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LO 1 Explain what a marketing channel is and why intermediaries are needed LO 2 Define the types of channel intermediaries and describe their functions and activities LO 3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements LO 4 Discuss the issues that influence channel strategy Learning Outcomes
LO 5 Describe the different channel relationship types and their unique costs and benefits LO 6 Explain channel leadership, conflict, and partnering LO 7 Discuss channels and distribution decisions in global markets LO 8 Identify the special problems and opportunities associated with distribution in service organizations Learning Outcomes
Marketing Channels Explain what a marketing channel is and why intermediaries are needed LO 1
Marketing Channels Marketing Channel: A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. LO 1
Marketing Channel Functions LO 1 Specialization and division of labor Overcoming discrepancies Providing contact efficiency
Aids producers who lack resources to market directly
Builds good relationships with customers
Overcoming Discrepancies LO 1 Discrepancy of Quantity Discrepancy of Assortment The difference between the amount of product produced and the amount an end user wants to buy. The lack of all the items a customer needs to receive full satisfaction from a product or products.
Overcoming Discrepancies LO 1 Temporal Discrepancy Spatial Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. The difference between the location of a producer and the location of widely scattered markets.
Channel Intermediaries and Their Functions Define the types of channel intermediaries and describe their functions and activities LO 2
Channel Intermediaries LO 2 Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members.
Channel Intermediaries LO 2 Retailers Merchant Wholesalers Agents and Brokers Take Title to Goods Take Title to Goods Do NOT Take Title to Goods
Chefs, like any retailer, need large amounts of product inexpensively. Enter Sysco: with more than 400,000 items in their catalogue, Sysco inexpensively provides chefs what they need. From frozen prepared food to regionally grown produce, Sysco supplies fast food and high end hotels, and many restaurants between.
Compare a 25 lb bag of Uncle Ben’s Converted Rice for $20.95 (84 cents/lb) to Amazon grocery’s $2.09 for a pound of the same rice, and it’s easy to see why Sysco dominates as the food wholesaler.
Source: Boser, Ulrich. “Every Bite You Take: How Sysco came to monopolize mos of what you eat,” Slate.com, February 21, 2007. LO 2
Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Product characteristics Buyer considerations Market characteristics
Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Factor Merchant Wholesalers Agents/ Brokers Nature of product Standard Nonstandard, custom Technicality of product Complex Simple Product’s gross margin High Low Frequency of ordering Frequent Infrequent Time between order and receipt of shipment Shorter lead time Longer lead time Number of customers Many Few Concentration of customers Dispersed Concentrated
Channel Functions Performed by Intermediaries LO 2 Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions
Logistics Logistics The process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption. LO 2
Channel Intermediaries and Functions LO 2 CHANNEL INTERMEDIARIES Retailers Wholesalers Agents and Brokers CHANNEL FUNCTIONS Transactional Logistical Facilitating Perform
Channel Structures Describe the channel structures for consumer and business products and discuss alternative channel arrangements LO 3
Channels for Consumer Products LO 3 Producer Producer Producer Producer Consumers Consumers Consumers Consumers Retailers Retailers Retailers Wholesalers Wholesalers Agents or Brokers Wholesaler Channel Retailer Channel Direct Channel Agent/Broker Channel
Channels for Consumer Products Direct Channel LO 3 A distribution channel in which producers sell directly to consumers.
Channels for Business Products LO 3 Producer Industrial User Direct Channel Producer Govt. Buyer Direct Channel Producer Producer Producer Industrial User Industrial User Industrial User Industrial Distributor Industrial Distributor Agents or Brokers Agents or Brokers Agent/Broker Channel Industrial Distributor Agent/Broker Industrial Channel
Business-to-Business Exchanges on the Internet LO 3 The Internet has forced traditional distributors to expand their model. Companies drop the intermediary from the supply chain “ Private exchanges” with select suppliers automate the supply chain Online http://www.sherwinwilliams.com
Alternative Channel Arrangements LO 3 Multiple channels Strategic channel alliances Nontraditional channels
REVIEW LEARNING OUTCOME Channel Structures LO 3 CONSUMER CHANNELS
Making Channel Strategy Decisions Discuss the issues that influence channel strategy LO 4
Channel Strategy Decisions LO 4 Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity
Market Factors LO 4 Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location
Product Factors LO 4 Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price
Producer Factors LO 4 Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control
Levels of Distribution Intensity LO 4 Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area
Levels of Distribution Intensity LO 4 Intensive Achieve mass market selling. Convenience goods. Many Selective Exclusive Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Several One Intensity Level Objective Number of Intermediaries
Types of Channel Relationships LO 5 Describe the different channel relationship types and their unique costs and benefits
Types of Channel Relationships LO 5 Benefits Hazards Arm’s Length Relationship Fulfills a one time or unique need; low involvement/risk Parties unable to develop relationship; low trust level Cooperative Relationship Formal contract without capital investment/long-term commitment; “happy medium” Some parties may need more relationship definition Integrated Relationship Closely bonded relationship; explicitly defined relationships High capital investment; any failure could affect every channel member
Managing Channel Relationships Explain channel leadership, conflict, and partnering LO 6
Social Dimensions of Channels LO 6 Partnering Conflict Leadership Control Power
Channel Power, Control, and Leadership LO 6 Channel Power A channel member’s capacity to control or influence the behavior of other channel members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members
Channel Conflict and Partnering LO 6 Channel Conflict A clash of goals and methods between distribution channel members Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage
Fail to fulfill expectations of other channel members
Have ideological differences
Have different perceptions of reality
Channel Partnering LO 6 Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Transaction-Based Partnership-Based Information Sharing Minimal High Investment Required Minimal High
Channels and Distribution Decisions for Global Markets Discuss channels and distribution decisions in global markets LO 7
Channels and Distribution Decisions for Global Markets Distribute directly or through foreign partners Legal and infrastructure differences LO 7 Global Channel Development Channel structure and type differ Gray marketing channels
Channels and Distribution Decisions for Services Identify the special problems and opportunities associated with distribution in service organizations LO 8