Chapter 13

Marketing Channels and

Supply Chain Management
 Objectives
• Describe nature/functions of marketing channels
• Explain how supply chain management can facilitate
distribution for benefit of all channel members,
especially customers
• Identify types of marketing channels
• Understand factors affecting decisions when selecting
marketing channels
• Examine major levels of marketing coverage
• Explore concepts of leadership, cooperation, and
conflict in channel relationships
• Specify how channel integration can improve channel
efficiency
• Examine legal issues affecting channel management

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 Distribution terms and concepts

Distribution: activities involved in making products

available to customers when and where they want to
buy them.
A supply chain is a total distribution system that serves
customers and creates competitive advantage
Operations Management: activities used to turn resources
inputs into outputs is
Logistics management (or supply chain management): is
planning, implementing and controlling flow and storage of
products and information from points of origin to points of
consumption to meet consumer needs and wants

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 Supply Chain Management
• Refers to long-term partnerships among marketing
channel members that reduce inefficiencies, costs,
and redundancies and develop innovative
approaches to satisfy customers

• Supply chain management involves manufacturing,

research, sales, advertising, shipping and,
cooperation of channel members.
• [Next slide shows key tasks of supply chain mgt.]

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 Tasks In Supply
Chain Management

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 Technology in Supply
Chain Management
Technology facilitates Supply chain mgt. in the
following areas:
❑ Integrated information sharing:
✔ Reduction of costs
✔ Improved service
✔ Enhanced value to customer
❑ Tools for improving overall performance:
✔ Electronic billing
✔ Purchase order verification
✔ Image processing
❑ Customer Relationship Management systems

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 Marketing Channel
(also called channel of distribution)
Marketing channel: A group of individuals and
organizations that direct the flow of products from
producers to customers.

• The major role of marketing channels is to make

products available at the right time at the right
place in the right quantities.

• Some marketing channels are direct—from

producer straight to customer—but most channels
have marketing intermediaries
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 Marketing Intermediary

Marketing intermediary: A middleman (i.e. retailer,

wholesaler) linking producers to other middlemen or
ultimate consumers through contractual arrangements
or through the purchase and resale of products.

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 Marketing Channel Activities
Performed By Intermediaries

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 Channel Members

• Wholesalers- buy and sell products to

other wholesalers, retailers and industrial
buyers

• Retailers- purchase products and resell

them to ultimate consumers

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 Distribution Decisions
• They influence the rest of the marketing mix
elements
• determine a product’s presence and
accessibility to buyers
• Require long-term commitment
• It is usually easier to change prices or
promotional offers than to change marketing
channels (because of L-T commitment).
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 The Significance of the Marketing Channels
(Marketing Channel Functions)
1) Create three types of utility (for customers):
✔ Time: making the product available in the right time
✔ Place: making the product available in the right place
✔ Possession: enable the customer to have access to product

2) Facilitate exchange efficiencies:

reduce the costs of exchanges by efficiently performing
certain services or functions (and saving time and
efforts of both sides of the exchange). [See next slide]

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 Efficiency In Exchanges
Provided By Intermediary

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 Types of Marketing
Channels – Consumer Products

Channel structure, in consumer markets, can take

one of the followings:
❑ Direct marketing channel

❑ Producer – retailer – customer

❑ Producer – wholesaler – retailer – customer

❑ Producer – agent – wholesaler – retailer – customer

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 Typical Marketing Channels
For Consumer Products

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 Types of Marketing
Channels – Business Products
Channel structure, in business markets, can take one
of the followings:
❑ Direct channels
❑ Producer -Industrial distributor -Organizational buyer
❑ Producer-Agent- Organizational buyer
❑ Producer-Agent- Industrial distributor- Organizational
buyer
Note:
✔ industrial distributors, Retailers, wholesalers are all channel members,
and take title to products (carry inventory, thus take risk). While,
✔ Agents do not take title to products (do not carry inventory, thus risk-
free)

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 Typical Marketing
Channels For Business Products

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 Industrial distributors vs. Agents
Industrial distributors:
Major Adv.:
✔ perform needed selling activities at relatively low cost
✔ reduce a producer’s financial burden by providing customers
with credit services.
Major Disadv.:
✔ difficult to control
✔ often stock competing brands.
manufacturers’ agents:
Major Adv.:
✔ possess considerable technical and market information
✔ have an established set of customers.
✔ cheaper
Major Disadv.:
✔ the seller may have little control over them
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 Multiple Marketing Channels and
Channel Alliances

