Marketing Channels Test 1

Marketing Channel
refers to the external contractual organization that management operates to achieve its distribution objectives
Channel usuallyexists outside the firm – inter-organizational management necessary
Contractual Organization
The marketing channel is usually a set of firms that are involved in buying, selling, or transferring title. Coordination obtained through contracts
Management must be actively involved to influence the channel.
Distribution Objectives
This often involves promotion and pricing of the product
What is channel management concerned with?
The entire process of setting up and operating the contractual organization
What is a direct channel?
Direct from producer to end user (no intermediaries).
Channel manager
Anyone in a firm or organization who is involved in marketing channel decision-making
What is the growing importance of marketing channels
1. Greater need of gaining sustainable competitive advantage
2. Growing power of distributors
3. The need to reduce distribution costs
4. The new stress on growth
5. The increasing role of technology
6. Globalization
Logistics management
The provision of product availability at the appropriate times and places in the marketing channel
Different types of flows in marketing channels
– Product Flow
– Negotiation Flow
– Ownership Flow
– Information Flow
– Promotion Flow
– Financing Flow
– Risk Flow
– Ordering Flow
– Payment Flow
Management Perspective of the channel
Views the channel from the standpoint of a decision maker concerned with developing and managing marketing channels that fulfill the producer’s distribution objectives efficiently.
Members of a marketing channel
1. Manufacturers (McDonalds)
2. Intermediaries (Franchises)
3. End users (Customers)
Basic Decisions facing the channel manager
Should intermediaries (such as retailers) be used?
Should facilitators be used?
Criteria for making distribution decisions
Specialization and Division of labor
Contractual Efficiency
Contractual Efficiency
This is a function of the level of negotiation effort between sellers and buyers relative to the achievement of a distribution objective. The firm should attempt to increase contractual efficiency
Channel Structure
The group of channel members to which a set of distribution tasks have been allocated
Ancillary Structure
The group of institutions (facilitating agencies) that assists channel members in performing distribution tasks.
What are channel members?
Those that perform negotiatory functions. These functions include buying, selling, transferring title.
What are channel members classified as?
Producers and manufacturers
End Users
What is the major rationale for using intermediaries
Their average cost curves for distribution tend to be lower than manufacturers (the distributors are less expensive)
Why are intermediaries selected?
They deliver greater value. (Lower costs or higher services)
How do intermediaries have lower costs?
They amortize their fixed costs over products from multiple manufacturers
How do intermediaries provide greater value?
They provide an assortment of products from multiple manufacturers
What are wholesale intermediaries?
These are firms that are engaged in selling goods for resale or business use.
What are different types of wholesale intermediaries?
Merchant wholesalers- Take title ownership
Agents, Brokers, and commission agents: Do not take title ownership (Do not own the product or service)
Manufacturers sales branches and offices: owned by manufacturer
Distribution tasks performed by merchant wholesalers for manufacturers
1. Providing market coverage
2. Making sales contacts
3. Holding inventory
4. Processing orders
5. Gathering market information
6. Offering customer support
Distribution tasks performed by merchant wholesalers for customers
1. Assuring product availability
2. Providing customer service
3. Extending credit and financial assistance
4. Offering assortment convenience
5. Breaking bulk
6. Helping customers with advice and technical support
Trends in retailing
-Greater concentration in retailing
1. Increase in size and buying power
2. Application of advanced technologies
3. Use of modern marketing concepts and techniques
-Distribution tasks formerly performed by a wholesaler or manufacturer have increasingly been taken over by large retailers (WalMart Target)
-Rise of Category killers. (Large-format single category discount retailers)
Retailers growing power in marketing channels
1. Increase in size and buying power
2. Application of advanced technologies
3. Use of modern marketing strategies.
Distribution tasks performed by retailers
1. Offering manpower and physical facilities that enable producers to have many points of contact with consumer
2. Providing personal selling, advertising, and display to aid in selling supplier’s products.
3. Interpreting consumer demand
4. Dividing large quantities into consumer-sized lots
5. Offering storage
6. Reduce risk from producer
Types of facilitating agencies
-Transportation agencies
-Storage agencies
-Order processing agencies
-Advertising agencies
-Financial agencies
-Insurance companies
-Marketing research firms
The environment consists of external uncontrollable variables such as…
1. Economic environment
2. Competitive environment
3. Sociocultural environment
4. Technological environment
5. Legal environment
What is a recession?
Two consecutive quarters of decline in the GDP
During recessions, consumers tend to…
1. Buy fewer goods
2. Buy cheaper goods
3. Buy more private-label goods
4. Shop at discount chains
During a recession, channel managers may…
-Help intermediaries get through lean times
– increase promotion
What is inflation?
A general increase in prices and fall in the purchasing value of money
What is deflation?
Reduction of the general level of prices in an economy
What are different types of competition?
1. Horizontal: Between firms of the same type and the same level. Target vs. Walmart (Discount stores)
2. Intertype: Between different types of firms at the same level. Target (Discount store) vs. Macy’s (Department store)
3. Vertical: Between firms at different levels in the channel. Competition between manufacturer brands and private level brands
4. Channel system: Between complete channels. These complete channels must be organized cohesive organizations.
Why do retailers like to sell private label brands?
– Gross margins are higher
– They like to control their own destiny
– Competitive comparisons are more difficult
– They are exclusive to the retailer
What are different types of vertical market systems?
1. Corporate- Production and marketing facilities are owned by the same company
2. Contractual- Members are linked by a formal contractual agreement. Ex- Franchises
3. Administered- Not contractual, but strong domination by one of the channel members.

