CHAPTER 11

MARKETING-CHANNEL MANAGEMENT

CHAPTER OBJECTIVES

1. To consider the part that supply chains play in delivering value to the
end customer.
2. To identify the factors that determine the structure of a supply chain.
3. To discuss the role of the intermediary within the supply chain and
roles that intermediaries may perform in different supply chains.
4. To examine the management issues associated with a particular type
of intermediary activity (retailing) and with a particular management
structure (franchising).

CHAPTER SUMMARY

The chapter begins by looking at the delivery of value to the end-user in a

given supply chain. It then looks at supply-chain management functions
and the roles that need to be fulfilled in the marketing channel. The
operation of supply chains are then investigated and the recent
development of Efficient Consumer Response (ECR) is discussed. This
is followed by a look at supply chain design and the decisions involved in
choosing a partner from both the retailers’ and manufacturers’ point of
view. Finally, issues in retailing and franchising are discussed and the
chapter ends with a look to the future.

ANNOTATED LECTURE OUTLINE

Point 1 - Introduction.

A marketing channel is ‘an organized network of agencies and

institutions which, in combination, perform all the activities required to
link producers with users to accomplish the marketing task’ (Bennett
1988). This channel must be designed such that it delivers a level of
value to the customer that creates a sustainable competitive advantage for
the supply chain. This ‘value’ can take many forms depending upon the
requirements of the customer. The relationship between the value of the
product and the shopping experience is particularly important and the
skill of the value chain is in the positioning of the total offer in a
profitable way.

Point 2 - Supply-chain management functions.

The supply chain in made up of an array of interdependent functions

which form a flow of activities (see Figure 11.2 pp247).

Point 3 - Roles in the marketing channel.

There are a number of roles in the channel that have to be fulfilled and
each type of channel will fulfil them in different ways. Firstly, there are a
number of specific gaps between production and consumption that need
to filled, specifically, time, space, quantity and variety. Secondly,
intermediaries perform various functions in order to bridge these gaps.

Point 4 - The operation of supply chains.

Supply chains need to operate in an integrated way to form an integrated

system that operates as a team. However, some areas of conflict can arise
that need to be resolved. Conflict cannot be totally eliminated but there
should be a policy of conflict minimization and a move towards
partnership style arrangements. One potential source of conflict is the
role played by power which is heavily influenced by the level of
dependency between the channel members. Five different power bases
have been identified. Power should be used in a constructive not
destructive way in order to achieve channel efficiency and effectiveness.
The development of supply-chain partnerships and relationship
management is seen as central to the overall administration of the
channel.

Point 5 - Efficient consumer response (ECR).

ECR is ‘ a total system to eliminate all activities that do not give value to
the end consumers and to encourage all those that do’ (Mitchell 1997). It
focuses on fourteen improvement concepts in three strands: category
management, product replenishment and enabling technologies (Figure
11.6 pp254). ECR is facilitated by electronic data interchange systems
(EDI) which is linked to electronic funds transfer (EFT) which generates
payments. Activity-based costing is used to identify what is spent in the
various areas with a view to questioning expenditure and thus a
continuous process of improvement should occur.

Point 6 - Designing supply chains.

In the design of supply channels a key question is not what activities are
to be performed but who is to perform them. Responsibility can shift
from one party to another depending upon the nature of the product
market. A distinction can be made between the actors with ownership or
transaction roles in the channel and the use of third-party logistics
companies.

Point 7 - Choosing partners.

This decision needs to be looked at from both sides and a number of key
issues need to be examined. From the manufacturer’s point of view three
areas that need addressing specifically are market coverage and
distribution intensity; channel control; and flexibility. In addition, there
are several important issues that can help a manufacturer to assess the
relative merits of potential partners.

Point 8 - Retailing.

The position of the retailer in the supply-chain, being the closest to the
final consumer, gives it some distinctive characteristics that need to be
understood and are directly related to their positioning strategy.

Point 9 - Franchising.

Another key management system that has been one of the most popular
mechanisms for expanding the distribution network is franchising. The
nature of the franchise relationship can be viewed from two extremes
either as a managed outlet of a larger business or as an independent
business in its own right.

Point 10 - The future.

The biggest development in channel management in the future lies in the

use of electronic commerce and traditional intermediaries will either
disappear or reinvent themselves and a number of anticipated impacts
will arise from the new channels.

Point 11 - Conclusion.

The aim of the supply chain is to provide the consumer with an offer that
they will value above any other. This value is created by the offering and
the gaps that are bridged in delivering it. These functions are performed
by various combinations of actors including third-party logistics
companies. Many changes have occurred recently mainly as a result of
developments in IT and marketing channels will continue to be dynamic
and rapidly changing.

Answers to the discussion questions:-

1. Students should be able to identify a number of other retail formats to

those given in Box 11.3, e.g. hypermarkets, town centre supermarkets,
and even market stalls! These can be looked at in terms of the
products offered and the price and what the consumer is looking for.
2. It means that this area of specialization can be bought under the
control of the manufacturer rather than given to an intermediary. One
of the main reasons for the emergence of shorter channels are the
developments in technology.
3. The role is likely to be different as the issues linked to the distribution
of a manufacturer’s brand are different to that of the retail brand
although, in some cases, the two brands may be manufactured by the
same company.
4. Here the focus should be on the benefits of relationship management
and partnership building and the value added benefits of EDI and EFT
both to the channel and consumers.
5. This question revolves around the shopping experience and customer
requirements. Students should be able to suggest a number of
products that do not lend themselves to being bought electronically
and the reasons behind this, including any cultural shifts that may be
required.

MINI CASE
ARTHUR AND COMPANY

KEY ISSUES FOR DISCUSSION:-

1. By selling only direct to wholesalers, the market is already fairly

saturated with the two competitors’ products. In addition, they have a
limited range but their product is superior to the competition
2. Selling direct is a very good alternative providing they have the
expertize to fulfil all the channel functions themselves. However the
limited range may go against them but they will be in direct contact
with the customer which will help future product development.
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