• Dual distribution
The use of two or more marketing channels to distribute
the same product to the same target market

• Strategic Channel Alliance

The products of one organization are distributed through
the marketing channels of another

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 Selecting Marketing Channels:
Six factors can affect channel selection

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 Selecting Channels
1. Customer Characteristics: (i.e. consumer vs.
business, need for technical assistance, need for customer
service)
2. Product Attributes: (i.e. expensive vs. cheap,
customized vs. standardized; durable vs. fragile, need for
refrigerating facilities)
3. Type of Organization: (i.e. large vs. small)
4. Competition: (i.e. high vs. low, direct vs. indirect)
5. Marketing Environmental Forces: (already
discussed)
6. Characteristics of Intermediaries: (i.e. image of
intermediary, cost, coverage, promotion support, ability to
offer customer service, technical assistance)

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 Intensity Of Market Coverage
Intensity of market coverage: three types:
• Intensive – using all available outlets to distribute product (i.
e. appropriate for convenience goods)

• Selective – using only some available outlets to distribute a

product, using selection criteria (i.e. appropriate for shopping
goods). It is desirable when the product needs special care.

• Exclusive – using a single outlet in a fairly large geographic

area to distribute a product (i.e. specialty goods). It is used
when we want maximum control over the product sale ( to
maintain quality, image, reputation, … etc.)
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 Strategic Issues in Marketing
Channels: Behavioral aspects
Competitive priorities in marketing channels: Firms can
achieve competitive advantages through good supply chain
management

There are three behavioral aspects of Supply Chain

Management:
❑ Channel Leadership
❑ Channel Cooperation
❑ Channel Conflict

The following slides highlight these aspects:

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 Supply Chain
Management – Channel Leadership
Each channel member performs a different role in the
system and agrees to accept certain rights and
responsibilities.

Channel leadership: administering and controlling

channel activities.
✔ Channel captain (also called channel leader): a channel
member who organizes and controls the marketing channel
✔ Channel power: the ability of one channel member to influence
another member’s goal achievement in the channel

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 Supply Chain
Management – Channel Cooperation

• Cooperation is vital in marketing channels.

• It enables members of the supply chain to:
✔ Speed up inventory replenishment
✔ Improve customer service
✔ Cut costs
• Three ways to Improve channel cooperation:
✔ View chain as one whole system competing against
others
✔ Members should direct their efforts to satisfy
common objectives for the channel.
✔ There must be a precise definition of each member’s
tasks in the channel
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 Supply Chain
Management – Channel Conflict
Channel conflict may arise from:
✔ Self-interest
✔ Poor communication
✔ Increased use of multiple channels
✔ Misunderstanding about role expectations
✔ intermediaries’ overemphasis on competing
products
Channel conflict can be avoided by:
✔ clarifying role expectations
✔ improving cooperation and coordination
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 Channel Integration

• Horizontal Integration: combining

organizations at the same level of
distribution under one management

• Vertical Integration: combining two or more

stages at different levels of distribution
under one management

• One version of vertical integration is Vertical

Marketing systems (VMSs)
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 Vertical Marketing Systems (VMSs)
Vertical Marketing Systems: A marketing channel managed
by a single channel member to achieve efficient distribution
and satisfy target market customers. It takes three forms:
❑ Corporate VMS: combines all stages of the marketing
channel, from producers to consumers, under a single owner.

❑ Administered VMS: channel members are independent,

but a high level of inter-organizational management is
achieved by information coordination.

❑ Contractual VMS: channel members are linked by legal

agreements, spelling out each member’s rights and
obligations. It is the most popular type of VMSs

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 Physical Distribution in Supply
Chain Management
• Physical Distribution (logistics): involves activities
used to move products from producers to consumers.
• These activities may include:
– Order processing
– Inventory management
– Materials handling
– Warehousing
– transportation

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 Legal Issues In Channel Management
✔ Dual Distribution: using two or more marketing channels to
distribute the same product to the same target market.
✔ Restricted Sales Territories: supplier prohibits an
intermediary from selling his product outside designated
sales territories.
✔ Tying Agreement: supplier furnishes product to channel
member with a stipulation that the channel member must
purchase other products as well. A related concept is “Full-
line forcing”, which occurs when a supplier requires an
intermediary to purchase the entire line to obtain any of
supplier’s products
✔ Exclusive Dealing: manufacturer forbids an intermediary to
carry products of competitors
✔ Refusal to Deal: manufacturer refuses to deal with
wholesalers or dealers
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