Marketing Channels: Delivering Customer Value

Chapter 10
Page 325

LO1: Explain why companies use marketing channels and discuss the functions these channels
perform.
LO2: Discuss how channel members interact and how they organize to perform the work of the
channel.
LO3: Identify the major channel alternatives open to a company.
LO4: Explain how companies select, motivate, and evaluate channel members.
LO5: Discuss the nature and importance of marketing logistics and integrated supply chain
management.

Supply Chain and the Value Delivery Networks:

LO1: Explain why companies use marketing channels and discuss the functions these channels
perform.
- Value Delivery Network:
- A network composed of the company, suppliers, distributors, and , ultimately,
costumes who partner with each other to improve the performance of the entire
system in delivering customer value.
The Nature and Importance of Marketing Channels:
- Market Channel (Distribution Channel):
- A set of interdependent organizations that help make a product or service
available for use or consumption by the consumer or business user.
How Channel Members Add Value:

- Producers make narrow assortments of products in large quantities, but consumers want
broad assortments of products in small quantities.
- Members of the marketing channel perform many ey functions:
● Information: Gathering and distributing information about consumers, producers,
and other actors and forces in the marketing environment needed for planning
and aiding exchange.
● Promotion: Developing and spreading persuasive communications about an
offer.
● Contact: Finding and engaging customers and prospective buyers.
 ● Matching: Shaping offers to meet the buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging.
● Negotiation: Reaching an agreement on price and other terms so that ownership
or possession can be transferred.
- Others help to fulfill the completed transactions:
● Physical Distribution: Transporting and storing goods.
● Financing: Acquiring and using funds to cover the costs of the channel work.
● Risk Taking: Assuming the risks of carrying out the channel work.
Number of Channel Levels:
- Channel Level:
- A layer of intermediaries that performed 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.
- Example: Mary Kay Cosmetics, sell their products through home and office sales
parties ect.
- Indirect Marketing Channels:
- A marketing channel containing one or more intermediary levels.
- From the producer’s point of view, a greater number of levels means less control
and greater channel complexity.
- all the institutions in the channel are connected by several types of flows. These
include the physical flow of products, the flow of ownership, the payment flow, the
information flow, and the promotion flow. These flows can make even channels
with only one or a few levels very complex.
 Channel Behaviour and Organization:
LO2: Discuss how channel members interact and how they organize to perform the work of the
channel.
Channel Behaviour:
- Channel Conflict:
- Disagreements among marketing channel members on goals, roles, and rewards
- who should do what and for what reward.
- Horizontal Conflict: occurs among firms at the same level of the channel. Holiday Inn
franchisees might complain about other Holiday Inn operators overcharging guests or
giving poor service, hurting the overall Holiday Inn image.
- Vertical Conflict: conflict between different levels of the same channel, is even more
common. For example, McDonald’s has recently faced growing conflict with its corps of
3100 independent franchisees:
- Some conflict in the channel takes the form of healthhy competition. Without it, the
channel could become passive and noninnovative.

Vertical Marketing Systems:

- Conventional Distribution Channel:

