Chapter 15


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  • YES Intermediaries make a significant profit on the products they carry. Some wholesalers are inefficient and tend to be parasitic. Eliminating intermediaries can cut these costs and decrease the time it takes for products to reach consumers. Companies that are truly concerned about customer service will eliminate intermediaries and take responsibility for performing their tasks. NO Intermediaries make significantly less profit than retailers. Wholesalers survive by providing certain functions more efficiently than other channel members. Producers would have to provide additional functions, often at greater expense and time than using wholesalers. To survive, wholesalers must be more efficient and more customer-focused than alternative marketing institutions.
  • The purpose of this exercise is to improve students’ understanding of the intensities of market coverage. Answers: 1. Potato chips intensive 2. Gucci handbags exclusive 3. Large-screen televisions selective 4. Rolex watches exclusive 5. Clinique cosmetics selective 6. Carbonated beverages intensive 7. Range Rover vehicles exclusive 8. Stereo systems selective 9. Levi jeans selective 10. IBM personal computers selective 11. Gasoline intensive 12. Cannondale bicycles selective 13. Jaguar automobiles exclusive 14. Nintendo video games selective 15. Reebok shoes selective
  • The objective of this class exercise is to aid student understanding of the dimensions of channel selection and their possible relationships with channel conflict. Question 1. These manufacturers have the resources to control their own channels and apparently have altered objectives to include increased coverage in new segments. Many manufacturers suggest that since outlet stores are located outside metro areas, they are not competing directly with retailers. The buyer behavior of outlet store shoppers is different from that of upscale department store shoppers: for outlet store shoppers, price is the deciding factor and customer service is unimportant. Because most items in an outlet store are past season, retailers are usually unwilling to carry them (product attributes are different). The economy and social forces (environmental forces) may encourage people to shop for value rather than for status. Question 2. If market coverage is seen as a continuum, then these manufacturers have moved from a selective or exclusive intensity to a more intensive coverage. As coverage intensifies, customer service is decreased (particularly at outlet stores). Additionally, consumers’ perceptions of brand quality typically decrease as coverage intensity increases.
  • Question 3. Retailers expect manufacturers to supply relatively exclusive rights to distribute their branded goods. In the case of outlet stores, manufacturers have deviated from their role as producer to the role of retailer. (This might be a good time to define wholesaling and retailing.) Additionally, it appears that some manufacturers are selling some new items through outlet stores. It is also likely that manufacturers did not effectively or honestly communicate their distribution intentions to retailers. Question 4. If retailers try to use coercive power, they will most likely hurt themselves by eliminating some of their best-selling brands. The conflict might be resolved by specifying the roles of each channel member (i.e., who sells what season’s merchandise).
  • E D D E
  • Chapter 15

    1. 1. 15 Marketing Channels and Supply Chain Management
    2. 2. Objectives <ul><li>To describe the nature and functions of marketing channels </li></ul><ul><li>To explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers </li></ul><ul><li>To identify the types of marketing channels </li></ul><ul><li>To examine the major levels of marketing coverage </li></ul>
    3. 3. Objectives (cont’d) <ul><li>To explore the concepts of leadership, cooperation, and conflict in channel relationships </li></ul><ul><li>To specify how channel integration can improve channel efficiency </li></ul><ul><li>To examine the legal issues affecting channel management </li></ul>
    4. 4. Chapter Outline <ul><li>The Nature of Marketing Channels </li></ul><ul><li>Types of Marketing Channels </li></ul><ul><li>Intensity of Market Coverage </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>Legal Issues in Channel Management </li></ul>
    5. 5. The Nature of Marketing Channels <ul><li>Distribution </li></ul><ul><ul><li>The activities that make products available to customers when and where they want to purchase them </li></ul></ul><ul><li>Marketing Channel </li></ul><ul><ul><li>A group of individuals and organizations directing products from producers to customers </li></ul></ul>
    6. 7. The Nature of Marketing Channels (cont’d) <ul><li>Marketing Intermediary </li></ul><ul><ul><li>A middleman linking producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products </li></ul></ul>
