Chapter 15


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Chapter 15

  1. 1. Chapter 15 Marketing channel – individuals and firms involved in the process of making a product/service available for use by consumers. – Can be compared with a pipeline(water flows from source to terminus) – make the products flow from producer, through intermediaries, to a buyer. – Types if intermediaries: o Middleman – between manufacturer and end-user markets o Agent/Broker - with legal authority represent seller, role is to bring seller and buyer together. o Wholesaler – sells to other intermediaries (usually retailers) o Retailers – sells to consumers o Distributor – perform variety of distribution function o Dealer – more imprecise term than distributor, can mean the same as distributor, retailer, wholesaler etc. – Intermediaries perform: o Transactional function  Buying, selling, risk taking o Logistical function  Assorting, storing, sorting, transporting o Facilitating function  Financing, grading, marketing information and research – Consumers receive 4 utilities from intermediaries: o Time – when you want from them o Place – where you want from them o Form – enhancing product to make it more appealing (form) o Possession – owning the product Marketing Channels for Consumer Products & Services: - Direct channel o Producer and ultimate consumer deals directly (insurance company) - Indirect channel o Intermediaries are inserted between producer and consumer & perform numerous channel functions o Retailer added: most common when retailer is large/can buy in large quantity from the producer/ cost of inventory too expensive to use a wholesaler (automobile manufacturers; local car dealer – retailers). No wholesaler because product has too many variations, impossible for wholesaler to stock all the models & cost of maintaining inventory expensive. o Wholesaler added: common for low-cost, low-unit value items which are frequently bought. (candy, magazines) o Agent added (most indirect): when many small manufacturers and retailers. Agent is used to help coordinate a large supply.
  2. 2. Marketing Channels for Business Products & Services - fewer intermediaries because fewer in number, buy in larger quantities, more concentrated geographically - Direct channel o Firms using this channel maintain their own sales force & perform all channel functions. Used when buyers are large and well defined, sales effort requires extensive negotiations, and the products are of high units and require hands-on expertise in terms of installation - Indirect channel o Added industrial distributor: performs a variety of marketing channel functions (selling, stocking, delivering & financing). Like wholesalers. o Added agent: serves primarily as the independent selling arm of producers & represent a producer to industrial users. o Added both agent and industrial distributor (longest channel) Electronic Marketing Channels - employ the Internet to make products & services available for consumption - combination of electronic and traditional intermediaries to create time, place, form and possession utilities for buyers - perform transactional and facilitating functions effectively at a relatively lower cost - incapable of performing elements of logistical functions (especially books and automobiles), which remains with traditional intermediaries Direct and Multichannel Marketing - direct marketing channels – allows consumers to buy products by interacting with various advertising media without a face2face meeting with the salesperson. (mail-order selling, direct-mail sales, catalog sales, telemarketing, televised home shopping) - multichannel marketing – blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional and online. Seeks to integrate a firm’s electronic marketing and delivery channels. Leverage the value-adding capabilities of different channels. Dual Distribution & Strategic Channel Alliances - dual distribution o an arrangement whereby a firm reaches different buyers by employing two/more different types of channels for the same basic product o may use multibranding strategy to avoid cannibalization - strategic channel alliances o one firm’s marketing channel is used to sell another firm’s products. o Popular in global markets (where the creation of marketing relationships are expensive & time-consuming)
  3. 3. Vertical Marketing Strategies - are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact - types of vertical marketing systems: o corporate system  combination of successive stages of production and distribution under a single ownership  forward integration – producer own the next intermediary level (Ralph Lauren manufactures clothing & own shops)  backward integration – retailer own manufacturing operations  both integrations increase company’s capital and fixed cost. Therefore, companies go for contractual system o contractual system (most popular)  independent production & distribution firms integrate their efforts on a contractual basis to obtain greater functional economies & marketing impact than they could achieve alone  wholesaler-sponsored voluntary chains a wholesaler that develops a contractual relationship with a small, independent retailers to standardize and coordinate buying practices & merchandizing programs  retailer-sponsored corporative small, independent retailers form an organization that operates a wholesale facility cooperatively. Concentrate on their buying power through wholesalers and plan collaborative promotional & pricing activities  Franchising (most visible variation of contractual system) Contractual arrangement between a parent company (franchisor) and an individual/firm (franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules Types of franchise arrangement: o Manufacturer-sponsored retail franchise system (automobile industry) o Manufacturer-sponsored wholesaler franchise system (soft-drink industry) o Service-sponsored retail franchise system (have a unique approach for performing a service – MCD) o Service-sponsored franchise system (to dispense service under a tradename/specific guidelines) o administered system  achieve coordination at successive stages of production and distribution by the size & influence of one channel member rather than through ownership
