2011.2.13 marketing
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  • Chapter 13 Marketing Channels Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: The term channel is derived from the Latin word, canalis, which means canal.
  • Chapter 13 Marketing Channels Notes: A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer. An important aspect of marketing channels is the joint effort of all channel members to create a continuous and seamless supply chain. Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix.
  • Chapter 13 Marketing Channels Notes: As products move through the supply chain, channel members facilitate the distribution process by providing: Specialization and division of labor: Breaking a complex task into smaller, simpler ones creates greater efficiency and lower production costs. Overcoming discrepancies of quantity, assortment, time, and space. Providing contact efficiency by cutting the number of transactions required to get products to consumers and making an assortment of goods available in one location.
  • Chapter 13 Marketing Channels Notes: Specialized expertise of channel members enhances the overall performance of the channel.
  • Chapter 13 Marketing Channels Notes: Marketing channels help overcome discrepancies of quantity, assortment, time, and space created by economies of scale in production. Discrepancy of Quantity: Efficient production for lower unit costs creates a much larger quantity produced than the end user wants to buy. Marketing channels store and distribute the product in appropriate amounts, and make the products available in quantities that consumers desire. Discrepancy of Assortment: Marketing channels assemble in one place many of the products necessary for a consumer’s needed assortment.
  • Chapter 13 Marketing Channels Notes: Temporal Discrepancy: Marketing channels overcome temporal discrepancies by maintaining inventories in anticipation of demand. This is particularly true of seasonal/holiday merchandise. Spatial Discrepancy: Marketing channels overcome spatial discrepancies by making products available in locations convenient to consumers. For example, automobile manufacturers franchise dealerships close to consumers.
  • Chapter 13 Marketing Channels Notes: Exhibit 12.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Circuit City, the individual television manufacturers would have to make four contacts to reach the four buyers. With Circuit City as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final end user.
  • Chapter 13 Marketing Channels Notes: The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Agents and brokers do not take title to goods.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.
  • Chapter 13 Marketing Channels Notes: This slide shows the factors determining the type of wholesaling intermediary.
  • Chapter 13 Marketing Channels Notes: The three basic functions—transactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 12.2.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Exhibit 12.3 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Discussion/Team Activity: Identify various products and discuss the channel for distribution utilized by each.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Exhibit 12.4 illustrates the five channel structures common in business and industrial markets. Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel. Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products.
  • Chapter 13 Marketing Channels On Line Sherwin-Williams Visit Sherwin-Williams’s home page to see how and where it sells its products. Are there different channels for its consumer products and its business products? Notes: The traditional industrial distributor is facing many challenges. Manufacturers are getting bigger due to growth, mergers, and consolidation. Technology is making access to information available to manufacturers and customers. Consequently, many are bypassing distributors and going direct, often via the Internet. More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliers On Line Sherwin-Williams Visit Sherwin-Williams’s home page to see how and where it sells its products. Are there different channels for its consumer products and its business products? Notes: The traditional industrial distributor is facing many challenges. Manufacturers are getting bigger due to growth, mergers, and consolidation. Technology is making access to information available to manufacturers and customers. Consequently, many are bypassing distributors and going direct, often via the Internet. More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliers
  • Chapter 13 Marketing Channels Notes: Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances. Multiple channels: Two or more channels selected is called multiple or dual distribution. Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition. Strategic channel alliances: Producers use another manufacturer’s already-established channel.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows.
  • Chapter 13 Marketing Channels Notes: Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy? Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service. If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive. In general, a large market requires more intermediaries.
  • Chapter 13 Marketing Channels Notes: Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries. The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels. Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling.
  • Chapter 13 Marketing Channels Notes: Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers. Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products. A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: This slide compares the three options for intensity of distribution. Discussion/Team Activity: Discuss product examples in each of the intensity levels, and in which stores the products are stocked.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Social relationships play an important role in building unity among channel members. An aspect of supply chain management is managing the social relationships among channel members to achieve synergy. The basic social dimensions are shown on this slide and defined on the following slides.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: Inequitable channel relationships often lead to channel conflict. In a broad context, conflict may not be bad: if traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the supply chain. Channel partnering is vital if each member gains something from the other members. Cooperation speeds up inventory replenishment, improves customer service, and reduces the total costs of the marketing channel.
  • Chapter 13 Marketing Channels Notes: Conflicts arise because channel members have conflicting goals, or when channel members fail to fulfill expectations of other channel members. Further, different perceptions of reality can cause conflict among members. For instance, retailers may have a liberal return policy, whereas wholesalers
  • Chapter 13 Marketing Channels Notes: This table compares companies that approach the marketplace unilaterally and those that engage in channel cooperation and form partnerships.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: With the popularity of free-trade agreements such as the European Union and the North American Free Trade Agreement, global marketing channels have become important to U.S. corporations. When designing marketing channels for foreign markets, the type of channel structure must be considered. The more highly developed a nation is economically, the more specialized its channel types. Marketers must be aware of gray marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels. One of the most critical global logistics issues for importers is coping with the legalities of trade in other countries. Transportation can be a major issue because of poor infrastructure and complications from government regulations.
  • Chapter 13 Marketing Channels
  • Chapter 13 Marketing Channels Notes: The fastest-growing part of our economy is the service sector. Customer service is a priority, with service distribution focused on three major areas: Minimizing wait times Managing service capacity. Improving service delivery Discussion/Team Activity: Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?

2011.2.13 marketing 2011.2.13 marketing Presentation Transcript

  • Lamb, Hair, McDaniel CHAPTER 13 Marketing Channels 2010-2011
  • 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
  • Specialization and Division of Labor
    • Creates greater efficiency
    • Provides lower costs
    • Achieves economies of scale
    • Aids producers who lack resources to market directly
    • Builds good relationships with customers
    LO 1
  • 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.
  • Providing Contact Efficiency LO 1
  • 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
  • Sysco: Merchant Wholesaler
    • 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
    • Direct
    • Retail
    • Wholesaler
    • Agent/broker
    BUSINESS CHANNELS
    • Direct
    • Industrial
    • Agent/broker
    • Agent/broker industrial
    ALTERNATIVE CHANNELS
    • Multiple
    • Nontraditional
    • Strategic alliances
  • 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
  • Channel Conflict
    • Conflicts may occur if channel members:
      • Have conflicting goals
      • Fail to fulfill expectations of other channel members
      • Have ideological differences
      • Have different perceptions of reality
    LO 6
  • 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
  • Distribution in Service Organizations LO 8