Markeeting

Marketing is the process of communicating the value of a product or service to customers, for the purpose of selling that product or service. From a societal point of view, marketing is the link between a societys material requirements and its economic patterns of response. Marketing satisfies these needs and wants through exchange processes and building long term relationships. Marketing can be looked at as an organizational function and a set of processes for creating, delivering and communicating value to customers, and managing customer relationships in ways that also benefit the organization and its shareholders. Marketing is the science of choosing target markets through market analysis and market segmentation, as well as understanding consumer buying behavior and providing superior customer value. There are five competing concepts under which organizations can choose to operate their business; the production concept, the product concept, the selling concept, the marketing concept, and the holistic marketing concept.
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The four components of holistic marketing are relationship marketing, internal

marketing, integrated marketing, and socially responsive marketing. The set of engagements necessary for successful marketing management includes, capturing marketing insights, connecting with customers, building strong brands, shaping the market offerings, delivering and communicating value, creating longterm growth, and developing marketing strategies and plans

Function of Marketing

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The Nature of Marketing Channels

A. Marketing Channel Concepts 1. A marketing channel (also called a channel of distribution) is a group of individuals and organizations that directs the flow of products from producers to customers. a) The major role of marketing channels is to make products available at the right time at the right place in the right quantities. b) Some marketing channels are directfrom producer straight to customerbut most channels have marketing intermediaries that link producers to other intermediaries or to ultimate consumers through contractual arrangements or through the purchase and reselling of products. (1) Wholesalers buy and resell products to other wholesalers, to retailers, and to industrial customers. (2) Retailers purchase products and resell them to ultimate consumers. 2. Although distribution decisions need not precede other marketing decisions, they are a powerful influence on the rest of the marketing mix. a) Channel decisions are critical because they determine a products market presence and buyers accessibility to the product. b) Channel decisions have additional strategic significance because they entail longterm commitments. It is usually easier to change prices or promotional efforts than to change marketing channels. B. Marketing Channels Create Utility Marketing channels create three types of utility: time, place, and possession. Time utilitycreated by having products available when the customer wants them Place utilitycreated by making products available in locations where customers wish to purchase them 3. Possession utilitymeans the customer has access to the product to use or to store for future use 4. Channel members sometimes create form utility by assembling, preparing, or otherwise refining the product to suit individual customer needs. C. Marketing Channels Facilitate Exchange Efficiencies 1. Marketing intermediaries can reduce the costs of exchanges by efficiently performing certain services or functions. Intermediaries provide valuable assistance because of their access to, and control over, important resources used in the proper functioning of marketing channels. 2. Despite these efficiencies, the press, consumers, public officials, and other marketers freely criticize intermediaries, especially wholesalers. a) Critics accuse wholesalers of being inefficient and parasitic. b) Buyers often wish to make the distribution channel as short as possible, assuming that the fewer the intermediaries, the lower the price will be. c) Because suggestions to eliminate them come from both ends of the marketing channel, wholesalers must be careful to perform only those marketing activities that are truly desired. 3. Critics who suggest that eliminating wholesalers would lower customer prices do not recognize that this would not eliminate the need for services that wholesalers provide. Although wholesalers can be eliminated, the functions they perform cannot. D. Marketing Channels Form a Supply Chain An important function of the marketing channel is the joint effort of all channel members to create a supply chain, a total distribution system that serves customers and creates a competitive advantage. 1. 2.

Supply chain management refers to long-term partnerships among marketing channel members working together to reduce inefficiencies, costs, and redundancies in the entire marketing channel and to develop innovative approaches, in order to satisfy customers. a) Supply chain management involves manufacturing, research, sales, advertising, shipping and, most of all, cooperation and understanding of tradeoffs throughout the whole channel to achieve the optimal level of efficiency and service. b) Table 15.2 outlines the key tasks involved in supply chain management. c) Whereas traditional marketing channels tend to focus on producers, wholesalers, retailers, and customers, the supply chain is a broader concept that includes facilitating agencies, such as shipping companies, communication companies, and other organizations that take part in marketing exchanges. 2. Supply chain management is helping more firms realize that optimizing the supply chain costs through partnerships will improve all members profits. 3. Supply chains start with the customer and require the cooperation of channel members to satisfy customer requirements. 4. Technology has dramatically improved the capability of supply chain management on a global basis. 5. Supply chain management should not be considered just a new buzzword. Reducing inventory and transportation costs, speeding order cycle times, cutting administrative and handling costs, and improving customer servicethese improvements provide rewards for all channel members. II. Types of Marketing Channels A. Channels for Consumer Products 1. As shown in Figure 15.2, Channel A moves goods directly from the producer to consumers. 2. Channel B, which moves goods from the producer to a retailer and then to customers, is a frequent choice of large retailers because it allows them to buy in quantity from manufacturers. 3. A long-standing channel, especially for consumer products, Channel C takes goods from the producer to a wholesaler, then to a retailer, and finally to consumers. 4. Channel Dthrough which goods pass from producer to agents to wholesalers to retailers and then to consumersis used frequently for products intended for mass distribution, such as processed foods. 5. For some consumer goods, a long channel may be the most efficient distribution channel. When several channel members perform specialized functions, costs may be lower than when one channel member tries to perform them all. B. Channels for Business Products 1. Channel E illustrates the oft-used direct channel for business products. Business customers like to communicate directly with producers, especially when expensive or technically complex products are involved. 2. With Channel F, an industrial distributor facilitates exchanges between the producer and customer. a) An industrial distributor is an independent business that takes title to products and carries inventories. b) Industrial distributors offer sellers several advantages, such as performing the needed selling activities in local markets at relatively low cost to a manufacturer and reducing a producers financial burden by providing customers with credit services. c) Using industrial distributors has several disadvantages, such as the fact that they may be difficult to control, and they often stock competing brands.

