Transcript Document

• Marketing Channels and Distribution
LEARNING OBJECTIVES
• Understand how marketing channels add
Understand
marketing
channelsutilities
add time,
time,how
place,
and possession
for
place, and
possession
final structure
final
customer utilities
and howfor
channel
customer
and how
channelthese
structure
evolves to
evolves
to provide
utilities
provide effectively
these utilities
andeffectively
efficiently.and efficiently
• Identify the five major flows in marketing
Identifychannels
the five major
flows
in contributes
marketing to
and how
each
channels
and how
each contributes
to available
making
making
products
conveniently
products
available
to many
toconveniently
many millions
of customers.
millions of customers
LEARNING OBJECTIVES
Realize
• Realize
that marketing
that marketing
channels
channels
are not only
are not
economic
only
systems,
economic
butsystems,
also social
but
systems,
also social
in
which power
systems,
and in
conflict
which play
power
an and
important
conflict play
role
an important role.
• Recognize and explain all six decision
Recognize
andofexplain
allmanagement
six decision areas
areas
channel
and beof
channelfamiliar
management
andmain
be familiar
with the
with the
issues associated
main issues
with
each of those
with associated
each of those
decisions.
decisions
• Appreciate the crucial role played by
logistics
in the role
creation
and
Appreciate
the crucial
played
byoperation
logistics of
high-performance
marketing
in the creation
and operation
of high-channels.
performance marketing channels
MARKETING CHANNEL DEFINED
• Marketing channel is the network of
organizations that creates time, place,
and possession utilities.
Utilities
• Form Utility – created by manufacturing
• Time Utility – having products available
for use when consumers want them.
• Place Utility – having products where
consumers want them.
• Possession Utility – having the ability to
take possession of products.
MARKETING CHANNEL STRUCTURE
• Channel structure consists of all the
businesses and institutions
(including producers or
manufacturers and final customers)
who are involved in performing the
functions of buying, selling, or
transferring title.
MARKETING CHANNEL STRUCTURE
Three Dimensions
MARKETING CHANNEL STRUCTURE
Length of marketing channel
2 level
3 level
Manufacturer Manufacturer
4 level
5 level
Manufacturer Manufacturer
Agent
Consumer
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
MARKETING CHANNEL STRUCTURE
Intensity at various levels
Exclusive
Distribution
Selective
Distribution
Intensive
Distribution
MARKETING CHANNEL STRUCTURE
Intensity at various levels
Exclusive Distribution
Practiced when a manufacturer restricts
product distribution to a single retailer in a
particular market or just a relatively few
retailers
Products that are expensive, infrequently
purchased, are sought after by consumers
(i.e. specialty goods), or which require
considerable after-sale servicing are the
most likely candidates for exclusive
distribution
MARKETING CHANNEL STRUCTURE
Intensity at various levels
Selective Distribution
• Selectively distributed brands are available in
multiple retail outlets in a particular market
• Shopping products, or those that consumers
seek out, are sold through selective
distribution
MARKETING CHANNEL STRUCTURE
Intensity at various levels
Intensive Distribution
• Used when convenience products are sold
through virtually every available retail outlet
in a particular market, e.g. soft drinks, candy,
gum, cigarettes
MARKETING CHANNEL STRUCTURE
• Types of Intermediaries – include
the different kinds of intermediary
institutions that can be used at the
various levels of the channel.
DETERMINANTS OF CHANNEL
STRUCTURE
• Determinants of channel structure
include:
Distribution tasks
Economics of distribution tasks
Management's desire for distribution
control
Distribution Tasks
• Discrepancies in quantity – buffer
mass produced goods.
• Discrepancies in assortment – allow
producers to focus while providing
customer selection.
Distribution Tasks
• Discrepancies in time – hold goods
until ready.
• Discrepancies in place – connects
producers and consumers.
The Economics of Performing
Distribution Tasks
• Economics of distribution tasks
Transaction efficiency
Mfg. A
Mfg. B
Mfg. C
Without
intermediaries
1
2
3
4
5
6
7
8
The Economics of Performing
Distribution Tasks
• Economics of distribution tasks
Transaction efficiency
Mfg. A
With
intermediaries
Mfg. B
Mfg. C
Intermediary
1
2
3
4
5
6
7
8
Management’s Desire for Control of
Distribution
• The shorter the channel structure the
higher the control
• Needed when a manufacturer must
protect product image, etc.
FLOWS IN MARKETING CHANNELS
• Product Flow
The movement of the product from
manufacturer through all parties who
take physical possession
• Negotiation Flow
Interplay of buying/selling tasks
associated with title transfer
FLOWS IN MARKETING CHANNELS
• Ownership Flow
Movement of title of the product
• Information Flow
Information to and from the
manufacturer
• Promotion Flow
Flow of persuasive communication
(advertising, personal selling, etc.)
FLOWS IN MARKETING CHANNELS
MARKETING CHANNELS AS SOCIAL
SYSTEMS
• Power in Marketing Channels – the
capacity of one channel member to
influence the behavior of another channel
member.
• Conflict in Marketing Channels – when
one channel member believes that
another channel member is impeding the
attainment of its goals.
MARKETING CHANNEL MANAGEMENT
• Marketing channel management – the
analysis, planning, organizing, and
controlling of a firm’s marketing
channels.
• Interorganizational context – channel
management that extends beyond a
firm’s own organization into independent
businesses.
