2. Learning Objectives
After studying this chapter, you should be able to:
1. Explain how companies use marketing channels and
discuss the functions these channels perform
2. Discuss how channel members interact and how
they organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and
evaluate channel members
5. Discuss the nature and importance of marketing
logistics and integrated supply chain management
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3. Chapter Outline
1. Supply Chains and the Value Delivery
Network
2. The Nature and Importance of Marketing
Channels
3. Channel Behavior and Organization
4. Channel Design Decisions
5. Channel Management Decisions
6. Public Policy and Distribution Decisions
7. Marketing Logistics and Supply Chain
Management
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4. Supply Chains and
the Value Delivery Network
Supply Chain Partners
Upstream partners include raw material
suppliers, components, parts, information,
finances, and expertise to create a product
or service
Downstream partners include the marketing
channels or distribution channels that look
toward the customer
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5. Supply Chains and
the Value Delivery Network
Supply Chain Views
Supply chain “make and sell” view includes the firm’s
raw materials, productive inputs, and factory
capacity
Demand chain “sense and respond” view suggests
that planning starts with the needs of the target
customer and the firm responds to these needs by
organizing a chain of resources and activities with
the goal of creating customer value
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6. Supply Chains and
the Value Delivery Network
The value delivery network is the firm’s
suppliers, distributors, and ultimately
customers who partner with each other to
improve the performance of the entire
system
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Value Delivery Network
7. Supply Chains and
the Value Delivery Network
Marketing Channel Questions
• What is the nature of marketing channels
and why are they important?
• How do channel firms interact and organize
to do the work of the channel?
• What role do physical distribution and
supply chain management play in attracting
customers?
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8. The Nature and Importance of
Marketing Channels
Marketing Channel Defined
Marketing channel is a set of independent
organizations that help make a product or
service available for use or consumption by
the consumer or business users
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9. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Channel members add value by bridging the
major time, place, and possession gaps that
separate goods and services from those who
would use them
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10. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Producers use intermediaries because
they create greater efficiency in
making goods available to target
markets.
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11. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Intermediaries offer the firm more than it can
achieve on its own through their contacts,
experience, specialization, and scale of
operations
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12. The Nature and Importance of
Marketing Channels
From an economic view, intermediaries
transform the assortment of products
into assortments wanted by consumers
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How Channel Members Add Value
13. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Information refers to the gathering and distributing
research and intelligence information about actors
and forces in the marketing environment needed for
planning and aiding exchange
Promotion refers to the development and spreading
persuasive communications about an offer
Contacts refers to finding and communicating with
prospective buyers
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14. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Matching refers to shaping and fitting the
offer to the buyer’s needs, including
activities such as manufacturing, grading,
assembling, and packaging
Negotiation refers to reaching an agreement
on price and other terms of the offer so that
ownership or possession can be transferred
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15. The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Physical distribution refers to transporting and
storing goods
Financing refers to acquiring and using funds to cover
the costs or carrying out the channel work
Risk taking refers to assuming the risks of carrying
out the channel work
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16. The Nature and Importance of
Marketing Channels
Number of Channel Members
Channel level refers to each layer of marketing
intermediaries that performs some work in bringing
the product and its ownership closer to the final
buyer
Direct marketing channel has no intermediary
levels; the company sells directly to consumers
Indirect marketing channels contain one or more
intermediaries
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17. The Nature and Importance of
Marketing Channels
Number of Channel Members
Connected by types of flows:
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow
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18. Channel Behavior and Organization
Channel Behavior
Marketing channel consists of firms that have
partnered for their common good with each
member playing a specialized role
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19. Channel Behavior and Organization
Channel Behavior
Channel conflict refers to disagreement over
goals, roles, and rewards by channel
members
• Horizontal conflict
• Vertical conflict
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20. Channel Behavior and Organization
Channel Behavior
Horizontal conflict is conflict among
members at the same channel level
Vertical conflict is conflict between different
levels of the same channel
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21. Channel Behavior and Organization
Conventional Distribution Systems
Conventional distribution systems consist
of one or more independent producers,
wholesalers, and retailers. Each seeks to
maximize its own profits and there is little
control over the other members and no
formal means for assigning roles and
resolving conflict.
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22. Channel Behavior and Organization
Vertical Marketing Systems
Vertical marketing systems (VMS) provide
channel leadership and consist of producers,
wholesalers, and retailers acting as a unified
system and consist of:
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems
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23. Channel Behavior and Organization
Corporate vertical marketing system
integrates successive stages of production
and distribution under single ownership
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Vertical Marketing Systems
24. Channel Behavior and Organization
Vertical Marketing Systems
Contractual vertical marketing system
consists of independent firms at different
levels of production and distribution who
join together through contracts to obtain
more economies or sales impact than each
could achieve alone. The most common
form is the franchise organization.
