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2011 2-13marketing-110719012941-phpapp02
- 1. 1 Lamb, Hair, McDaniel CHAPTER 13 Marketing Channels 2010-2011
- 2. 2 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 OutcomesLearning Outcomes
- 3. 3 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 OutcomesLearning Outcomes
- 4. 4 Explain what a marketing channel is and why intermediaries are needed Marketing ChannelsMarketing Channels LO1
- 5. 5 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. LO1
- 6. 6 Marketing Channel Functions Specialization and division of laborSpecialization and division of labor Overcoming discrepanciesOvercoming discrepancies Providing contact efficiencyProviding contact efficiency LO1
- 7. 7 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 LO1
- 8. 8 Overcoming Discrepancies Discrepancy of Quantity Discrepancy of Quantity Discrepancy of Assortment Discrepancy of Assortment The difference between the amount of product produced and the amount an end user wants to buy. 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. The lack of all the items a customer needs to receive full satisfaction from a product or products. LO1
- 9. 9 Overcoming Discrepancies Temporal Discrepancy Temporal Discrepancy Spatial Discrepancy Spatial Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. 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. The difference between the location of a producer and the location of widely scattered markets. LO1
- 11. 11 Define the types of channel intermediaries and describe their functions and activities Channel Intermediaries andChannel Intermediaries and Their FunctionsTheir Functions LO2
- 12. 12 Channel Intermediaries RetailerRetailer A channel intermediary that sells mainly to customers. A channel intermediary that sells mainly to customers. Merchant Wholesaler Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members. Wholesaling intermediaries who facilitate the sale of a product by representing channel members. LO2
- 13. 13 Channel Intermediaries RetailersRetailers Merchant Wholesalers Merchant Wholesalers Agents and Brokers Agents and Brokers Take Title to GoodsTake Title to Goods Take Title to GoodsTake Title to Goods Do NOT Take Title to GoodsDo NOT Take Title to Goods LO2
- 14. 14 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. LO2
- 15. 15 Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristicsProduct characteristics Buyer considerationsBuyer considerations Market characteristicsMarket characteristics LO2
- 16. 16 Factors Suggesting Type of Wholesaling Intermediary to Use 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 LO2
- 17. 17 Channel Functions Performed by Intermediaries Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Facilitating Functions Transactional Functions Transactional Functions Logistical Functions Logistical Functions LO2
- 18. 18 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. LO2
- 19. 19 Channel Intermediaries and Functions CHANNEL INTERMEDIARIES CHANNEL INTERMEDIARIES Retailers Wholesalers Agents and Brokers Retailers Wholesalers Agents and Brokers CHANNEL FUNCTIONS CHANNEL FUNCTIONS Transactional Logistical Facilitating Transactional Logistical Facilitating Perform LO2
- 20. 20 Describe the channel structures for consumer and business products and discuss alternative channel arrangements Channel StructuresChannel Structures LO3
- 21. 21 Channels for Consumer Products Producer Producer Producer Producer Consumers Consumers Consumers Consumers Retailers Retailers Retailers Wholesalers Wholesalers Agents or Brokers WholesalerWholesaler ChannelChannel RetailerRetailer ChannelChannel DirectDirect ChannelChannel Agent/BrokerAgent/Broker ChannelChannel LO3
- 22. 22 Channels for Consumer Products A distribution channel in which producers sell directly to consumers. Direct Channel Direct Channel LO3
- 23. 23 Producer Industrial User DirectDirect ChannelChannel Producer Govt. Buyer DirectDirect ChannelChannel Producer Producer Producer Industrial User Industrial User Industrial User Industrial Distributor Industrial Distributor Agents or Brokers Agents or Brokers Agent/BrokerAgent/Broker ChannelChannel IndustrialIndustrial DistributorDistributor Agent/BrokerAgent/Broker IndustrialIndustrial ChannelChannel LO3 Channels for Business Products
- 24. 24 Business-to-Business Exchanges on the Internet Companies drop the intermediary from the supply chain Companies drop the intermediary from the supply chain “Private exchanges” with select suppliers automate the supply chain “Private exchanges” with select suppliers automate the supply chain Online http://www.sherwinwilliams.com LO3 The Internet has forced traditional distributors to expand their model.