    7. 8. The Nature of Marketing Channels (cont’d) <ul><li>Marketing Channels Create Utility </li></ul><ul><ul><li>Time utility: have products available when the customer wants them (newspaper delivery). </li></ul></ul><ul><ul><li>Place utility: making products available in locations where the customers wish to purchase them (convenience stores). </li></ul></ul><ul><ul><li>Possession utility: the customer has access to the product to use or to store for future use (raincoats). </li></ul></ul>
    8. 9. The Nature of Marketing Channels (cont’d) <ul><li>Marketing Channels Facilitate Exchange Efficiencies </li></ul><ul><ul><li>Reduce the overall costs of marketing exchanges </li></ul></ul><ul><ul><li>Reduce search costs for customers </li></ul></ul><ul><ul><li>Maintain order in the marketplace </li></ul></ul>
    9. 10. Efficiency in Exchanges Provided by an Intermediary FIGURE 15.1
    10. 11. Marketing Channels Form a Supply Chain <ul><li>Supply Chain Management </li></ul><ul><ul><li>Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers </li></ul></ul><ul><ul><li>Optimizes costs throughout the whole channel for efficiency and service </li></ul></ul><ul><ul><li>Includes all entities that facilitate product distribution and benefit from cooperative efforts </li></ul></ul><ul><ul><li>Arises from the need to achieve a more competitive position </li></ul></ul>
    11. 12. Typical Marketing Channels for Consumer Products FIGURE 15.2
    12. 13. Typical Marketing Channels for Business Products FIGURE 15.3
    13. 14. Distribution Intermediaries <ul><li>Industrial Distributor </li></ul><ul><ul><li>An independent business that takes title to business products and carries inventories </li></ul></ul><ul><ul><li>Advantages </li></ul></ul><ul><ul><ul><li>Perform needed selling activities in local markets </li></ul></ul></ul><ul><ul><ul><li>Are aware of local needs and can pass market information on to producers </li></ul></ul></ul><ul><ul><ul><li>Reduce producers’ capital requirements by holding inventories for local markets. </li></ul></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><ul><li>Difficult to control </li></ul></ul></ul><ul><ul><ul><li>Stocking of competing brands </li></ul></ul></ul><ul><ul><ul><li>Less likely to handle bulky and slow-selling items </li></ul></ul></ul><ul><ul><ul><li>Lack of technical knowledge </li></ul></ul></ul>
    14. 15. Distribution Intermediaries (cont’d) <ul><li>Manufacturers’ Agent </li></ul><ul><ul><li>An independent businessperson who sells, on commission, the complementary products of several producers; does not take title to or hold inventories. </li></ul></ul><ul><ul><li>Advantages </li></ul></ul><ul><ul><ul><li>Possesses technical and market information </li></ul></ul></ul><ul><ul><ul><li>Has an established set of customers </li></ul></ul></ul><ul><ul><ul><li>Serves as a substitute for a sales force </li></ul></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><ul><li>Difficult to control </li></ul></ul></ul><ul><ul><ul><li>Concentration on only large accounts </li></ul></ul></ul><ul><ul><ul><li>Sales focus limited to commission-related activities </li></ul></ul></ul>
    15. 16. Debate Issue <ul><li>Does cutting out the intermediary cut costs? </li></ul>
    16. 17. Multiple Marketing Channels and Channel Alliances <ul><li>Dual Distribution </li></ul><ul><ul><li>The use of two or more channels to distribute the same product to the same target market </li></ul></ul><ul><li>Strategic Channel Alliance </li></ul><ul><ul><li>An agreement whereby the products of one organization are distributed through the marketing channels of another </li></ul></ul>
    17. 18. Is This Product Distributed Through Multiple Marketing Channels? Courtesy of Neutrogena Corp.
    18. 19. Intensity of Market Coverage <ul><li>Intensive Distribution </li></ul><ul><ul><li>Using all available outlets to distribute a product. </li></ul></ul><ul><ul><ul><li>Convenience products with high replacement rates </li></ul></ul></ul><ul><ul><li>Provides availability and reduces search time </li></ul></ul><ul><ul><li>Availability is more important than outlet type </li></ul></ul>
    19. 20. Intensity of Market Coverage (cont’d) <ul><li>Selective Distribution </li></ul><ul><ul><li>Using only some available outlets to distribute a product </li></ul></ul><ul><ul><ul><li>Shopping products and durable goods with low replacement rates </li></ul></ul></ul><ul><ul><li>High qualification requirements for intermediaries to distribute, sell, service, and support products </li></ul></ul>Tuscaloosa’s Only Authorized Dealer
    20. 21. Intensity of Market Coverage (cont’d) <ul><li>Exclusive Distribution </li></ul><ul><ul><li>Using a single outlet in a fairly large geographic area to distribute a product </li></ul></ul><ul><ul><ul><li>Expensive, high-quality products purchased infrequently </li></ul></ul></ul><ul><ul><li>Exclusive outlets provide an incentive to sellers in limited markets </li></ul></ul><ul><ul><li>Dealers carry complete inventory and have trained staff for sales and service </li></ul></ul>
    21. 22. Are iPods Distributed Through Intensive, Selective, or Exclusive Distribution? Reprinted with permission of Apple Computer, Inc. All rights reserved.
