Place

aka
“Distribution”
“Marketing Channels”
 Marketing Channels
• Producing and making products available
to buyers requires building relationships
with supply chain partners or value
delivery network:
– the company, distributors, and customers
“partner” with each other to deliver customer
value
 Marketing Channels
• Marketing channel (aka the distribution
channel)
– Marketing channels are a set of
interdependent organizations that help make
a product or service available for use or
consumption by the consumer or business
users
 Marketing Channels
• Marketing Channel partners:
– Upstream: Firms that supply the raw materials
– Downstream: Marketing channel partners that
link the firm to the customer
 Importance of Marketing Channels

• Why are Marketing (or distribution)

channels so important?
 Retailers v Wholesalers
• The two most important channel members
are the retailer and the wholesaler
 Retailing
• Retailing: All activities involved in selling
products or services directly to final
consumers for their personal, non-
business use
 Retailing
• Retailing:
– Most retailing is done by retailers
• Food and beverage stores, clothes, cars, gas
stations, home hardware stores
– Retailing plays an important role in most
marketing channels
– Retailing plays an important role in our
economy
 Types of Retailers
• Ways to classify retailers:
– Amount of Services
– Product Lines
– Price
 Types of Retailers
• Retailers can be classified by the amount
of service they offer:
– Self-service retailers
– Limited-service retailers
– Full-service retailers
 Wholesaling
• Wholesaling:
– All activities involved in selling goods and
services to those buying for resale or
business use
• Wholesalers add value for producers by
performing one or more channel functions
 Wholesaling
• Functions performed by wholesalers:
– Market information
– Sales and promotion
– Assortment building and bulk-breaking
– Warehousing
– Absorb risk
– Transportation and delivery
– Financing and management services
 Wholesaling
• Functions performed by wholesalers:
– Market information
• Gather info
– Sales and promotion
– Assortment building and bulk-breaking:
• Gather an assortment and break bulk into smaller
quantities
 Wholesaling
• Functions performed by wholesalers:
– Warehousing:
• Store inventory
– Absorb risk:
• Bear risk of damage, theft, spoilage
– Transportation and delivery
– Financing and management services
 Channel Members
• Channel members perform two main categories
of functions:
1. Transaction Completion
2. Transaction Fulfillment
 Channel Members
• Transaction completion:
– Information
– Promotion
– Contact
– Matching
– Negotiation
 Channel Members
• Transaction fulfillment
– Physical distribution: transporting and storing
goods
– Financing: Acquiring and using funds to cover
costs of exchange
– Risk taking: Assuming the risks of carrying the
channel work
 Channel Members
• All of these functions must be performed – it is
just a question of who performs them
 Channel Levels
• Channel levels:
– The number of intermediary levels indicates
the length of a channel
• Direct marketing channels (no intermediaries)
– Producer  Consumer
• Indirect marketing channels (one or more
intermediaries)
– Producer  Wholesaler  Retailer  Consumer
Channel Behavior and Organization

• The channel will be most effective when:

– Each member assumes tasks it can do best
– Members co-operate to attain channel goals
 Channel Behavior
• Channel conflict can occur:
– About goals, roles, and rewards
– Can occur horizontally or vertically:
• Horizontally: among firms at the same channel
level (e.g., retailer to retailer)
– Ex: One Retailer steals the other’s territory
• Vertically: between different levels of the same
channel (e.g., wholesaler to retailer)
 Channel Behavior
• Some conflict can be healthy competition
– May force creativity and innovation
• Some conflict can disrupt channel
effectiveness
 Channel Organization
• Channels can be organized in a number of
ways:
– Conventional Organization
– Vertical Organization
– Horizontal Organization
– Multichannel Organization
 Conventional vs Vertical Distribution
System
• Conventional: independent producers,
wholesalers, etc
• Vertical: producers, wholesalers, etc act as
a unified system
 Conventional vs Vertical Distribution
System
• Conventional: independent producers,
wholesalers, etc
– Typically, each player acts independently
– Often leads to damaging conflict
– No one channel member has control over the
others
 Conventional vs Vertical Distribution
System
• Vertical: producers, wholesalers, etc act as
a unified system
– One channel member owns the others
– Vertical integration
 Vertical Distribution System
• Three Types of Vertical Distribution
Systems:
– Corporate
– Contractual
– Administered
 Vertical Marketing Systems
• Corporate VMS:
– Combines successive stages of production
and distribution under single ownership
• Ex: Luxottica produces eyewear (including
RayBan, Oakley) and then sells them in
LensCrafters and in Sunglass hut (both of which it
owns)
 Vertical Marketing Systems
• Contractual VMS:
– Independent firms at different levels of
production/distribution contract together to obtain
more economies of scale than each could alone
– Franchise organizations are a common form of
contractual VMS
 Vertical Marketing Systems
• Contractual VMS:
– Types of franchise organizations:
• Manufacturer-sponsored retailer franchise
– Ex: Independent franchised Ford dealers (retailers)
• Manufacturer-sponsored wholesaler franchise
– Ex: Coke sells it syrup to bottlers (wholesalers), who
create the final product
• Service-firm sponsored retailer franchise
– Ex: Boston Pizza
– Similar to manufacturer-sponsored retailer franchise,
only with service firms rather than manufacturers of
products
 Vertical Marketing Systems
• Administered VMS:
– Leadership is assumed through the size and
power of one or a few dominant channel
members (i.e. not through contracts or
ownership)
– Power and Influence:
• Ex: Large retailers can exert strong influencers on
manufacturers
• Ex: Top brands can command support from
retailers
 Horizontal Marketing Systems
• Horizontal marketing systems:
– Two or more companies at one level join
together to follow a new marketing opportunity
(i.e. reach the same market)
 Multichannel Marketing Systems

• Multichannel distribution system:

– A single firm sets up two or more marketing
channels to reach one or more customer groups
• Ex: In one channel, sell direct to consumer (i.e. online
sales) and in another channel, sell to consumer via an
intermediary
– Today, most large companies do this
 Channel Organization
• Channels can be organized as:
– Conventional Organization
• Every channel member is separate
– Vertical Organization
• Companies work together
– Horizontal Organization
• Two companies join at one level
– Multichannel Organization
• At least two channels
 Channel Organization
• What if you want to change the channel
organization?
 Channel Organization
• Changing channel organization:
– Disintermediation occurs when product and
service producers cut out traditional
intermediaries or displace resellers with
radical new types of intermediaries
– Disintermediation presents problems and
opportunities for producers and resellers
 Designing Channels
• Designing Channels requires that you
answer a number of questions
• Firms often struggle between what is ideal
and what is practical
 Channel Design Decisions
• Marketing channel design:
– Analyzing consumer needs
– Setting channel objectives
– Setting a distribution strategy
– Evaluating channel alternatives
 Channel Design Decisions
• Analyzing Consumer Needs
– Do customers want to buy locally or are they
willing to travel?
– Do customers want to buy in person, online,
or on the phone?
 Channel Design Decisions
• Setting channel objectives:
– Objectives are stated in terms of targeted
levels of customer service.
– Channel objectives are influenced by:
• Nature of the company and its products (Ex:
perishables require fewer intermediaries)
• Competitors (location near or far from competitors)
• Environment (economic conditions, legal
restraints)
 Channel Design Decisions
• Distribution Strategy:
– Number of places offering is sold
• Intensive Distribution: stock products in as many
outlets as possible
• Exclusive Distribution: give a limited number of
dealers the exclusive right to stock products
• Selective Distribution: Somewhere between
intensive and exclusive
 Channel Design Decisions
• Evaluating channel alternatives:
– Evaluation criteria:
• Economic criteria (costs, sales, etc)
• Control issues (using intermediaries means giving
up some control)
• Adaptive criteria (Channels are long term
commitments, but companies want to stay flexible)