- 25. 25 Alternative Channel Arrangements Multiple channels Strategic channel alliances Nontraditional channels LO3
- 26. 26 REVIEW LEARNING OUTCOME Channel Structures CONSUMER CHANNELS CONSUMER CHANNELS Direct Retail Wholesaler Agent/broker Direct Retail Wholesaler Agent/broker BUSINESS CHANNELS BUSINESS CHANNELS Direct Industrial Agent/broker Agent/broker industrial Direct Industrial Agent/broker Agent/broker industrial ALTERNATIVE CHANNELS ALTERNATIVE CHANNELS Multiple Nontraditional Strategic alliances Multiple Nontraditional Strategic alliances LO3
- 27. 27 Discuss the issues that influence channel strategy Making ChannelMaking Channel Strategy DecisionsStrategy Decisions LO4
- 28. 28 Channel Strategy Decisions FactorsFactors AffectingAffecting ChannelChannel ChoiceChoice FactorsFactors AffectingAffecting ChannelChannel ChoiceChoice Producer FactorsProducer Factors Product FactorsProduct Factors Market FactorsMarket Factors Exclusive DistributionExclusive Distribution Selective DistributionSelective Distribution Intensive DistributionIntensive Distribution Level ofLevel of DistributionDistribution IntensityIntensity Level ofLevel of DistributionDistribution IntensityIntensity LO4
- 29. 29 Market Factors MarketMarket FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices MarketMarket FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices Customer profilesCustomer profiles Consumer or Industrial Customer Consumer or Industrial Customer Size of marketSize of market Geographic location LO4
- 30. 30 Product Factors ProductProduct FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices ProductProduct FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices Product ComplexityProduct Complexity Product StandardizationProduct Standardization Product Life CycleProduct Life Cycle Product DelicacyProduct Delicacy Product PriceProduct Price LO4
- 31. 31 Producer Factors ProducerProducer FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices ProducerProducer FactorsFactors That AffectThat Affect ChannelChannel ChoicesChoices Producer ResourcesProducer Resources Number of Product LinesNumber of Product Lines Desire for Channel ControlDesire for Channel Control LO4
- 32. 32 Levels of Distribution Intensity IntensiveIntensive A form of distribution aimed at having a product available in every outlet A form of distribution aimed at having a product available in every outlet SelectiveSelective A form of distribution achieved by screening dealers to eliminate all but a few in any single area A form of distribution achieved by screening dealers to eliminate all but a few in any single area ExclusiveExclusive A form of distribution that established one or a few dealers within a given area A form of distribution that established one or a few dealers within a given area LO4
- 33. 33 Levels of Distribution Intensity 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 LO4
- 34. 34 Types of Channel Relationships LO5 Describe the different channel relationship types and their unique costs and benefits
- 35. 35 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 LO5 Types of Channel Relationships
- 36. 36 Explain channel leadership, conflict, and partnering Managing ChannelManaging Channel RelationshipsRelationships LO6
- 38. 38 Channel Power, Control, and Leadership Channel Power Channel Power A channel member’s capacity to control or influence the behavior of other channel members A channel member’s capacity to control or influence the behavior of other channel members Channel Control Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members A member of a marketing channel that exercises authority/power over the activities of other members LO6
- 39. 39 Channel Conflict and Partnering Channel Conflict Channel Conflict A clash of goals and methods between distribution channel members A clash of goals and methods between distribution channel members Channel Partnering Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage LO6
- 40. 40 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 LO6
- 41. 41 Channel Partnering 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 LO6
- 42. 42 Discuss channels and distribution decisions in global markets Channels and DistributionChannels and Distribution Decisions for Global MarketsDecisions for Global Markets LO7
- 43. 43 Channels and Distribution Decisions for Global Markets Global Channel Development Global Channel Development Channel structure and type differ Channel structure and type differ Gray marketing channelsGray marketing channels Distribute directly or through foreign partners Legal and infrastructure differences LO7
- 44. 44 Identify the special problems and opportunities associated with distribution in service organizations LO8 Channels and DistributionChannels and Distribution Decisions for ServicesDecisions for Services
Editor's Notes
- Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.
- Notes: The term channel is derived from the Latin word, canalis, which means canal.
- 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.
- 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.
- Notes: Specialized expertise of channel members enhances the overall performance of the channel.
- 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.
- 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.
- 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.
- 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.
- 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.
- Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.
- Notes: This slide shows the factors determining the type of wholesaling intermediary.
- Notes: The three basic functions—transactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 12.2.
- 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.
- 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.
- 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
- Notes: This table compares companies that approach the marketplace unilaterally and those that engage in channel cooperation and form partnerships.
- 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.
- 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?