-Vertical marketing systems have experienced faster sales growth during the past decade, especially franchises, because of growth in the service sector of economy.

What are elements of competitive structure and channel management?
1. Scrambled merchandising: Selling of products through nontraditional channels. Auto parts sold through discount stores.
2. Disintermediation: Selling without intermediaries
3. Increased competition between retailers and manufacturers
What are some important elements of the sociocultural environment?
1. Age patterns of the population- Increasing numbers of younger and older persons
2. Changing ethnic mix- Projections for the next 50 years show growing indications of Hispanic and Asian populations. Greater diversity
3. Effect- Growth in specialized channels to target these consumers
4. Educational trends- Increase in % of college graduates
5. Family or household structure- Parents having fewer kids, more single moms
6. Changing role of women
What are some legislation affecting marketing channels?
1. Sherman Antitrust Act- Prohibits practices that restrain competition
2. Clayton Act- Extends Sherman act. Prohibits certain practices if they restrict competition.
3. Federal Trade Commission Act- To investigate and restrict unfair methods of competition in interstate commerce
4. Robinson-Patman Act- Prohibits price discrimination in most cases. Manufacturers have to offer same price to all retailers
5. Celler- Kefauver Act- Prevents vertical integration if it restrains competition
Legal issues in channel management
1. Dual Distribution- Direct distribution to compete with distributors
2. Exclusive dealing- Not allowing channel members to carry other competitive products
3. Full-line forcing- Requiring intermediaries to carry full line
4. Tying agreements
5. Price discrimination
6. Price maintenance
7. Refusal to deal
8. Resale restrictions
9. Vertical integration- Attempting to eliminate distributors
What is the Amazon marketplace?
Amazon sells used and new merchandise – both are displayed at the same time
T/F: The marketing channel is an inter organizational social system
What is a social system?
System that involves interactions between people or groups of people
When does conflict arise in marketing channels?
Conflict arises when a member (of the marketing channel) perceives that another member’s actions are impeding the attainment of his or her goals
Examples of channel conflict
1. Slotting allowances. Retailers require manufacturers to rent shelf space
2. Loading the channel. Manufacturers require channel members to carry considerable inventory.
3. Liberal Customer return policy. (Retailers allow returns and bill manufacturers for returns)
Causes of channel conflict.
1. Role incongruities
2. Resource scarcity
3. Perceptual differences
4. Expectational differences
5. Decision Domain Disagreements
6. Goal incompatibilities
7. Communication difficulties
Ways to identify channel conflict
1. Marketing channel surveys
2. Marketing channel audit
3. Distributor’s advisory council or channel members’ committees
Ways to resolve channel conflict
1. Channel wide committee
2. Joint goal setting by committee
3. Binding arbitration
Advantages of arbitration vs. litigation
1. Fast
2. Cheaper
3. Preserves secrecy
4. Confronts problems in their early stages
5. Uses industry experts
What is power in the marketing channel mean?
It is the ability of a particular channel member to control or influence the behavior of another channel member
Bases of power for channel control
1. Reward power
2. Coercive power
3. Legitimate power
4. Referent power
5. Expert power
If franchisors avoid coercive power, then franchisees are more likely and less likely to do what?
More likely:
1. Have higher morale
2. Cooperate with the franchisor
Less likely:
1. Terminate their contracts
2. Initiate litigation
3. Seek protective legislation
Problems in channel communications
1. Differences in goals
2. Language differences
3. Inadequate frequency of communication
4. Secretive behaviors
5. Perceptual differences

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