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25. Channel Behavior and Organization
Vertical Marketing Systems
Franchise organization links several stages
in the production distribution process
• Manufacturer-sponsored retailer franchise system
• Manufacturer-sponsored wholesaler franchise
system
• Service firm-sponsored retailer franchise system
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26. Channel Behavior and Organization
Vertical Marketing Systems
Administered vertical marketing
system has a few dominant channel
members without common ownership.
Leadership comes from size and power.
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27. Channel Behavior and Organization
Horizontal Marketing Systems
Horizontal marketing systems include
two or more companies at one level that
join together to follow a new marketing
opportunity. Companies combine
financial, production, or marketing
resources to accomplish more than any
one company could alone.
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28. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Hybrid marketing channels exist when a
single firm sets up two or more marketing
channels to reach one or more customer
segments
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29. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
• Advantages
• Increased sales and market coverage
• New opportunities to tailor products and services
to specific needs of diverse customer segments
• Challenges
• Hard to control
• Create channel conflict
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30. Channel Behavior and Organization
Changing Channel Organization
Disintermediation occurs when product or
service producers cut out intermediaries and
go directly to final buyers, or when radically
new types of channel intermediaries displace
traditional ones
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31. Channel Design Decisions
Analyzing Consumer Needs
Designing a channel system requires:
• Analyzing consumer needs
• Setting channel objectives
• Identifying major channel alternatives
• Evaluation
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32. Channel Design Decisions
Analyzing Consumer Needs
Designing a marketing channel starts with
finding out what target customers want
from the channel
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33. Channel Design Decisions
Setting Channel Objectives
In terms of:
• Targeted levels of customer service
• What segments to serve
• Best channels to use
• Minimizing the cost of meeting customer
service requirements
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34. Channel Design Decisions
Objectives are influenced by:
• Nature of the company
• Marketing intermediaries
• Competitors
• Environment
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Setting Channel Objectives
35. Channel Design Decisions
Identifying Major Alternatives
In terms of:
• Types of intermediaries
• Number of intermediaries
• Responsibilities of each channel member
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36. Channel Design Decisions
Identifying Major Alternatives
Types of intermediaries refers to channel
members available to carry out channel
work. Examples include:
• Company sales force
• Manufacturer’s agency
• Industrial distributors
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37. Channel Design Decisions
Identifying Major Alternatives
Company sales force strategies
• Expand direct sales force
• Assign outside salespeople to territories
• Develop a separate sales force
• Telesales
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38. Channel Design Decisions
Identifying Major Alternatives
Manufacturer’s agencies are independent
firms whose sales forces handle related
products from many companies in different
regions or industries
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39. Channel Design Decisions
Identifying Major Alternatives
Industrial distributors
• Find distributors in different regions or
industries
• Exclusive distribution
• Margin opportunities
• Training
• Support
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40. Channel Design Decisions
Identifying Major Alternatives
Number of marketing intermediaries to use at
each level
• Strategies:
• Intensive distribution
• Exclusive distribution
• Selective distribution
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41. Channel Design Decisions
Identifying Major Alternatives
Intensive distribution is a strategy used by
producers of convenience products and
common raw materials in which they stock
their products in as many outlets as possible
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42. Channel Design Decisions
Exclusive distribution is a strategy in which
the producer gives only a limited number of
dealers the exclusive right to distribute its
products in their territories
• Luxury automobiles
• High-end apparel
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Identifying Major Alternatives
43. Channel Design Decisions
Identifying Major Alternatives
Selective distribution is a strategy when a
producer uses more than one but fewer
than all of the intermediaries willing to carry
the producer’s products
• Televisions
• Appliances
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44. Channel Design Decisions
Responsibilities of Channel Members
Producers and intermediaries need to agree on:
• Price policies
• Conditions of sale
• Territorial rights
• Services provided by each party
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45. Channel Design Decisions
Evaluating the Major Alternatives
Each alternative should be evaluated against:
• Economic criteria
• Control
• Adaptive criteria
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46. Channel Design Decisions
Evaluating the Major Alternatives
Economic criteria compares the likely sales costs and
profitability of different channel members
Control refers to channel members’ control over the
marketing of the product
Adaptive criteria refers to the ability to remain
flexible to adapt to environmental changes
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47. Channel Design Decisions
Designing International Distribution Channels
Channel systems can vary from country to
country
Must be able to adapt channel strategies to the
existing structures within each country
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48. Channel Management Decisions
Channel management involves:
• Selecting channel members
• Managing channel members
• Motivating channel members
• Evaluating channel members
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49. Channel Management Decisions
Selecting Channel Members
Selecting channel members involves determining
the characteristics that distinguish the better
ones by evaluating channel members
• Years in business
• Lines carried
• Profit record
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50. Channel Management Decisions
Selecting Channel Members
Selecting intermediaries that are sales agents
involves evaluating:
• Number and character of other lines carried
• Size and quality of sales force
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51. Channel Management Decisions