  4. 4. Marketing Channel Choice and Management Factors Affecting Channel Choice: - target market coverage o density (number of stores in one area)  intensive (many outlets, for convenient goods)  exclusive (one retailer only in one area, specialty goods) limits head2head competition for an identical good provide a point of difference for retailer/distributor  selective (a few retailers in a specific area) weds some of the market coverage benefits of intensive distribution to control over resale evident with exclusive distribution) o type of intermediaries to be used at the retail level of distribution - buyer requirements o information  important if buyer has limited knowledge  through in-store display, demonstration o convenience  proximity / driving time/ hassle o variety  reflects on buyers’ interest on competing items to choose from  depth which enhances buyers’ interest o pre/post sale services provided by intermediaries  large household appliances that require delivery, installation - profitability o determined by the margins earned for each channel member and for the channel as a whole Managing Channel Relationships: Conflict & Cooperation Sources of Conflict - arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. - Types of conflict: o Vertical conflict  Occurs between different levels in marketing channel  Disintermediation - when a channel member bypasses another member and sells/buys products direct  Disagreements over how profit margins are distributed among channel members  When manufacturers believe wholesalers/retailers are not giving their products adequate attention o Horizontal conflict  Occurs between intermediaries at the same level  When manufacturer increase its distribution coverage in an area (too close to another)
  5. 5.  When diff retailers carry the same brand (dual distribution) Securing Cooperation in Marketing Channels - Channel captain o A channel member that coordinates, directs and supports other channel members o Can be producers, wholesalers or retailers o Captain has to have the ability to influence the behavior of others:  Economic influence Ability to reward other members  Source of influence expertise  Identification with a particular channel member  From legitimate right of one channel member to direct the behavior of other channel members Likely to occur in contractual vertical system where franchisor can direct franchisee how to behave Legal considerations - Clayton Act o Vertical integration (not illegal but if has the potential to foster monopoly/lessen competition) o Tying arrangements (when a supplier requires the distributor purchasing some products to buy others from the supplier) o Exclusive dealing (when suppliers requires channel members to only sell their products/restricts distributors from selling directly competitive products) o Refusal to deal (with existing channel members) o Dual distribution (when manufactures distributes through its own vertical integrated channel in competition with independent wholesalers and retailers that also sell its product) - Sherman Act o Dual distribution (anticompetitive) o Resale restrictions (supplier’s attempt to stipulate to whom distributors may resell the supplier’s products and in what specific are they may be sold) Logistics and Supply Chain Management - activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost - logistic management – the practice of organizing the cost-effective flow of raw materials, in-process inventory, finished goods and related information from point or origin of consumption to satisfy customer requirements
  6. 6. - three elements of logistics: o logistics deals with decisions needed to move a product from the source of raw material to consumption (flow of the product) o those decisions have to be cost-effective o important to reduce logistics cost, but there is a limit – as long as it delivers the expected customer service (meet requirements) Supply Chains vs Marketing Channels - supply chain refers to the various firms involved in performing the activities required to create and deliver product to consumers - differs from marketing channels in terms of firms involves. Supply chain includes suppliers that provide raw material to manufacturers & wholesales/retailers that deliver finished products to consumers - different management process. Supply chain management is the integration and organization of information and logistics activities across firms in a supply chain for the purpose of creating and delivering products that provide value to consumers. - Supply chain management is its application of sophisticated information technology that allows companies to share and operate systems for order processing, transportation scheduling and inventory & facility management Automotive Supply Chain (read textbook pg 393) Supply Chain Management and Marketing Strategies Aligning a Supply Chain with Marketing Strategies - understand the customer o identify the needs of the customer segment o help companies define importance of efficiency and responsiveness - understand the supply chain o understand what a supply chain is designed to do well o emphasize efficiency with a goal of supplying products at the lowest possible delivered cost - harmonize the supply chain with marketing strategies o ensure that what the supply chain is capable of doing is consistent with the targeted customer’s needs and its marketing strategies. - Dell : A responsive supply chain - Walmart : An Efficient Supply Chain (cross-docking) Two Concepts of Logistics Management in A Supply Chain - is to minimize total logistics costs while delivering the appropriate level of customer service - Total Logistics Cost Concept o Includes expenses associated with transportation, material handling and warehousing, inventory stockouts, order processing, and return products handling. (all are interrelated) - Customer Service Concept
  7. 7. o Customer service – the ability of logistics management to satisfy users in terms of time, dependability, communication and convenience. o Time: order cycle or replenishment time for an item (time between ordering an item and when it is received and ready for use). Elements in order cycle: recognition of the need to order, order transmittal, order processing, documentation, and transportation. As quick & simple (quick response/efficient customer response) o Dependability: consistency of replenishment. Three elements: consistent time lead, safe delivery, and complete delivery. o Communication: two way link between buyer and seller that helps to monitor service and anticipate future needs. (status report on order) o Convenience: there should be minimum of effort on the part of buyer. Vendor-managed inventory (VMI) – supplier determines the product amount and assortment a customer (retailer) needs and automatically delivers the appropriate items. Reverse logistics – process of reclaiming recyclable/reusable materials, returns and reworks from the point of consumption for repair, remanufacture, redistribution or disposal.