Lecture 9 :Marketing Channels

Delivering Customer Value (Part 2)

Chapter 12

1
 Horizontal Marketing Systems

Is a channel arrangement in
which two or more companies
at one level join together to
follow a new marketing
opportunity.

2
 Horizontal Marketing Systems

• Companies might join forces with competitors or non-

competitors.

• They might work with each other on a temporary or

permanent basis.

• They may create a separate company

3
 Multichannel distribution systems

Multichannel distribution systems are systems in which a single

firm sets up two or more marketing channels to reach one or
more customer segments.

4
Multichannel distribution systems

5
 Multichannel Distribution Systems

These days, almost every large company

and many small ones distribute through
multiple channels.

For example, John Deere sells its familiar

green and yellow lawn and garden
tractors Through several channels,
including John Deere retailers, Lowe’s
home improvement stores, and online.

6
 Multichannel Distribution Systems

Advantages of multichannel:
– Companies facing large and complex markets
– With each new channel, the company expands its sales
and market coverage and gains opportunities to tailor its
products and services to the specific needs of diverse
customer segments
Disadvantages of multichannel :
• Multichannel systems are harder to control
• They generate conflict as more channels compete for
customers and sales

7
 Disintermediation

• The cutting out of marketing channel intermediaries by

product or service producers or the displacement of
traditional resellers by radical new types of intermediaries .
– For example, Southwest, JetBlue, and other airlines sell tickets directly
to final buyers.

• Disintermediation presents both opportunities and problems

for producers and resellers
– To remain competitive, the producers must develop new channel
opportunities, such as the Internet and other direct channels.
– However, developing these new channels often brings them into direct
competition with their established channels.

8
 Channel Design Decisions

• In designing marketing channels, manufacturers struggle

between what is ideal and what is practical

• Marketing channel design Designing effective marketing

channels by:
– Analyzing customer needs
– Setting channel objectives
– Identifying major channel alternatives
– Evaluating those alternatives.

9
 Channel Design Decisions:
Analyzing Consumer Needs
Designing the marketing channel starts with: Finding out what
target consumers want from the channel Determine the best
channels to use
– Do consumers want to buy from nearby locations or are they
willing to travel to more distant and centralized locations?
– Would customers rather buy in person, by phone, or online?
– Do they value breadth of assortment or do they prefer
specialization?
– Do consumers want many add-on services (delivery,
installation, repairs), or will they obtain these services
elsewhere?

10
 Channel Design Decisions:
Setting Channel Objectives
• Companies should state their marketing channel objectives in
terms of targeted levels of customer service
– Company can identify several segments wanting different
levels of service
• The company’s channel objectives are also influenced by The
nature of the company :
– Products
– Marketing intermediaries
– Competitors
– The environment

11
 Channel Design Decisions:
Identifying Major Alternatives
• Major channel alternatives:
– The types of intermediaries
– The number of intermediaries
– The responsibilities of each channel member.

12
 Channel Design Decisions:
Identifying Major Alternatives
• Types of intermediaries refers to channel members available
to carry out channel work. Most companies face many
channel member choices:
– sales force
– retailers
– value-added resellers
– independent distributors
– dealers
– franchises

13
 Channel Design Decisions:
Identifying Major Alternatives
Number of Marketing Intermediaries
• Intensive distribution: Stocking the product in as many
outlets as possible. For example: toothpaste and candy

• Exclusive distribution: Giving a limited number of dealers the

exclusive right to distribute the company’s products in their
territories. For example: luxury brands

• Selective distribution: The use of more than one but fewer

than all the intermediaries who are willing to carry the
company’s products. For example: furniture

14
 Channel Design Decisions:
Identifying Major Alternatives
Responsibilities of Channel Members:
The producer and the intermediaries need to agree on the terms
and responsibilities of each channel member

– Price policies
– Conditions of sale
– Territory rights
– The specific services to be performed by each party

15
 Evaluating the Major Alternatives

• Each alternative should be evaluated against:

– Economic criteria

– Control issues

– Adaptability criteria

16
 Designing International Distribution Channels

Channel systems can vary from country to country.

