Transcript Lecture Nine

MKTG 504 - MARKETING
CHANNELS
Getting the stuff to the Customer
Dr. Dennis Pitta
University of Baltimore
CHANNELS OF DISTRIBUTION
A Linkage of Institutions (A PIPELINE)
Types of Marketing Channels
0-level channel
Manufacturer
Consumer
1-level channel
Manufacturer
Retailer

Consumer
Retailer

Consumer
Retailer

Consumer
2-level channel
Mfg
 Wholesaler
3-level channel
Mfg
 Wholesaler
Jobber

CHANNELS OF DISTRIBUTION
Significance
Interrelationships
Long-term Commitments
Why do channels of distribution exist?
Economic rationale (they pay for
themselves)
Assorting (building an assortment)
Sorting out (weeding out the bad stuff)
Specialists (they know their customers)
Risk taking (to stock or not to stock)
Economic Rationale: How a Distributor Reduces
the Number of Channel Transactions
1
B. Number of contacts
with a distributor
M+C=3+3=6
4
Store
2
5
3
= Manufacturer
6
= Customer
= Distributor
Economic Rationale: How Lack of a Distributor
Increases the Number of Channel Transactions
1
2
3
4
5
6
A. Number of contacts
without a distributor
MxC=3X3=9
7
8
9
= Manufacturer
= Customer
Distribution Channel Functions
Information
Transfer
Payments
Physical
Distribution
Risk Taking
Communication
Negotiation
Ordering
Financing
MAJOR PROBLEM IN CHANNELS:
CONFLICT!!!!!
Causes of Channel Conflict
Opposing interests in channels
Differing objectives of channel
members
Price
Quantity
Quality
Incompatibility
The TRADITIONAL CHANNEL OF
DISTRIBUTION
a weak association of independent
organizations
most are interested in their own
interests
some members actually compete
against each other (wholesalers sell to
a retailer’s customers)
How do we get what we
need to overcome conflict?
Solution
 POWER!
How do we get traditional
members to cooperate?
Solution
POWER
or the converse:
DEPENDENCE
Conventional Distribution Channel vs. Vertical
Marketing Systems
A unit!
Manufacturer
Manufacturer
Wholesaler
Weak links
Retailer
Vertical
marketing
channel
Wholesaler
Conventional
marketing
channel
Retailer
Consumer
Consumer
A Solution to the Problems of the
Traditional Channel
VERTICAL MARKETING SYSTEMS
3 TYPES:
CORPORATE SYSTEMS - Single
Ownership (Expensive, offers most
control)
Examples: SEARS, BEST BUYS,
CIRCUIT CITY
VERTICAL MARKETING SYSTEMS
(continued)
CONTRACTUAL
Manufacturer - sponsored retailer.
Dundalk Rolls Royce
Manufacturer - sponsored wholesaler.
Mid-Atlantic Coca-Cola
Service firm - sponsored retailer.
McDonald’s
VERTICAL MARKETING SYSTEM
(continued.)
ADMINISTERED SYSTEM
Programs for product promotion and
merchandising
Often partnerships among companies
Where do you find the Pillsbury
Refrigerator Rolls?
Next to the Kraft
Cheese
Kraft had pre-existing
refrigerator cases and
a staff to stock them.
A natural partnership
with Pillsbury with no
previous refrigerator
experience
An ADMINISTERED
SYSTEM
OKAY, HOW LONG SHOULD OUR
CHANNEL BE?
FACTORS INFLUENCING THE
CHANNEL DESIGN:
CUSTOMERS
Large number of customers = longer
channels
More geographically dispersed =
longer channels
FACTORS INFLUENCING THE
CHANNEL DESIGN:
PRODUCT CHARACTERISTICS
Perishability = Short
Bulky = Short
Heavy = Short
Custom Made = Short
High Unit Value = Short
CHANNEL MANAGEMENT
DECISIONS
Selecting members (Some selfselection, some search)
Motivating members (must provide an
incentive)
Evaluation - standards of performance
After selecting a type of channel design
to minimize conflict and maximize
efficiency.....
HOW MANY RETAILERS SHOULD YOU
HAVE?
Suppose you sell Rolls Royce cars in
Baltimore…….
How many dealerships do you need for
the city and surrounding areas?
Suppose you sell chewing gum in
Baltimore…….
How many dealerships do you need for
the city and surrounding areas?
Suppose you sell refrigerators in
Baltimore…….
How many dealerships do you need for
the city and surrounding areas??
HORIZONTAL CHANNEL DECISIONS
How many members at each level?
Three complementary strategies:
EXCLUSIVE - One or a few outlets
(Specialty goods)
INTENSIVE - Many outlets
(Convenience goods)
SELECTIVE - Some outlets (Shopping
goods)
In the US, which strategy
attracts the FTC?
Vertical Marketing Systems?
Horizontal Marketing System?
Why?
Upcoming Topics
Integrated Marketing Communications