PERSPECTIVES FOR CHANNEL
MANAGEMENT
• Down the channel toward the
product
• Up the channel toward the
manufacturer
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
• Realize only the place ‘P’
provides protection from
imitation
• Distribution strategies can
provide sustainable
competitive advantage
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design
Set distribution
objectives
channel structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
Specify tasks to be
performed by the
channel
Consider alternative
structures
Choose optimal
structure
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design
channel structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
• Optimal structure identified
by considering:
Market variables
Product variables
Company variables
Intermediary variables
Behavioral variables
External environment
variables
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
• Develop selection criteria
Design channel
structure
Size
Attitude
Credit and
Financial
Condition
Sales
Strength
Select
channel members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
Management
Ability
Prospective
channel
member
Management
succession
Sales
Performance
Product
Lines
Reputation
Market
Coverage
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select
channel members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
• Find prospective channel
members
• Evaluate prospective channel
members
• Convert prospectives into
actual channel members
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate
channel members
Coordinate with
marketing mix
Evaluate member
performance
• Learn about the needs and
problems of channel
members
Advisory committees
• Offer support
Informal support
Strategic alliances,
partnerships
• Provide ongoing leadership
Continuing focus
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
• Product and Channel
Retailers (a channel
member) play an
important role in product
positioning
Display fixtures
Personal selling
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
• Pricing and Channel
Relevant to channel
members:
• Profit margins available
to channel members
• Pricing policies
• Incentives
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate
with marketing mix
Evaluate member
performance
• Promotion and Channel
Promotions interface with
channel members
Point-of-purchase displays
Inventory levels
Sales person training
DECISION AREAS OF CHANNEL
MANAGEMENT
Formulating
channel strategy
Design channel
structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate
member performance
• Assessment of success of
channel members in
implementing strategies
Requires good information
flows between members
Point-of-sale systems, EDI
LOGISTICS IN MARKETING CHANNELS
• Logistics make products available
to customers
Also called physical distribution (PD)
Supply chain management (SCM) are
logistical systems that facilitate close
cooperation among firms in a channel
LOGISTICS IN MARKETING CHANNELS
• Total Cost Approach and Systems Concept
Systems
Concept
Transportation
Materials Handling
Management
views logistics as
a system of
interrelated
components
Order Processing
Inventory Control
Management
tries to reduce
cost of using the
components
as a whole
Warehousing
Packaging
Total Cost
Approach
LOGISTICS IN MARKETING CHANNELS
• INSERT Table 10.1
Marketing Channel Logistics
• Almost all
products
must be
moved
• Generally
one of the
highest
percentage
costs
Transportation
Materials Handling
Order Processing
• Use in-house
transport or
common
carriers?
• What rates
are available?
Inventory Control
Warehousing
Packaging
• What are
competitors
doing?
Marketing Channel Logistics
• Growing use
of crossdocking
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
• How to
minimize
distances?
• What
equipment
should be
used?
• How to use
labor
efficiently?
Marketing Channel Logistics
• Order cycle
time (time
between
order and
delivery)
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
• How to
reduce errors
in order
processing?
• How to
develop
standards for
different
product
types?
Marketing Channel Logistics
• Economic
order
quantity
(EOQ) is the
lowest total
cost
(inventory
carry cost +
ordering
costs)
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
• How to
balance
inventory
levels with
order sizes?
Marketing Channel Logistics
• Growth of
single item
shipments
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
• Where to
locate a
warehouse?
• Number of
warehousing
units and size
of units?
• Ownership
question?
Marketing Channel Logistics
• Effective
packaging
can help
control
inventory
carry costs
and help
logistics
efficiency
Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
• What type of
package is
required
(sturdiness,
etc.)?
OUTPUT OF THE LOGISTICS SYSTEM
• Customer service is the output of logistics
systems
Supplemental Material
Channel Structure
Types of intermediaries
Merchant Middlemen
Functional
Middlemen
Channel Structure
Types of intermediaries
Do not take title to products;
they simply facilitate the
exchange process by performing
buying and/or selling functions.
Functional
Middlemen
Channel Structure
Types of intermediaries
Take title to products and
resell them.
Merchant Middlemen
Social Aspects of Marketing Channels
• Marketing channel power
The influence one channel
member has over other members’
behaviors
• Marketing channel conflict
Goal impeding behavior by one or
more channel members
Territorial encroachment
Determinants of Power
• Reward Power
• Coercive Power
• Legitimate Power
• Expert Power
• Referent Power
Ability to offer an
award (e.g.
granting of
exclusive
distribution)
Determinants of Power
• Reward Power
• Coercive Power
• Legitimate Power
• Expert Power
• Referent Power
Threat of
punishment (e.g. a
manufacturer might
threaten a retailer
with loss of
exclusive
distribution)
Determinants of Power
• Reward Power
• Coercive Power
• Legitimate Power
• Expert Power
• Referent Power
Power from
contract agreement
or organizational
relationships
Determinants of Power
• Reward Power
• Coercive Power
• Legitimate Power
• Expert Power
• Referent Power
Power resulting
from technological
expertise or
proprietary reasons
Determinants of Power
• Reward Power
• Coercive Power
• Legitimate Power
• Expert Power
• Referent Power
Power resulting
from ability to
influence further
action
Vertical Marketing Systems
• Administered VMS
• Corporate Systems
• Contractual Systems
• Conventional channel with one channel
member (a manufacturer, wholesaler, or
retailer) informally acting as the channel
leader.
Vertical Marketing Systems
• Administered VMS
• Corporate Systems
• Contractual Systems
• Combines all levels of the marketing channel
under one company’s ownership
Vertical Marketing Systems
• Administered VMS
• Corporate Systems
• Contractual Systems
• Are integrated via contractual agreement
• Franchising is the major form of contractual
VMS. Others include voluntary chains and
cooperatives