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Channel G employs a manufacturers agent, an independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions. a) Using manufacturers agents can benefit a business marketer because these agents possess considerable technical and market information and have an established set of customers. b) The use of manufacturers agents is not problem-free; even though straight commissions may be cheaper, the seller may have little control over manufacturers agents. 4. Channel H includes both a manufacturers agent and an industrial distributor. C. Multiple Marketing Channels and Channel Alliances To reach diverse target markets, manufacturers may use several marketing channels simultaneously, with each channel involving a different set of intermediaries. 3. Dual distribution is the use of two or more marketing channels for distributing the same products to the same target market. 2. A strategic channel alliance exists when the products of one business organization are distributed through the marketing channels of another. III. Selecting Marketing Channels Channel selection decisions usually are significantly affected by one or more of the following factors: customer characteristics, product attributes, type of organization, competition, marketing environmental forces, and characteristics of intermediaries. A. Consumer Characteristics 1. Business customers often prefer to deal directly with a producer (or very knowledgeable channel intermediaries such as industrial distributors), and they are more likely to buy complex products requiring strict specifications and technical assistance and/or to buy in considerable quantities. 2. Consumers generally buy limited quantities of a product, purchase from retailers, and often dont mind limited customer service. 3. When customers are concentrated in a small geographic area, a more direct channel may be ideal, but when many customers are spread across an entire state or nation, distribution through multiple intermediaries is likely to be more efficient. B. Product Attributes 1. Marketers of complex and expensive products such as automobiles will likely employ short channels, as will marketers of perishable products such as dairy and produce. 2. Less expensive, more standardized products such as soft drinks and canned goods can employ longer channels with many intermediaries. 3. Fragile products that require special handling are more likely to be distributed through shorter channels to minimize the risk of damage. 4. Firms that desire to convey an exclusive image for their products may limit the number of outlets available. C. Type of Organization 1. Due to their sheer size, larger firms may be better able to negotiate better deals with vendors or other channel members. 2. Large firms may be in a position to have more distribution centers that may reduce delivery times to customers. 3. A smaller regional company using regional or local channel members may be in a position to better serve customers in that region compared to a larger, less flexible organization. 4. Large companies can use an extensive product mix as a competitive tool. 1.

Smaller firms may not have the resources to develop their own sales force, to ship their products long distances, to store or own products, or to extend credit. D. Competition 1. The success or failure of a competitors marketing channel may encourage or dissuade an organization from considering a similar approach. 2. A firm may also be forced to adopt a similar strategy in order to remain competitive. E. Marketing Environmental Forces 1. Adverse economic conditions might force an organization to use a low-cost channel, even though customer satisfaction is reduced, whereas a booming economy might allow a company to choose a channel that had been previously too costly to consider. 2. The introduction of new technology might cause an organization to add or modify its channel strategy. 3. As new labor and environmental regulations are passed, an organization may be forced to modify its existing distribution channel structure to comply. F. Characteristics of Intermediaries 1. Some organizations may feel that a current intermediary is inadequately promoting their product, and may reconsider their channel choices. 2. Some firms may choose to eliminate intermediaries and to take on and perform the eliminated intermediaries functions. 3. An existing intermediary may not offer an appropriate mix of services, forcing an organization to change to another intermediary. IV. Intensity of Market Coverage In addition to deciding which marketing channels to use to distribute a product, marketers must determine the intensity of coverage a product should getthat is, the number and kinds of outlets in which it will be sold. A. Intensive Distribution 1. In intensive distribution, all available outlets for distributing a product are used. 2. Intensive distribution is appropriate for convenience products. B. Selective Distribution 1. In selective distribution, only some available outlets in an area are chosen to distribute a product. 2. Selective distribution is appropriate for shopping products. 3. Selective distribution is desirable when a special effortsuch as customer service from a channel memberis important. C. Exclusive Distribution 1. In exclusive distribution, only one outlet is used in a relatively large geographic area. 2. Exclusive distribution is suitable for products purchased rather infrequently, consumed over a long period of time, or requiring service or information to fit them to buyers needs. 3. Exclusive distribution is often used as an incentive to sellers when only a limited market is available for products. Supply Chain Management A. Channel Leadership, Cooperation, and Conflict Each channel member performs a different role in the system and agrees (implicitly or explicitly) to accept certain rights, responsibilities, rewards, and sanctions for nonconformity. 1. Channel Leadership a) Although many marketing channels are determined by consensus, some are organized and controlled by a dominant member, or channel captain (also called a channel leader), which may be a producer, wholesaler, or retailer.

