Marketing Channels – Chapter 12

Value delivery network
A network made of the company, suppliers, distributors, resellers, marketing firms,

ultimately the customers who partner with each other to improve the performance of the entire system in delivering customer value

Marketing 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 (intermediaries)

Ex: Contracts with franchisers, independent dealers, large retailers,

Channel level
a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer

Number of intermediary levels indicated the length of a channel

Indirect marketing channel
Marketing channel containing one or more intermediary levels


Direct Marketing Channel
A marketing channel that has no intermediary level

Ex: Amway, MaryK Cosmetics, Doterra,
Sells though home/office directly to consumers

Channel conflict (horizontal/vertical)
Disagreements among marketing channel member on goals, roles, rewards

Ex: who should do what and for what rewards

Vertical Market systems
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

Vertical is BETTER than conventional because it has leadership and power to assign roles and manage conflict

Conventional distribution channel
A channel consisting of one or more independent producers, wholesalers, retailers, each at a separate business seeking to maximize its own profits even at the expense of the profits for the system as a whole

No channel member has much control over the other members, Lacks leadership, often results in damaging conflict & poor performance

Cooperate VMS
A vertical marketing system that combines successful stages of production and distribution under single ownership, Channel leadership is established through common ownership

Integrates the entire distribution chain from its own design and manufacturing operations to distribution through its own managed stores

Ex: Zara, Sherwin-williams

Contractual VMS
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
Administered VMS
A vertical marketing system that coordinates successive stages of production and distribution thought the size and power of one of the parties

Leadership is assumed through the size and power of one or a few of the dominant channel members NOT common ownership. The member with most power usually get its way

Ex: Walmart, Apple, P&G

Horizontal Marketing system
A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity

Ex: ABC & NBC jointly own/market HULU

Walmart & McDonalds have deal so MCD store in Walmart adds promotion and customers don’t have to leave

Multichannel distribution system
a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments

Ex: Producer sells to consumer through (catalogs, telemarketing, online, phone) + (retail shops) + (Distributors/Dealers)

Many channels used to reach customer segments

The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries

Ex: Music download services put traditional music stores out of business

Ex: Amazon put traditional book stores out of business

Marketing channel design
Calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives
Intensive distribution
Stocking the product in as many outlets as possible

Often producer of convenience products and common raw materials
*Many Intermediaries

Ex: Candy, toothpaste, soda

Exclusive distribution
Giving limited number of dealers the exclusive right to distribute the company products in their territories

*Few Intermediaries
Often found with luxury brands

Ex: Rolex watches, Prada glasses

Selective Distribution
the use of more than one but fewer than all of the intermediaries who are willing to carry a company’s products

Often home appliances, furniture, electronics

Ex: Whirlpool, GE, sell though selected big retailers

Marketing channel management
Selecting, managing, and motivating individual channel members and evaluating their performance over time
Marketing Logistics (physical distribution)
Controlling/Planning/Implementing the physical flow of materials, final goods, and related information from point of origin to point of consumption

Getting the right product to the right person in the right amount of time

Supply Chain management
managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers
Distribution Center
A large highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to consumers as quickly as possible

Move goods rather than simply store them (storing warehouse)

MultiModal Transportation
Combining 2 or more modes of transportation; Trucks, Rail Road, Air, Water
PiggyBack – Rail & Truck
FishyBack – Water & Truck
Trainship – Train & Water
AirTruck – Air & Truck
Integrated Logistic Management
Emphasis on teamwork, both inside the company and among all the marketing channel organizations to maximize the performance of the entire distribution network
Third Party Logistics provider (3PL)
An independent logistics provider that performs any or all of the functions required to get a clients product to market
What is a better and more efficient distribution channel and why?
Conventional Marketing channel VS
Vertical Marketing system
Vertical is better because the channel members all work together in a unified way to accomplish the work of the channel

Conventional marketing systems often run into problems because the channels are all independent and all want what is best for the individual channel rather than the system as a whole

What does VMS stand for
Vertical maketing system
What are the different types of VMS, and what is the difference
Corporate VMS
(single ownership )

Contractual VMS
(independent firms joined through contracts)

Administered VMS
(Size and power of certain channel makes them more influential over other channel members)

What purpose does a marketing channel design satisfy? and Examples
Helps to determine what kind of channel design decisions a company should implement.

Direct sales? Intermediaries? geographical considerations? Franchises? Online? Mail?

What are the different types of distribution that effects the number of intermediaries?
Intensive Distribution – MANY INTERMEDIARIES
Selective Distribution – IN THE MIDDLE
Exclusive Distribution – FEW INTERMEDIARIES
What are the 3 criteria to evaluate major alternatives of channel members?
Economic Criteria

Control Criteria

Adaptability Criteria:
When considering a channel member for a long term commitment, must be superior in the above 2 criteria

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