a targeted level of customer service at
the least cost
• Major logistics functions:
Inventory management
Logistics information management
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Marketing Logistics and Supply Chain
• Warehousing:
• How many,
what types,
and where?
• Storage warehouses
• Distribution centers
• Inventory
• Balance between too
much and too little
• Just-in-time logistics
• RFID or smart tag
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Distribution Center
• An automated
warehouse that
receives goods from
various suppliers,
takes orders, fills
them, and delivers
goods to customers
as quickly as
Staples employs a team of
super-retrievers—in day-glo
orange—to keep its
warehouse humming
• Trucks
• Railroads
• Water carriers
• Pipelines
• Air carriers
• Internet
• Intermodal transportation
• Piggyback, fishyback, trainship, airtruck
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Logistics Information Management
• Channel partners often link up to share
information and make better joint logistics
• Information can be shared and managed
• Electronic data interchange (EDI)
• Vendor-managed inventory (VMI) systems
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Integrated Logistics Management
• 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
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Integrated Logistics Management
• Requires:
• Cross-functional
teamwork inside the
• Building logistics
• Outsourcing to
third-party logistics
Many companies now
employ sophisticated,
system-wide supply chain
management software,
available from companies
such as Logility
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Third-party logistics (3PL) provider
• An independent logistics provider that
performs any or all of the functions required
to get a client’s product to market
Marketing at Work
• 3PL providers help
clients tighten up
sluggish, overstuffed
supply chains; slash
inventories; and get
products to
customers more
quickly and reliably
UPS has the resources to
handle the logistics needs
of just about any size
Rest Stop: 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
Identify the major channel alternatives open to
a company
10 - 48
Rest Stop: Reviewing the Concepts
Explain how companies select, motivate, and
evaluate channel members
Discuss the nature and importance of
marketing logistics and integrated supply chain
10 - 49
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Publishing as Prentice Hall
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