Topic 6: Marketing Channels

Marketing Channels

Marketing channel (distribution channel)

is a set of interdependent organizations
that help make a product or service
available for use or consumption by the
consumer or business user.
(e.g. wholesalers, retailers, brokers, sales
agents, facilitators)
Marketing Channels
 Channels and Marketing Decisions

 A push strategy uses the manufacturer’s sales

force, trade promotion money, and other means to
induce intermediaries to carry, promote, and sell
the product to end users

 A pull strategy uses advertising, promotion, and

other forms of communication to persuade
consumers to demand the product from
intermediaries
 Marketing Channels
• Pricing of products depend on whether the company
works with national discount chains, uses high-quality
stores or sells directly to consumers online.

• Development or acquiring of new products may

depend on channel members.

Example: Rent-A-Car rental business, Apple selling

music for iPod (iTunes), Amazon
 Types of Marketing Channels

Producers make narrow assortments of products in large quantities, but consumers

want broad assortments of products in small quantities
Number of Channel Levels
 Number of Channel Levels

• Channel level: A layer of intermediaries that performs

some work in bringing the product and its ownership
closer to the final buyer.

• Direct marketing channel: A marketing channel that

has no intermediary levels

• Indirect marketing channel: Channel containing one

or more intermediary levels. 0
 Channel Behavior
Marketing channels consist of firms that have
partnered for their common good with each
member playing a specialized role.
• Each channel member depends on others
• Each channel member plays a specialized role in
the channel
• Success of the channel dependent on overall
success; should work together
• Understand roles, coordinate activities and
corporate to attain overall channel goals
 Channel conflict
McDonald told its franchisees on rising customer complaints
that service in not fast or friendly enough.

• Cashiers need to smile more

• McDonald makes it money from franchisee royalties
based on system sales
• Franchisees make money on margins – what is left over
after costs
 Vertical Marketing Systems
Channel Behavior and Organization
Conventional distribution systems
consist of one or more independent
producers, wholesalers, and retailers,
each separate business seeking to
maximize its own profits, perhaps even at
the expense of profits for the system as a
whole.
Vertical Marketing Systems
 Vertical Marketing Systems
Channel Behavior and Organization
Vertical marketing systems (VMSs) provide
channel leadership and consist of producers,
wholesalers, and retailers acting as a unified
system.
– Corporate marketing systems
– Contractual marketing systems
– Administered marketing systems
 Vertical Marketing Systems
Channel Behavior and Organization
Corporate VMS: A vertical marketing system
that combines successive stages of
production and distribution under single
ownership—channel leadership is established
through common ownership.
• Single ownership
• Conflicts managed through regular channels
 Vertical Marketing Systems
Channel Behavior and Organization
Contractual vertical marketing systems
consist of independent firms at different
levels of production and distribution who join
together through contracts.
– A franchise organization is the most common type
of contractual relationship.
– Conflicts managed through contractual
agreements.
 Vertical Marketing Systems
Channel Behavior and Organization
Franchise organization is a contractual
vertical marketing system in which a
channel member, called a franchisor, links
several stages in the production-distribution
process.
– Manufacturer-sponsored retailer franchise
system (Ford and its network)
– Manufacturer-sponsored wholesaler
franchise (Coca-Cola syrup concentrate)
– Service-firm-sponsored retailer franchise
system (Burger King)
Channel Behavior and Organization
Vertical Marketing Systems
Franchising systems:
Almost every kind of
business has been
franchised—from
motels and fast-food
restaurants to dating
services and cleaning
and handyman
companies.
 Vertical Marketing Systems
Channel Behavior and Organization
An administered vertical marketing
system is a VMS that coordinates
successive stages of production and
distribution through the size and
power of one of the parties.
– Manufacturers of a top brand can obtain strong trade
cooperation and support from resellers.
– Walmart, Home Depot, Kroger, and Walgreens can
exert strong influence on the many manufacturers that
supply the products they sell
 Horizontal Marketing Systems
Channelmarketing
Horizontal Behavior andisOrganization
system a
channel arrangement in which two
or more companies at one level
join together to follow a new
marketing opportunity.
– Could combine resources
– Can also join with competitors and
non-competitors
– Arrangement could be permanent or
temporary or they could form a new
company
 Multichannel Distribution Systems
Channel Behavior
Multichannel andsystems
distribution Organization
are systems in
which a single firm sets up two or more marketing
channels to reach one or more customer segments.
• Advantages include that the companies could
expand sales, market coverage.
• Disadvantage includes that it is harder to control
and generate conflict as more compete for
customers and sales.
• BHM and Lilly sells to wholesalers, retailers and
even individual customers (segments)
Channel Behavior and Organization
Multichannel Distribution Systems
Multichannel distribution:
John Deere sells its
familiar green
and yellow lawn and
garden equipment to
consumers and
commercial users through
several channels,
including Lowe’s home
improvement stores and
online. It sells its
agricultural
equipment through the
premium John Deere
dealer network.
Channel Behavior and Organization
Multichannel Distribution Systems
END