Chapter 12 - slide 1

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Chapter Twelve
Marketing Channels: Delivering
Customer Value
Topic 10a
Chapter 12 - slide 2
Copyright 2010 Pearson Education, Inc.
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Chapter Objectives
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
Chapter 12 - slide 3
Copyright 2010 Pearson Education, Inc.
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A marketing channel is a set of independent
organizations that help make a product or service
available for use or consumption by the consumer
or business users.

Marketing channel defined
Chapter 12 - slide 4
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Slide 15-7
Terms used for marketing intermediaries
Chapter 12 - slide 5
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Intermediaries offer producers greater efficiency in
making goods available to target markets.
Through their contacts, experience, specialization, and scale
of operations, intermediaries usually offer the firm more
than it can achieve on its own.
From an economic view, intermediaries transform
the assortment of products into assortments wanted
by consumers
Unilever makes millions of bars of DOVE soap each day, but
you want to buy only a few bars at a time. So big retailers,
such as Giant, Carrefour, buy DOVE by the truckload and
stock it on their stores shelves. In turn, you can buy a single
bar of DOVE, along with small quantities of toothpaste,
shampoo, and other related products as you need them.
How Channel Members Add Value

Chapter 12 - slide 6
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How Channel Members Add Value

Chapter 12 - slide 7
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Information: Gathering and distributing
marketing research and intelligence

Promotion refers to the development and
spreading persuasive communications about an
offer.

Contacts refers to finding and communicating
with prospective buyers.

Matching refers to shaping and fitting the offer to
the buyers needs, including activities such as
manufacturing, grading, assembling, and
packaging.

Functions performed by Channel Members



Chapter 12 - slide 8
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Negotiation refers to reaching an agreement on
price and other terms of the offer so that ownership
or possession can be transferred.

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.

How Channel Members Add Value
Chapter 12 - slide 9
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Channel level refers to each layer of marketing
intermediaries that performs some work in bringing
the product and its ownership closer to the final
buyer.

Direct marketing channel has no intermediary
levels; the company sells directly to consumers.

Indirect marketing channels contain one or more
intermediaries.
Number of Channel Levels

Chapter 12 - slide 10
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Channel 1, called a direct marketing channel, has no
intermediary levels; the company sells directly to consumers.
Channel 2 & 3 are indirect marketing channels, containing one
or more intermediaries.
Chapter 12 - slide 11
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The business marketer can use its own sales force to sell
directly to business customers. Or it can sell to various types
of intermediaries, who in turn sell to these customers
Chapter 12 - slide 12
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Connected by types of flows:
Chapter 12 - slide 13
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Marketing channel consists of firms that have
partnered for their common good with each
member playing a specialized role.

Channel conflict refers to disagreement over
goals, roles, and rewards by channel members
Horizontal conflict is conflict among members
at the same channel level.
Vertical conflict is conflict between different
levels of the same channel.
Channel Behavior

Chapter 12 - slide 14
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Conventional distribution systems consist of one or
more independent producers, wholesalers, and retailers.
Each seeks to maximize its own profits, and there is little
control over the other members
No formal means for assigning roles and resolving
conflict.
Conventional Distributions Systems


Vertical marketing systems (VMSs) provide channel
leadership and consist of producers, wholesalers, and
retailers acting as a unified system and consist of:
Corporate marketing systems
Contractual marketing systems
Administered marketing systems
Chapter 12 - slide 15
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Corporate vertical
marketing system
integrates successive
stages of production and
distribution under single
ownership
Administered vertical
marketing system has a
few dominant channel
members without
common ownership.
Leadership comes from
size and power.

Vertical Marketing Systems

Chapter 12 - slide 16
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Contractual vertical marketing system consists of
independent firms at different levels of production
and distribution who join together through
contracts to obtain more economies or sales impact
than each could achieve alone.
- Franchise organization links several stages in the
production distribution process
Manufacturer-sponsored retailer franchise system
Manufacturer-sponsored wholesaler franchise
system
Service firm-sponsored retailer franchise system
Vertical Marketing Systems

Chapter 12 - slide 17
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Horizontal marketing
systems are when two or
more companies at one
level join together to
follow a new marketing
opportunity.

