PRINCIPLES OF MARKETING

LECTURE 7&8
Yaw Brew (PhD) & Isaac Mensah
 Lecture Outline
Marketing Mix Decisions:
Distributing Products

Yaw Brew (PhD) & Isaac Mensah

 Lecture Objectives
• After this lecture, students should be able to:
• Explain how companies use marketing channels and discuss the functions
these channels perform
• Discuss how channel members interact and how they organize to perform the
work of the channel
• Identify the major channel alternatives open to a company
• Explain how companies select, motivate, and evaluate channel members

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Lecture Outline

• The Nature and Importance of Marketing Channels

• Channel Behavior and Organization
• Channel Design Decisions
• Channel Management Decisions

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 Marketing Channel Questions
 What is the nature of marketing channels and why are they important?
 How do channel firms interact and organize to do the work of the channel?

 What role do physical distribution and supply chain management play in

attracting customers?

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 The Nature and Importance of Marketing Channels

Marketing Channel Defined

 Marketing channel is a set of independent organizations that help make a

product or service available for use or consumption by the consumer or
business users

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The marketing channel consists of two types of
partners:

Upstream partners are firms that supply raw materials,

components, parts, information, finances, and expertise needed to
create a product or service.

Downstream partners include the marketing channels or distribution

channels that look toward the customer, including retailers and
wholesalers.

Yaw Brew (PhD) & Isaac Mensah

 Value Addition Functions
• Channel members add value by bridging the major time, place, and
possession gaps that separate goods and services from those who would use
them

• Producers use intermediaries because they create greater efficiency in

making goods available to target markets.

• Intermediaries offer the firm more than it can achieve on its own through
their contacts, experience, specialization, and scale of operations

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Value Addition Functions
From an economic view, intermediaries transform the
assortment of products into assortments wanted by
consumers
Break bulk
Create convenience

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 Value Addition Functions

Information refers to the gathering and distributing research and intelligence

information about actors and forces in the marketing environment
needed for planning and aiding exchange

Promotion refers to the development and spreading persuasive

communications about an offer

Contacts refers to finding and communicating with prospective buyers

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 Value Addition Functions

Matching refers to shaping and fitting the offer to the buyer’s needs,
including activities such as manufacturing, grading, assembling, and
packaging

Negotiation refers to reaching an agreement on price and other terms of the

offer so that ownership or possession can be transferred

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 Value Addition Functions

Physical distribution refers to transporting and storing goods

Financing refers to acquiring and using funds to cover the costs or carrying out
the channel work

Risk taking refers to assuming the risks of carrying out the channel work

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 Channel Structure

Channel level refers to each layer of marketing intermediaries that performs

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

Direct marketing channel has no intermediary levels; the company sells

directly to consumers

Indirect marketing channels contain one or more intermediaries

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Consumer and Business Marketing Channels

Yaw Brew (PhD) & Isaac Mensah

 Channel Behavior

• Marketing channel consists of firms that have partnered for their common
good with each member playing a specialized role

Channel conflict refers to disagreement over goals, roles, and rewards by

channel members
 Horizontal conflict

 Vertical conflict

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Cont’d
Horizontal conflict is conflict among members at the same channel
level

Vertical conflict is conflict between different levels of the same channel

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 Channel Behavior and Organization
Comparison of Conventional Distribution Channel with Vertical Marketing System
Channel Behavior and Organization
Vertical Marketing Systems

Vertical marketing systems (VM Ss) provide channel leadership and consist
of producers, wholesalers, and retailers acting as a unified system.

Corporate marketing systems

Contractual marketing systems
Administered marketing systems

Yaw Brew (PhD) & Isaac Mensah

Channel Behavior and Organization
Vertical Marketing Systems

Corporate vertical marketing systems combine successive stages of production

and distribution under single ownership.

Contractual vertical marketing systems consist of independent firms at different

levels of production and distribution who join together through contracts.