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b) To attain desired objectives, the captain must possess channel power, the ability to influence another channel members goal achievement. 2. Channel Cooperation a) Channel cooperation is vital if each member is to gain something from other members. b) There are several ways to improve channel cooperation. (1) If a marketing channel is viewed as a unified supply chain competing with other systems, individual members will be less likely to take actions that create disadvantages for other members. (2) Channel members should agree to direct efforts toward common objectives so channel roles can be structured for maximum marketing effectiveness, which in turn can help members achieve individual objectives. (3) A critical component in cooperation is a precise definition of each channel members tasks. 3. Channel Conflict a) Channel conflicts may arise from self-interest, misunderstandings about role expectations, communication difficulties, and intermediaries overemphasis on competing products or diversification into product lines traditionally handled by other intermediaries. b) Although there is no single method for resolving conflict, partnerships can be reestablished if two conditions are met. (1) The role of each channel member must be specified. (2) Channel members must institute certain measures of channel coordination, which requires leadership and benevolent exercise of control. c) To prevent channel conflict from arising, producers, or other channel members, may provide competing resellers with different brands, allocate markets among resellers, define policies for direct sales to avoid potential conflict over large accounts, negotiate territorial issues between regional distributors, and provide recognition to certain resellers for their importance in distributing to others. B. Channel Integration 1. Channel functions may be transferred between intermediaries and to producers and even customers. 2. Various channel stages may be combined under the management of a channel captain either horizontally or vertically. a) Vertical Channel Integration Vertical channel integration combines two or more stages of the channel under one management. (1) This may occur when one member of a marketing channel purchases the operations of another member or simply performs the functions of another member, eliminating the need for that intermediary. (2) Whereas members of conventional channel systems work independently, participants in vertical channel integration coordinate efforts to reach a desired target market. (3) Integration has been successfully institutionalized in marketing channels called vertical marketing systems (VMSs), in which a single channel member coordinates or manages channel activities to achieve efficient, low-cost distribution aimed at satisfying target market customers. Most vertical marketing systems take one of three forms: (a) A corporate VMS combines all stages of the marketing channel, from producers to consumers, under a single owner.

(b) In an administered VMS, channel members are independent, but a high level of interorganizational management is achieved by information coordination. (c) Under a contractual VMS, the most popular type of vertical marketing system, channel members are linked by legal agreements spelling out each members rights and obligations. b) Horizontal Channel Integration Combining organizations at the same level of operation under one management constitutes horizontal channel integration. (1) An organization may integrate horizontally by merging with other organizations at the same level in a marketing channel. (2) Although horizontal integration permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel, it is not always the most effective method of improving distribution. VI. Legal Issues in Channel Management A. Dual Distribution 1. Some companies may use dual distribution by utilizing two or more marketing channels to distribute the same products to the same target market. 2. Courts do not consider this practice illegal when it promotes competition, but they view as a threat to competition a manufacturer that uses company-owned outlets to dominate or drive out of business independent retailers or distributors that handle its products. B. Restricted Sales Territories 1. To tighten control over distribution of its products, a manufacturer may try to prohibit intermediaries from selling its products outside designated sales territories. 2. Although courts have deemed restrictive sales territories a restraint of trade among intermediaries handling the same brands, they have also held that exclusive territories can actually promote competition among dealers handling different brands. C. Tying Agreements 1. When a supplier (usually a manufacturer or franchiser) furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well, a tying agreement exists. A related practice is full-line forcing, in which a supplier requires that channel members purchase the suppliers entire line to obtain any of the suppliers products. 2. The courts accept tying agreements when the supplier alone can provide products of a certain quality, when the intermediary is free to carry competing products as well, and when a company has just entered the market. Most other tying agreements are considered illegal. D. Exclusive Dealing 1. When a manufacturer forbids an intermediary to carry products of competing manufacturers, the arrangement is called exclusive dealing. 2. The legality of an exclusive dealing contract is generally determined by applying three tests. a) If the exclusive dealing blocks competitors from as much as 10 percent of the market, if the sales revenue involved is sizable, and if the manufacturer is much larger (and thus more intimidating) than the dealer, the arrangement is considered anticompetitive. b) If dealers and customers in a given market have access to similar products or if the exclusive dealing contract strengthens an otherwise weak competitor, the arrangement is allowed. E. Refusal to Deal

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For more than 75 years, the courts have held that producers have the right to choose channel members with which they will do business (and the right to reject others). Within existing distribution channels, however, suppliers may not legally refuse to deal with wholesalers or dealers just because these wholesalers or dealers resist policies that are anticompetitive or in restraint of trade.