– For example, many Western companies find Japan’s
distribution system difficult to navigate.
– At the other extreme, distribution systems in developing
countries may be scattered, inefficient, or altogether
lacking.

17
 Designing International Distribution Channels
Sometimes customs or government
regulation can greatly restrict how a
company distributes products in global
markets
Marketers must be able to adapt
channel strategies to structures within
each country.

18
 Channel Management Decisions

Marketing channel management calls for selecting, managing,

and motivating individual channel members evaluating their
performance over time.

19
 Selecting Channel Members

• When selecting intermediaries, the company should

determine what characteristics distinguish the better ones

• The company should evaluate:

– Channel member’s years in business
– Other lines carried
– Growth and profit record
– Cooperativeness
– Reputation.

20
 Managing and Motivating Channel Members

• Most companies see their intermediaries as first-line

customers and partners

• They practice strong partner relationship management (PRM)

to forge long-term partnerships with channel members.

21
 Evaluating Channel Members

• The company must regularly check channel member performance

against standards. such as:
– Sales quotas
– Average inventory levels
– Customer delivery time
– Treatment of damaged and lost goods
– Cooperation in company promotion and training programs, and services to
the customer.
• Recognition and rewarding of intermediaries who are performing
well and adding good value for consumers.
• Those who are performing poorly should be assisted or, as a last
resort, replaced.

22
 Nature and Importance of Marketing
Logistics
• Marketing logistics—also called 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 customer
requirements at a profit

• In short, it involves getting the right product to the right

customer in the right place at the right time.

• Logistics effectiveness has a major impact on both customer

satisfaction and company costs

23
 Nature and Importance of Marketing Logistics

• Customer-centered logistics thinking: starts with the

marketplace and works backward to the factory or even to
sources of supply
• Marketing logistics involves: outbound distribution, inbound
distribution and reverse distribution

24
 Nature and Importance of Marketing Logistics

Companies today are placing greater emphasis on logistics for

several reasons:
• Powerful competitive advantage:
– By using improved logistics to give customers better
service or lower prices.
• Tremendous cost savings to both a company and its
customers.
• The explosion in product variety has created a need for
improved logistics management

25
 Goals of the Logistics System

• Some companies state their logistics objective as providing

maximum customer service at the least cost
– No logistics system can both maximize customer service and
minimize distribution costs
– Maximum customer service implies rapid delivery, large
inventories, flexible assortments, liberal returns policies, and
other services—all of which raise distribution costs.

• The goal of marketing logistics should be to provide a targeted level

of customer service at the least cost.

26
 Major Logistics Functions

– Warehousing
– Inventory management
– Transportation
– Logistics information management

27
 Warehousing
• Production and consumption cycles
rarely match, so most companies must
store their goods while they wait to be
sold.

• A company must decide on how many

and what types(storage warehouses or
distribution centers) of warehouses it
needs and where they will be located

• Like almost everything else these days,

warehousing has seen dramatic changes
in technology in recent years

28
 Inventory Management

• In managing inventory, firms must balance the costs of

carrying larger inventories against resulting sales and profits.

• Many companies have greatly reduced their inventories and

related costs through just-in-time logistics systems

• RFID technology in inventory management.

29
 Transportation
• Transportation: truck, rail,
water, pipeline, and air, along
with an alternative mode for
digital products—the Internet.

• For example, large trucking

firms now offer everything
from satellite tracking, Web-
based shipment management,
and logistics planning software
to cross-border shipping
operations

30
 Transportation

• Intermodal transportation: Combining two or more modes of

transportation.
– Piggyback describes the use of rail and trucks
– fishyback, water and trucks
– trainship, water and rail
– airtruck, air and trucks.

• In choosing a transportation mode:

– a product shippers must balance many considerations:
speed, dependability, availability, cost, and others

31
 Logistics Information Management

• Companies need simple, accessible, fast, and accurate

processes for capturing, processing, and sharing channel
Information
– Internet-based electronic data interchange (EDI) (vendor-
managed inventory (VMI) systems)

32
The End

33
 Reference
Principles of Marketing (14th Edition)
by Philip Kotler; Gary Armstrong

34