Selecting Channel Members
Selecting intermediaries that are retail stores
that want exclusive or selective distribution
involves evaluating:
• Store’s customers
• Locations
• Growth potential
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52. Channel Management Decisions
Managing and Motivating Channel Members
Partner relationship management (PRM) and
supply chain management (SCM) software
are used to forge long-term partnerships
with channel members and to recruit, train,
organize, manage, motivate, and evaluate
channel members
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53. Public Policy and Distribution
Decisions
Exclusive distribution is when the seller
allows only certain outlets to carry its
products
Exclusive dealing is when the seller requires
that the sellers not handle competitor’s
products
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54. Public Policy and Distribution
Decisions
Benefits of exclusive distribution include:
• Seller obtains more loyal and dependable
dealers
• Dealers obtain a steady and stronger seller
support
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55. Public Policy and Distribution
Decisions
Exclusive territorial agreement refers to an
agreement where the producer may agree not to
sell to other dealers in a given area or the buyer
may agree to sell only in its own territory
Tying agreements, while not necessarily illegal as
long as they do not substantially lessen competition,
are agreements where there is a strong brand that
producers sometimes sell to dealers only if the
dealers will take some or all of the rest of the line
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56. Marketing Logistics and
Supply Chain Management
• Nature and importance of logistics
management in the supply chain
• Goals of the logistics system
• Major logistics functions
• Need for integrated supply chain
management
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57. Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics (physical distribution)
involves planning, implementing, and
controlling the physical flow of goods,
services, and related information from points
of origin to points of consumption to meet
consumer requirements at a profit
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58. Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics involves:
• Outbound distribution: Moving products from the
factory to resellers and consumers
• Inbound distribution: Moving products and materials
from suppliers to the factory
• Reverse distribution: Moving broken, unwanted, or
excess products returned by consumers or resellers
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59. Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics
Supply chain management is the process of
managing upstream and downstream value-
added flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers
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60. Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics
Importance of logistics
• Competitive advantage by giving customers better
service at lower prices
• Cost savings to the company and its customers
• Product variety requires improved logistics
• Information technology has created opportunities
for distribution efficiency
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61. Marketing Logistics and
Supply Chain Management
Goals of the Logistics System
To provide a targeted level of customer service
at the least cost with the objective to
maximize profit, not sales
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62. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
• Warehousing
• Inventory management
• Transportation
• Logistics information management
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63. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Warehousing is the storage function that
overcomes differences in need quantities
and timing, ensuring that the products are
available when customers are ready to buy
them
• Storage warehouses
• Distribution centers
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64. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Storage warehouses are designed to store
goods, not move them
Distribution centers are designed to move
goods, not store them
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65. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Inventory management balances carrying
too little and too much inventory
• Just-in-time logistics systems
• RFID
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66. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Just-in-time logistics systems allow producers and
retailers to carry small amounts of inventories of
parts or merchandise
RFID (radio frequency identification devices) are small
transmitter chips embedded in or placed on
products or packages to provide greater inventory
control
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67. Marketing Logistics and
Supply Chain Management
Transportation affects the pricing of products,
delivery performance, and condition of the goods
when they arrive
• Truck
• Rail
• Water
• Pipeline
• Air
• Internet
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Major Logistics Functions
68. Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Intermodal transportation combines two or
more modes of transportation
• Piggyback uses rail and truck
• Fishyback uses water and truck
• Airtruck uses air and truck
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69. Marketing Logistics and
Supply Chain Management
Logistics Information Management
Logistics information management is the
management of the flow of information,
including customer orders, billing, inventory
levels, and customer data
• EDI (electronic data interchange)
• VMI (vendor-managed inventory)
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70. Marketing Logistics and
Supply Chain Management
Integrated Logistics Management
Integrated logistics management is the
recognition that providing customer service
and trimming distribution costs require
teamwork internally and externally
• Cross-functional teamwork inside the
company
• Building partner relationships
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71. Marketing Logistics and
Supply Chain Management
Integrated Logistics Management
Cross-functional teamwork inside the
company refers to the inter-relationship of
different departments within the company to
achieve the goals of integrated supply chain
management
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72. Marketing Logistics and
Supply Chain Management
Integrated Logistics Management
Building partner relationships refers to the
understanding that one company’s
distribution is another company’s supply
system
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73. Marketing Logistics and
Supply Chain Management
Integrated Logistics Management
Third-party logistics is the outsourcing of logistics
functions to third-party logistics providers (3PLs)
• Provide logistics functions more efficiently
• Provide logistics functions at lower cost
• Allow the company to focus on its core business
• Are more knowledgeable of complex logistics
12-73