An administered vertical marketing system is a VM S that coordinates successive

stages of production and distribution through the size and power of one of the
parties.

Yaw Brew (PhD) & Isaac Mensah

Channel Behavior and Organization
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.
Channel Behavior and Organization
Multichannel Distribution System
 Changing Channel Organization
 Disintermediation occurs when producers cut out intermediaries and go
directly to final buyers, or when radically new types of channel
intermediaries displace traditional ones

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Channel Design Decisions

Designing a channel system requires:

Analyzing consumer needs
Setting channel objectives
Identifying major channel alternatives
Evaluation

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 Channel Strategies

Number of marketing intermediaries to use at each level

Strategies:

• Intensive distribution
• Exclusive distribution
• Selective distribution

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 Channel Strategies
 Intensive distribution is a strategy used by producers of convenience
products and common raw materials in which they stock their products in as
many outlets as possible
 Exclusive distribution is a strategy in which the producer gives only a limited

number of dealers the exclusive right to distribute its products in their

territories
Luxury automobiles
High-end apparel

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 Channel Strategies
 Selective distribution is a strategy when a producer uses more than one but
fewer than all of the intermediaries willing to carry the producer’s products
Televisions
Appliances

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 Evaluating the Major Alternatives
 Each alternative should be Economic criteria compares the likely sales costs and
evaluated against: profitability of different channel members
Economic criteria
Control
Adaptive criteria Control refers to channel members’ control over the
marketing of the product

Adaptive criteria refers to the ability to remain

flexible to adapt to environmental changes

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Channel Management Decisions

Channel management involves:

 Selecting channel members

 Managing channel members

 Motivating channel members

 Evaluating channel members

Yaw Brew (PhD) & Isaac Mensah

Channel Management Decisions

Selecting Channel Members

Selecting channel members involves determining the characteristics

that distinguish the better ones by evaluating channel members
• Years in business
• Lines carried
• Profit record

Yaw Brew (PhD) & Isaac Mensah

Channel Management Decisions

Selecting Channel Members

Selecting intermediaries that are sales agents involves evaluating:

• Number and character of other lines carried
• Size and quality of sales force

Yaw Brew (PhD) & Isaac Mensah

Channel Management Decisions

Selecting Channel Members

Selecting intermediaries that are retail stores that want exclusive or

selective distribution involves evaluating:
• Store’s customers
• Locations
• Growth potential

Yaw Brew (PhD) & Isaac Mensah

Channel Management Decisions

Managing and Motivating Channel Members

Partner relationship management (PRM) and supply chain management

(SCM) software are used to forge long-term partnerships with
channel members and to recruit, train, organize, manage, motivate,
and evaluate channel members

Yaw Brew (PhD) & Isaac Mensah

Public Policy and Distribution Decisions

Exclusive distribution is when the seller allows only certain outlets to

carry its products

Exclusive dealing is when the seller requires that the sellers not handle
competitor’s products

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Public Policy and Distribution Decisions

Benefits of exclusive distribution include:

• Seller obtains more loyal and dependable dealers
• Dealers obtain a steady and stronger seller support

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Marketing Logistics and Supply Chain Management

1) Nature and importance of logistics management in the supply chain

2) Goals of the logistics system
3) Major logistics functions
4) Need for integrated supply chain management

Yaw Brew (PhD) & Isaac Mensah

1. Nature and Importance of Marketing Logistics
Supply chain management involves managing upstream and
downstream value-added flows of materials, final goods, and related
information among suppliers, the company, resellers, and final
consumers.

2. Goal of marketing logistics should be to provide a targeted level of

customer service at the least cost.

Yaw Brew (PhD) & Isaac Mensah

Marketing Logistics and Supply Chain
Management
Supply Chain Management
3. Major Logistics Functions
Warehousing
Inventory management
Transportation
Logistics information management
4. Integrated Logistics Management

Integrated logistics management is the recognition that

providing customer service and trimming distribution costs
requires teamwork internally and externally.