    22. 23. Class Exercise <ul><li>Identify the intensity of market coverage for each of the following products: </li></ul><ul><ul><li>Potato chips </li></ul></ul><ul><ul><li>Gucci handbags </li></ul></ul><ul><ul><li>Large-screen televisions </li></ul></ul><ul><ul><li>Rolex watches </li></ul></ul><ul><ul><li>Clinique cosmetics </li></ul></ul><ul><ul><li>Carbonated beverages </li></ul></ul><ul><ul><li>Range Rover vehicles </li></ul></ul>
    23. 24. Class Exercise (cont’d) <ul><ul><li>Stereo systems </li></ul></ul><ul><ul><li>Levi jeans </li></ul></ul><ul><ul><li>IBM personal computers </li></ul></ul><ul><ul><li>Gasoline </li></ul></ul><ul><ul><li>Cannondale bicycles </li></ul></ul><ul><ul><li>Jaguar automobiles </li></ul></ul><ul><ul><li>Nintendo video games </li></ul></ul><ul><ul><li>Reebok shoes </li></ul></ul>
    24. 25. Supply Chain Management: Channel Leadership <ul><li>Channel Captain </li></ul><ul><ul><li>The dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain </li></ul></ul><ul><ul><ul><li>Establishes channel policies and coordinates development of the marketing mix </li></ul></ul></ul><ul><li>Channel Power </li></ul><ul><ul><li>The ability of one channel member to influence another member’s goal achievement </li></ul></ul>
    25. 26. Supply Chain Management: Channel Cooperation <ul><li>Benefits of Cooperation </li></ul><ul><ul><li>Speeds up inventory replacement </li></ul></ul><ul><ul><li>Improves customer service </li></ul></ul><ul><ul><li>Reduces distribution costs </li></ul></ul><ul><li>Improving Channel Cooperation </li></ul><ul><ul><li>Unifying channel to maintain market order </li></ul></ul><ul><ul><li>Agreeing to direct efforts toward common objectives </li></ul></ul><ul><ul><li>Precisely defining each channel member’s tasks </li></ul></ul>
    26. 27. Supply Chain Management: Channel Conflict <ul><li>Sources of Channel Conflict </li></ul><ul><ul><li>Disagreements arising among channel members </li></ul></ul><ul><ul><li>Communication difficulties jeopardizing coordination </li></ul></ul><ul><ul><li>Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers </li></ul></ul><ul><ul><li>Intermediaries diversifying into and offering competing products </li></ul></ul><ul><ul><li>Producers attempting to circumvent intermediaries and dealing directly with retailers </li></ul></ul>
    27. 28. Net Sights <ul><li>The Stanford Global Supply Chain Management Forum website ( www. stanford . edu /group/ scforum /Welcome/index.html ) promotes excellence in global supply chain management. It is an example of cooperation between industry and academia to improve the way business is conducted on an international scale. </li></ul>
    28. 29. Supply Chain Management: Channel Integration <ul><li>Vertical Channel Integration </li></ul><ul><ul><li>Two or more stages of the marketing channel are under one management </li></ul></ul><ul><ul><li>Channel members coordinate their efforts to reach a target market </li></ul></ul><ul><li>Vertical Marketing System (VMS) </li></ul><ul><ul><li>A marketing channel managed by a single channel member to achieve efficient, low-cost distribution </li></ul></ul><ul><ul><ul><li>Corporate VMS </li></ul></ul></ul><ul><ul><ul><li>Administered VMS </li></ul></ul></ul><ul><ul><ul><li>Contractual VMS </li></ul></ul></ul>
    29. 30. Legal Issues in Channel Management <ul><li>Dual Distribution </li></ul><ul><ul><li>A producer can use two different channels to reach the same target market as long as it is not trying to engage in unfair competition and put its independent distributors out of business </li></ul></ul><ul><li>Restricted Sales Territories </li></ul><ul><ul><li>Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade </li></ul></ul><ul><li>Tying Arrangements </li></ul><ul><ul><li>Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier </li></ul></ul>
    30. 31. Legal Issues in Channel Management (cont’d) <ul><li>Full-Line Forcing </li></ul><ul><ul><li>Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products </li></ul></ul><ul><li>Exclusive Dealing </li></ul><ul><ul><li>Forbidding an intermediary to carry products of a competing manufacturer </li></ul></ul><ul><ul><li>Is anticompetitive if </li></ul></ul><ul><ul><ul><li>it blocks competitors from 10% of the market </li></ul></ul></ul><ul><ul><ul><li>sales revenues are sizable </li></ul></ul></ul><ul><ul><ul><li>the manufacturer is larger than the dealer </li></ul></ul></ul>