Companies combine
financial, production, or
marketing resources to
accomplish more than any
one company could alone.
Horizontal Marketing System

Example: McDonalds joined forces
with Sinopec, Chinas largest
gasoline retailer to place
restaurants in more than 30,000
gas stations
Chapter 12 - slide 18
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Multichannel Distribution systems (Hybrid marketing
channels) are when a single firm sets up two or more
marketing channels to reach one or more customer
segments
Chapter 12 - slide 19
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Advantages
Increased sales and market coverage
New opportunities to tailor products and
services to specific needs of diverse customer
segments
Challenges
Hard to control
Create channel conflict

Multichannel Distribution Systems
Hybrid Marketing Channels

Chapter 12 - slide 20
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Disintermediation occurs
when product or service
producers cut out
intermediaries and go
directly to final buyers, or
when radically new types
of channel intermediaries
displace traditional ones
Changing Channel Organization

Chapter 12 - slide 21
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Channel Design Decisions
Analyzing
consumer
needs
Setting
channel
objectives
Identifying
major
channel
alternatives
Evaluation

What does the consumer
need?
Information
Convenience / Delivery
Assortment / Variety
Services
Consider whether company
has the resources or skills to
provide these needs
Balance consumer needs,
feasibility and costs, and
customer price preferences.
Analyzing Consumer Needs

Chapter 12 - slide 22
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State targeted levels of customer service
What segments to serve
Best channels to use
Minimize the cost of meeting customer service requirements
Setting Channel Objectives

What are the customers need(s)?
Chapter 12 - slide 23
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Company sales force strategies
Expand direct sales force
Assign outside salespeople to territories
Develop a separate sales force
Telesales
Manufacturers agencies are independent firms whose sales
forces handle related products from many companies in
different regions or industries.
Industrial distributors
Find distributors in different regions or industries
Exclusive distribution
Margin opportunities
Training
Support


Identifying Major Alternatives
Types of intermediaries


Chapter 12 - slide 24
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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.
Soft drinks - Candy - Toothpaste

Identifying Major Alternatives
Number of intermediaries

Exclusive distribution is a strategy in which the producer
gives only a limited number of dealers the exclusive right
to distribute products in territories
High-end apparel - Luxury cars
Selective distribution is a strategy when a producer uses
more than one but fewer than all of the intermediaries
willing to carry the producers products.
Televisions - Electrical appliances

Chapter 12 - slide 25
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Producers and intermediaries need to agree on
Price policies
Conditions of sale
Territorial rights
Services provided by each party
Identifying Major Alternatives
Responsibilities of Channel Members


Using economic criteria, a company compares the likely sales,
costs, and profitability of different channel alternatives.
Using control issues means giving them some control over the
marketing of the product, and some intermediaries take more
control than others.
Using adaptive criteria means the company wants to keep the
channel flexible so that it can adapt to environmental changes.
Evaluating Channel Members


Chapter 12 - slide 26
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Channel systems can vary from country to country
In some markets, the distribution system is complex and
hard to penetrate, consisting of many layers and large
numbers of intermediaries.
At the other extreme, distribution systems in developing
countries may be scattered, inefficient, or altogether
lacking.

Designing International Distribution Channels

- Customs
or
government
regulation
can restrict
how a
company
distributes
products in
global
markets.
Chapter 12 - slide 27
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Channel Management Decisions
Selecting
channel
members
Managing
channel
members
Motivating
channel
members
Evaluating
channel
members

Once the company has reviewed its channel alternatives and
decided on the best channel design, it must implement and
manage the chosen channel.


Chapter 12 - slide 28
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Characteristics of better channel members:
Years in business - Cooperativeness
Other lines carried - Reputation
Growth and Profit record

If a company is using sales agents, this involves evaluating
Number and character of other lines carried
Size and quality of sales force

For retail stores that want exclusive or selective distribution
this involves evaluating:
Stores customers
Store locations
Growth potential
Selecting Channel Members


Chapter 12 - slide 29
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The company must sell not only through the intermediaries
but to and with them.