- A channel consisting of one or more independent producers, wholesalers, and
retailers, each a separate business seeking to maximize its own profits, perhaps
even at the expense of profits for the system as a whole.
- Vertical Marketing System (VMS):
- A channel structure in which producers, wholesalers, and retailers act as a
unified system. One channel member owns the others, has contracts with them,
or has so much power that they all cooperate.
Three major types of VMSs:
1. Corporate VMS:
- Corporate VMS:
- A vertical management system that combines successive stages of
production and distribution under single ownership-channel leadership is
established through common ownership.
- Example: grocery giant Kroger owns and operates 38 food product
plants—17 dairies, seven bakery plants, five grocery plants, one deli
plant, two frozen dough plants, two beverage plants, two cheese plants,
and two meat plants. That gives it factory-to-store channel control of more
than 40 percent of the 13 000 private-label items found on its shelves.
2. Contractual VMS:
- Contractual VMS:
- A vertical marketing system in which independent firms at different levels
of production and distribution join together through contracts.
- Franchise Organization:
- A contractual vertical marketing system in which a channel member,
called a franchisor, links several stages in the production-distribution
process.
- Three types of franchises:
1. Manufacturer-sponsored retailerfranchise system:
- Ford and its network of independent franchised dealers.
2. Manufacturer-sponsored wholesaler franchise system:
- Coca-Cola licenses bottlers (wholesalers) in various world
markets that buy Coca-Cola syrup concentrate and then
bottle and sell the finished product to retailers locally.
3. Service-firm-sponsored retailer franchise system:
- Tim Hortons and its more than 4300 franchisee-operated
coffee shops in Canada.
3. Administered VMS:
- Administered VMS:
- A vertical marketing system that coordinates successive stages of
production and distribution through the size and power of one of the
parties.
- P&G and Apple can command unusual cooperation from many resellers
regarding displays, shelf space, promotions, and price policies.
- In turn, large retailers such as Walmart and Home Depot can exert strong
influence on the many manufacturers that supply the products they sell.
HorizontalMarketing Systems:
- Horizontal Marketing Systems (HMS):
- A channel arrangement in which two or more companies at one level join
together to follow a new marketing opportunity.
- Example: Chapters partners with noncompetitor Starbucks to place coffee shops
in its stores. Starbucks benefits from Chapters’ heavy store traffic, and Chapters
keeps its shoppers caffeinated and ready to shop.
Multichannel Distribution Systems:
- Multichannel Distribution Systems:
- A distribution system in which a single firm sets up two or more marketing
channels to reach one or more customer segments.

Changing Channel Organization:

- Disintermediation:
- The cutting out of marketing channel intermediaries by product or service
producers or the displacement of traditional retailers by radical new types of
intermediaries.
- Channel innovators who find new ways to add value in the channel can displace
traditional resellers and reap the rewards.

Channel Design Decisions:

LO3: Identify the major channel alternatives open to a company.
- Marketing Channel Design:
- Designing effective marketing channels by analyzing customer needs, setting
channel objectives, identifying major channel alternatives, and evaluating those
alternatives.
Analyzing Consumer Needs:
- Thus, companies must balance consumer needs not only against the feasibility and
costs of meeting these needs but also against customer price preferences.
Setting Channel Objectives:
-
Identifying Major Alternatives:
- Next it should identify its major channel alternatives in terms of the
1. types of intermediaries,
2. the number of intermediaries, and
3. the responsibilities of each channel member.
Types of Intermediaries:
-
Number of Marketing Intermediaries:
- Intensive Distribution:
- Stocking the product in as many outlets as possible.
- Example: toothpaste, candy, coca cola are sold in millions of outlets to provide
maximum brand exposure and consumer convenience.
- Exclusive Distribution:
- Giving a limited number of dealers the exclusive right to distribute the company’s
products in their territories.
- Example: Exclusive distribution of luxury brands
- Selective Distribution:
- The use of more than one but fewer than all of the intermediaries that are willing
to carry the company’s products.
- Example: electronics, furniture, and home appliances
Responsibilities of Channel Members:
-
Evaluating the Major Alternatives:
- Each alternative shold be evaluated against
1. Economic:
- a company compares the likely sales, costs, and profitability of different
channel alternatives. What will be the investment required by each
channel alternative, and what returns will result?
2. Control:
- Using intermediaries usually means giving them some control over the
marketing of the product, and some intermediaries take more control than
others.
3. Adaptability Criteria:
- Channels often involve long-term commitments, yet the company wants to
keep the channel flexible so that it can adapt to environmental changes.
Designing International Distribution Channels:
-
 Channel Management Decisions:
LO4: Explain how companies select, motivate, and evaluate channel members.
- Marketing Channel Management:
- Selecting, managing and motivating individual channel members and evaluating
their performance over time.
Selecting Channel Members:
-
Managing and Motivating Channel Members:
- partnership relationship management (PRM) systems to coordinate their whole-channel
marketing efforts. Just as they use customer relationship management (CRM) software
systems to help manage relationships with important customers, companies can now
use PRM and supply chain management (SCM) software to help recruit, train, organize,
manage, motivate, and evaluate relationships with channel partners.
Evaluating Channel Members:
- The company should recognize and reward intermediaries that are performing well and
adding good value for consumers. Those that are performing poorly should be assisted
or, as a last resort, replaced.
Public Policy and Distribution Decisions:
-

Marketing Logistics and Supply Chain Management:

LO5: Discuss the nature and importance of marketing logistics and integrated supply chain
management.
Nature and Importance of Marketing Logistics:
- Marketing Logistics (Physical Distribution):
- Planning, implementing, and controlling the physical flow of materials, final
goods, and related information from points of origin to points of consumption to
meet customer requirements at a profit.
- Shaving off even a small fraction of logistics costs can mean substantial savings.
- Supply Chain Management:
- Managing upstream and downstream value added flows of material, final goods,
and related information among suppliers, the company, resellers, and final
consumers.
Sustainable Supply Chain:
- Companies go green to save money
Goals of the Logistics System:
-
Major Logistics Functions:
1. Warehousing:
- Distribution Centers:
- A lage, highly automated warehouse designed to receive goods from
various plants and suppliers, take orders, fill them efficiently, and deliver
goods to customers as quickly as possible.
- Storage warehouses store goods for moderate to long periods.
 - distribution centres are designed to move goods rather than just store them.
2. Inventory Management:
- With too little stock, the firm risks not having products when customers want to
buy.
- Carrying too much inventory results in higher-than-necessary inventory-carrying
costs and stock obsolescence.
- companies have greatly reduced their inventories and related costs through
just-in-time logistics systems.
3. Transportation:
- Multimodal Transportation:
- Combining two or more modes of transportation.
- the company can choose among five main transportation modes: truck, rail,
water, pipeline, and air along with an alternative mode for digital products—the
internet.
4. Logistics Information Management:
- most sharing takes place through electronic data interchange (EDI), the digital
exchange of data between organizations, which primarily is transmitted via the
internet.
Integrated Logistics Management:
- Integrated Logistics management:
- The logistics concept that emphasizes teamwork-both inside the company and
among all the marketing channel organizations-to maximize the performance of
the entire distribution system.
Cross-Functional Teamwork inside the Company:
- Oracle + SAP
Building Logistics Partnerships:
-
Third-Party Logistics:
- Third-Party Logistics (3PL) Providers:
- An independent logistics provider that performs any or all of the functions
required to get a client’s products to market.
- such as Ryder, Penske Logistics, BAX Global, DHL Logistics, FedEx Logistics,
and UPS Business Solutions.
Quiz #10
1. When Toyota announces a product recall on its Camry model due to a faulty igniter, they are
using ________ to coordinate with dealers and car owners.
- Reverse logistics
2. A(n) ________ is considered a marketing intermediary
- Wholesaler
3. .Which of the following is true of a vertical marketing system?
- It has one channel member owning all the other channel members or has contracts
with all other channel members.
4. Which of the following is an example of a horizontal conflict in a distribution channel?
- A Ford car dealer complaining that another Ford dealer is underpricing the same
models.
5. A ________ is made up of a company, its suppliers, distributors, and, ultimately, customers
who "partner" with each other to improve the performance of the entire system.
- Value delivery network
6. Olsen Canada is a retailer of international women's clothing and accessories. Olsen sells its
products through its online website, boutique stores, factory outlets, and in dedicated areas
at many Hudson Bay locations. Which kind of channel arrangement does Olsen employ to
distribute its products?
- Multichannel distribution system
7. Many athletic stadiums enter into contractual agreements with national beverage companies
and food franchises to distribute only their brand-name products at the respective venues.
This is an example of ________.
- Exclusive dealing
8. Which of the following is most efficient for short hauls of high-value merchandise and is
highly flexible in its routing and time schedules?
- Trucks
9. ________ involves combining two or more systems of transportation to move products.
- Multimodal transportation
10. High-end luxury brands like Bentley for cars, Louis Vuitton for handbags, and Rolex for
watches use ________ distribution, giving a limited number of dealers the sole right to sell
products in a specified geographic territory.
- Exclusive
11. Rage, a leading motor vehicle manufacturer, introduces a new superbike model. It invites
proposals from independent dealers who are willing to set up exclusive showrooms that only
sell Rage's superbikes. Chosen dealers will sell and service the superbikes, and Rage will
oversee national advertising. This is most likely an example of a(n) ________.
- Manufacturer-sponsored retailer franchise system
12. A firm that uses direct marketing would sell its products through ________.
- The company website
13. Which of the following is a difference between storage warehouses and distribution centres?
- Storage warehouses store goods for moderate to long periods, while distribution
centres are used to move goods rather than just store them.