Firms are increasingly paying greater attention to how they manage their marketing channels, so that products and services are delivered at the right time, right place and the right price.
The marketing channel participants are vital partners in the value delivery network.
Supply chains and the value delivery network
Upstream partners are the suppliers of raw materials, components, parts, information, finance and expertise to the organisation.
Downstream partners are the wholesalers and retailers who connect the firm with the customer.
The nature and importance of marketing channels
The marketing or distribution channel is comprised of a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or an industrial user.
The new forms of marketing channels have evolved based on robust partnerships, with long-term commitment to each other and the customer.
How channel members add value
Transactional value :
Risk moves to the intermediary, who also gets to know the specialist market.
Logistical value :
Intermediaries assemble an assortment that is compatible with the needs of the ultimate customers.
Facilitating value :
Intermediaries often offer credit to customers, may offer training in the use of products, and collect and deliver marketing information.
Figure 20.1 How a marketing intermediary reduces the number of channel transactions and raises economy of effort Channel interactions
Key value adding functions
Contact with prospective buyers
Matching the offer to meet the needs of the customer
Figure 20.2 Consumer and business marketing channels
All participants dependent upon each other.
Each channel member has a specialised role
Co-operation to achieve overall channel objectives may sometimes conflict with internal organisational goals and objectives, resulting in channel conflict .
Conflict with firms at the same level of the channel.
Conflict at different levels e.g. between wholesaler and retailer.
Historically channels have followed the conventional distribution channel format:
comprised of independent producers, wholesalers and retailers, with separate businesses and seeking to maximise their own profit individually, even at the expense of the entire channel.
Modern channel management has evolved to develop vertical marketing systems (VMS) that provide channel leadership.
Figure 20.3 A conventional marketing channel versus a vertical marketing system
Vertical marketing systems
Vertical marketing systems (VMS) are structured, interdependent producers, wholesalers and retailers that act as a unified system.
There are also different constructs of VMS for various types of industries.
Figure 20.4 Main types of vertical marketing system
Combines successive stages of production and distribution under single ownership.
Breweries and petrol stations are examples.
Independent firms at different levels join contractually to create efficiencies and economies of scale that could not be achieved alone. 3 types:
Wholesaler-sponsored voluntary chains of independent retailers organised to help compete against large organisations.
Reduced set-up costs
Proven system and established brand name
Centralised buying power
Expertise in operational, managerial, legal matters
Forfeit some control
Performance against exacting standards
VMS that co-ordinates successive stages of production and distribution through the size and power of one of the parties.
Other channel variations
Horizontal marketing systems
Channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.
Hybrid marketing systems
Multi channel distribution targeting different market segments.
Changing channel organisation
Major trend to disintermediation through elimination of intermediaries and traditional sellers and replacement by radically new types of intermediaries.
Channel retailing trends
New retail forms and shortening of the retail life-cycles
‘ Wheel of retailing’ , new types of retailer, usually begin as low-margin, low-price, low-status operations but later evolve to higher priced, higher service operations and eventually become like the conventional retailers that they replaced
Growth of non-store retailing
‘ click and brick’ retailers
Rise of mega-retailers
Growing importance of retail technology
Global expansion of retailers
Channel wholesaling trends
Face considerable challenges
Formation of hybrid operators such as the cash and carry concepts.