Partner relationship management (PRM) and supply chain
management (SCM) software are used to
Forge long-term partnerships with channel members
Recruit, train, organize, manage, motivate, and evaluate
channel members
Managing and Motivating Channel Members


Chapter 12 - slide 30
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Channel member performance
sales quotas
average inventory levels
customer delivery time
treatment of damaged and lost goods
cooperation in company promotion and training programs
services to the customer.
Recognize and reward intermediaries who are performing well
and adding good value for consumers.
Those who are performing poorly should be assisted or, as a last
resort, replaced.
A company may periodically requalify its intermediaries and
prune the weaker ones.
Evaluating Channel Members


Chapter 12 - slide 31
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Public Policy and Distribution
Decisions
Exclusive distribution is when the seller allows only
certain outlets to carry its products
Exclusive dealing is when the seller requires that
the sellers not handle competitors products
Exclusive territorial agreements are where
producer or seller limit territory
Tying agreements are agreements where the dealer
must take most or all of the line
Chapter 12 - slide 32
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Supply Chain Management
Supply chain management is the
process of managing upstream
and downstream value-added
flows of materials, final goods,
and related information among
suppliers, the company,
resellers, and final consumers

Chapter 12 - slide 33
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Slide 16-10
FIGURE 16-2 The automotive supply chain
Upstream partners include raw material suppliers,
components, parts, information, finances, and expertise to create a
product or service

Downstream partners include the marketing channels or
distribution channels that look toward the customer
Chapter 12 - slide 34
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Supply Chains and the
Value Delivery Network
Value delivery network is
the firms suppliers,
distributors, and
ultimately customers
who partner with each
other to improve the
performance of the
entire system

Value Delivery Network

Chapter 12 - slide 35
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Nature and Importance of Marketing Logistics

Marketing logistics (physical distribution) involves planning,
implementing, and controlling the physical flow of goods, services,
and related information from points of origin to points of
consumption to meet consumer requirements at a profit
Outbound distribution: Moving products from the factory to
resellers and consumers
Inbound distribution: Moving products and materials from
suppliers to the factory
Reverse distribution: Moving broken, unwanted, or excess
products returned by consumers or resellers
Chapter 12 - slide 36
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Importance of Marketing Logistics
Competitive advantage by giving customers better service at
lower prices
Cost savings to the company and its customers
Product variety requires improved logistics
Information technology has created opportunities for
distribution efficiency
Goals of the Logistics System

To provide a targeted level of customer service at
the least cost with the objective to maximize profit,
not sales.
Chapter 12 - slide 37
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Designing a Logistics system

Chapter 12 - slide 38
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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.
Large and highly automated warehouses designed to receive
goods from various plants and suppliers, take orders, fill
them efficiently, and deliver goods to customers as quickly
as possible.
How many, What types, Location
Warehousing Decisions



Chapter 12 - slide 39
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Inventory management
balances carrying too
little and too much
inventory.
Just-in-time systems
RFID
Knowing exact product
location
Smart shelves
Placing orders
automatically

Inventory Management
Chapter 12 - slide 40
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Slide 16-30
Transportation affects the pricing of products, delivery
performance, and condition of the goods when they arrive
Chapter 12 - slide 41
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Intermodal transportation combines two or more modes of
transportation.
Piggyback uses rail and truck.
Fishyback uses water and truck.
Airtruck uses air and truck.

Chapter 12 - slide 42
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Logistics information management is the management of the flow of
information, including customer orders, billing, inventory levels,
and customer data
EDI (electronic data interchange)
VMI (vendor-managed inventory)
Logistics Information Management

Integrated logistics management is the recognition that
providing customer service and trimming distribution costs
requires teamwork internally and externally
Third-party logistics is the outsourcing of logistics functions
to third-party logistics providers (3PLs)
Efficiency - Lower cost - Focus on its core
More knowledgeable of complex logistics