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Marketing Channels

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consist of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users

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intermediaries

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value is created by these - Ex. middleman, agent or broker, wholesaler, retailer, distributor, dealer

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Important Functions performed by intermediaries

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1. Transactional function, 2. Logistical Function, 3. Facilitating Functions

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Transactional Function

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buying, selling, risk taking

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Logistical Function

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assorting, storing, sorting, transporting

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Facilitating Functions

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financing, grading, marketing information and research

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Marketing channels help create value for consumers through four utilities

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time,place,form,possesion

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Direct Channel for Consumer Goods and Services

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Producer directly to ultimate consumers (producer must perform all channel functions)

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Indirect Channel for Consumer Goods and Services

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have intermediaries between producer and ultimate consumer Ex: Producer->Wholesalers->Retailer-> Consumer

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Direct Channel for B2B

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producer -> industrial user. Buyers are large and well defined, products are of high unit value and require hands-on expertise

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Indirect channel for B2B

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same as for consumer. Industrial distributor - performs a variety of functions (a lot like wholesalers)

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Electronic marketing Channels

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employ the internet to make goods and services available for consumption or use by consumers or business buyers. Incapable of performing elements of the logistical function

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Direct marketing channels

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allow consumer to buy products by interacting with various advertising media without face to face meeting with a salesperson (mail order selling, direct mail sales, etc.)

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multichannel marketing

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the blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shot and buy in traditional intermediaries and online

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Dual distribution

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an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product Ex. GE sells directly to home and apt builders, but also sells in lowes and sears

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strategic channel alliances

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one firm's marketing channel is used to sell another firms products (Ex. General Mills and Nestle) ?? Shuuuure

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Merchant Wholesalers

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independently owned firms that take title to the merchandise they handle

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Full Service Wholesalers (2)

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1. General merchandise (full-line) wholesalers and 2. specialty merchandise (limited-line) wholsealers

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General merchandise (full-line) wholesalers

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carry a broad assortment of merchandise and perform all channel functions. Ex: hardware, drug, and clothing

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Specialty merchandise (limited-line) wholesalers

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offer a relatively narrow range or products but have an extensive assortment within the product lines carried Ex. Health foods, automotive parts, seafood industries

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Agents and broker. how do they make their money

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from commissions or fees paid for their services

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Manufacturer's Agent (representatives)

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work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Used in automotive supply, footwear

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Selling Agents

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represent a single producer and are responsible for the entire marketing function of that producer. Used by small producers in textile, apparel, food, and home furnishing industries

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Brokers

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independent firms or individuals whose principal function is to bring buyers and sellers together to make sales. Used by producers of seasonal products (fruits) and in real estate

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Vertical Marketing Systems

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professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact

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Major Types of Vertical Marketing Systems

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1. Corporate Systems 2. Contractual Systems 3. Administered Systems 4. Channel Partnerships

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Corporate vertical marketing system

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combination of successive stages of production and distribution under a single ownership

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Forward integration

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a producer might own the intermediary at the next level down in the channel

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Backward integration

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a retailer might own a manufacturing operation

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Contractual Vertical Marketing System

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independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone

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Three Variations of Contractual Systems

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1. Wholesaler- sponsored voluntary chains 2. Retailer-sponsored cooperatives 3. Franchising (most visible form)

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Wholesaler sponsored voluntary chains

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involve a wholesaler that develops a contractual relationship with small, independent retailers to standardize and coordinate buying practices, merchandising programs, and inventory management efforts

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Retailer sponsored cooperatives

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when small independent retailers form an organization that operates a wholesale facility cooperatively

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Franchising

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a contractual arrangement between a parent company and an individual or firm that allows the franchise to operate a certain type of business under an established name and according to specific rules

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Types of Franchises

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1. Manufacturer - sponsored retail franchise (Auto Industry) 2. Manufacturer - sponsored wholesale systems (Soft Drink Industry) 3. Service - sponsored retail franchise (McDonalds) 4. Service - sponsored franchise systems (H&R Block)

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Administered vertical marketing systems

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achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership

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Channel Partnerships

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consist of agreements and procedures among channel members for ordering and physically distributing a producer's products through the channel to the ultimate consumer

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Factors Affecting Channel Choice and Management

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Environmental Factors, Consumer Factors, Product Factors, Company Factors

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Achieving the best coverage of target markets requires these 2 things

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1. Attention to density - # of stores in a specific area 2. Type of Intermediaries to be used at the retail level of distribution

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Intensive Distribution

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a firm tries to place its products and services in as many outlets as possible. (candy, fast food, newspapers)

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Exclusive Distribution

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extreme opposite of intensive distribution. Only one retailer in a specified geographical area carriers the firm's products. (yachts, women's fragrances)

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Selective Distribution

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lies between these two extremes and means that a firm selects a few retailers in a specific geographical area to carry its products

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4 Elements of Satisfying Buyer Requirements

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1. Information 2. Convenience 3. Variety 4. Pre- or postsale services

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Information

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an important requirement when buyers have limited knowledge or desire specific data about a product or service

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Convenience

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has multiple meanings for buyers, (proximity and driving time are examples)

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Variety

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reflects buyer's interest in having numerous competing and complementary items from which to choose

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Pre- or postsale services

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important buying requirement for products such as large household appliances -- delivery, installation, and credit

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Profitability

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determined by the margins earned (revenue minus cost) for each channel member and for the channel as a whole

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Channel Conflict

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arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals

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Vertical Channel Conflict

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occurs between different levels in a marketing channel.

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Three sources of vertical Channel Conflict

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1. Disintermediation - a channel member bypasses another member and sells or buys the product direct 2. Disagreements over how profit margins are distributed 3. Manufacturers believe wholesalers or retailer are not giving their products adequate attention

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Horizontal Conflict

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occurs b/w intermediaries at the same level in the marketing channel, such as b/w two or more retailers.

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Two Sources of horizontal channel conflict

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1. when a manufacturer increases its distribution coverage in a geographical area 2. different types of retailers carry the same brand

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Channel Captain

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a channel member that coordinates, directs, and supports other channel members. Can be producers, retailers, or wholesalers.

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4 Forms of Channel Influence

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1. Arises from the ability of a firm to reward other members given its strong financial position or customer franchise 2. Expertise 3. Identification with a particular channel member can create influence for that channel member 4. The legitimate right of one channel member to direct the behavior of other members

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Practices in Channels that Have caught Legal Attention

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1. Dual Distribution and vertical integration are seen as anti competitive 2.Exclusive Dealing 3. Tying arrangements 4. Full line forcing 5. Refusal to Deal

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Exclusive dealing

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exists when a supplier requires channel members to sell only its products or restricts distributions from selling directly competitive products

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Tying arrangements

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occur when a supplier requires a distributor purchasing some products to buy others from the supplier

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Full line enforcing

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special kind of tying arrangement. involves a supplier requiring that a channel member carry its full line of products in order to sell a specific item in the supplier's line

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Refusals to deal

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resale restrictions - refer to a supplier's attempt to stipulate to whom distributors may resell the suppliers products and in what specific geographical areas or territories they may be sold.

Marketing Kerin – Chapter 15: Managing Marketing Channels and Wholesaling – Flashcards

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