    31. 32. Class Exercise <ul><li>Many manufacturers sell products in outlet stores at 25% to 70% off retail prices. Retailers do not like the added competition from their own suppliers despite manufacturers’ claims that they are only selling last season’s merchandise. </li></ul><ul><ul><li>How could business objectives, buyer behavior, product attributes, or environmental forces affect a manufacturer’s decision to distribute through outlet stores? </li></ul></ul>
    32. 33. Class Exercise (cont’d) <ul><ul><li>By selling in outlet stores, how have these manufacturers changed their intensity of market coverage? How is customer service different at an outlet store? </li></ul></ul><ul><ul><li>Which of the following may be responsible for the conflict between manufacturers and retailers? </li></ul></ul><ul><ul><ul><li>Lack of clear communication </li></ul></ul></ul><ul><ul><ul><li>Deviation from role expectations </li></ul></ul></ul><ul><ul><ul><li>Diversification into product lines traditionally handled by other intermediaries </li></ul></ul></ul>
    33. 34. Class Exercise (cont’d) <ul><ul><li>Should retailers develop store brands, refuse to stock certain items, or focus their buying power on one supplier or group of suppliers? How should the conflict be resolved? </li></ul></ul>
    34. 35. Legal Issues in Channel Management (cont’d) <ul><li>Refusal to Deal </li></ul><ul><ul><li>Suppliers can choose their distributors and refuse to deal with others so long as their decisions are not based on anticompetitive motives or are not part of an organized refusal-to-deal with certain channel members. </li></ul></ul>
    35. 36. After reviewing this chapter you should: <ul><li>Be able to describe the nature and functions of marketing channels. </li></ul><ul><li>Be able to explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers. </li></ul><ul><li>Be able to identify the types of marketing channels. </li></ul><ul><li>Be familiar with the major levels of marketing coverage. </li></ul>
    36. 37. After reviewing this chapter you should: <ul><li>Understand the concepts of leadership, cooperation, and conflict in channel relationships. </li></ul><ul><li>Be able to specify how channel integration can improve channel efficiency. </li></ul><ul><li>Be aware of the legal issues affecting channel management. </li></ul>
    37. 38. Chapter Quiz <ul><li>In a simple economy of five producers and five consumers, there would be _________ transactions possible without an intermediary and _________ transactions possible with one intermediary. </li></ul><ul><ul><li>ten; twenty-five </li></ul></ul><ul><ul><li>thirty; ten </li></ul></ul><ul><ul><li>twenty-five; fifteen </li></ul></ul><ul><ul><li>sixteen; eight </li></ul></ul><ul><ul><li>twenty-five; ten </li></ul></ul>
    38. 39. Chapter Quiz (cont’d) <ul><li>Nationally distributed consumer convenience products are most likely distributed through which of the following channels? </li></ul><ul><ul><li>Producer, consumers </li></ul></ul><ul><ul><li>Producer, agents, wholesalers, retailers, consumers </li></ul></ul><ul><ul><li>Producer, wholesalers, consumers </li></ul></ul><ul><ul><li>Producer, wholesalers, retailers, consumers </li></ul></ul><ul><ul><li>Producer, industrial distributor, wholesalers, retailers, consumers </li></ul></ul>
    39. 40. Chapter Quiz (cont’d) <ul><li>Honey Farms is a maker of fine chocolates. The company’s latest product, Fudge-Dipped Strawberries, is the premier product in its Fudge-Dipped line. The product is very expensive and targeted to upscale consumers. Which form of distribution would Honey Farms be likely to use for its new product? </li></ul><ul><ul><li>Intensive </li></ul></ul><ul><ul><li>Selective </li></ul></ul><ul><ul><li>Targeted </li></ul></ul><ul><ul><li>Exclusive </li></ul></ul><ul><ul><li>Premier </li></ul></ul>
    40. 41. Chapter Quiz (cont’d) <ul><li>Goodyear allows companies like Sears and Discount Tire to distribute and discount its tires. This action significantly increases the possibility of channel _________ with independent Goodyear dealers. </li></ul><ul><ul><li>understanding </li></ul></ul><ul><ul><li>power </li></ul></ul><ul><ul><li>leadership </li></ul></ul><ul><ul><li>communication </li></ul></ul><ul><ul><li>conflict </li></ul></ul>