Chapter 15 Book Notes

Nature and importance of marketing channels

What is a marketing channel of distribution?
MARKETING CHANNEL- consists of individuals and firms involved in the
process of making a product or service available for use or consumption
by consumers or industrial users
Marketing channels make possible the flow of goods from a producer,
through intermediaries, to a buyer
Value is created by intermediaries
Producers recognize that intermediaries make selling goods and services
more efficient because they minimize the number of sales contacts
necessary to reach a target market
Important functions performed by intermediaries
Intermediaries make possible the flow of products from producers to
buyers by performing 3 basic functions
1. Transactional function-involves buying, selling, and risk taking
because they stock merchandise in anticipation of sales
2. Logistical function- this is evident in the gathering, storing,
and dispersing of products
3. Facilitating function- assist producers in making goods and
services more attractive to buyers
Consumers also benefit from intermediaries
Having the goods and services you want, when you want them,
where you want them, and in the form you want them in is the ideal
result of marketing channels
Marketing channels help create value for consumers through the
four utilities time, place, form and possession
Place utility- having a product or service available where
consumers want it
Form utility- involves enhancing a product or service to make
it more appealing to buyers
Time utility- refers to having a product or service when you
want it
Possession utility- entails efforts by intermediaries to help
buyers take possession of a product or service
Channel structure and organization
Marketing channels for Consumer Goods and Services
DIRECT CHANNEL- a producer and ultimate consumer deal directly with
each other
INDIRECT CHANNEL- intermediaries are inserted between the producer
and consumer and perform numerous channel functions
Marketing Channels for Business goods and services

INDUSTRIAL DISTRIBUTOR- performs a variety of marketing channel

functions, including selling, stocking, delivering a full product assortment,
and financing.
Electron marketing channels
ELECTRONIC MARKETING CHANNELS- employ the internet to make goods
and services available for consumption or use by consumers or business
buyers
Direct and Multichannel Marketing
DIRECT MARKETING CHANNELS- allow consumers to buy products by
interacting with various advertising media without face-to-face meeting
with a salesperson (include mail-order selling, direct-mail sales, catalog
sales, telemarketing, interactive media, and televised home shopping)
MULTICHANNEL MARKETING-the blending of different communication and
delivery channels that are mutually reinforcing in attracting, retaining, and
building relationships with consumers who shop and buy in traditional
intermediaries and online
Dual Distribution and Strategic Channel Alliances
DUAL DISTRIBUTION- an arrangement whereby a firm reaches different
buyers by employing two or more different types of channels for the same
basic product
STRATEGIC CHANNEL ALLIANCES-whereby one firms marketing channel is
used to sell another firms products
MERCHANT WHOLESALERS- are independently owned firms that take title
to the merchandise they handle
General merchandise wholesalers- carry a broad assortment of
merchandise and perform all channel functions
Specialty merchandise wholesalers- offer a relatively narrow range of
products but have an extensive assortment within the product lines
carried
4 types of limited-service wholesalers exist
1. Rack Jabbers- furnish or rack the shelves that display
merchandise in retail stores, perform all channel functions, and
sell on consignment to retailers, which means they retain the
title to the products displayed and bill retailers only for the
merchandise sold
2. Cash and Carry wholesalers- take title to the merchandise by
sell only to buyers who call on them, pay cash for merchandise,
and furnish their own transportation for merchandise
3. Drop slippers- wholesalers that own the merchandise they sell
by do not physically handle, stock or deliver it.
4. Truck jobbers- are small wholesalers that have a small
warehouse from which they stock their trucks for distribution to
retailers
Agents and Brokers

 Typically perform fewer channel functions make their profit from

commissions or fees paid for their services
MANUFACTURERs AGENTS- work for several producers and carry
non-competitive, complementary merchandise in an exclusive
territory
SELLING AGENTS- represent a single producer and are responsible
for the entire marketing function of that producer
BROKERS- independent firms or individuals whose principal function
is to bring buyers and sellers together to make sales
Vertical Marketing systems and Channel Partnerships
VERTICAL MARKETING SYSTEMS- professionally managed and centrally
coordinated marketing channels designed to achieve channel economies
and maximum marketing impact
Corporate systems
The combination of successive stages of production and distribution
under a single ownership is known as CORPORATE VERTICAL
MARKETING SYSTEM
CONTRACTUAL VERTICAL MARKETING SYSTEM-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
Franchising- a contractual agreement 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
Administered systems
ADMINISTERED VERTICAL MARKETING SYSTEM- achieves
coordination at successive stages of production and distribution by
the size and influence of one channel member rather than through
ownership
Channel Partnerships
A channel partnership consists of agreements and procedures
among channel members for ordering and physically distributing a
producers products through the channel to the ultimate consumer
Channel Choice and Management
Factors Affecting Channel choice and management
Environmental Factors
Consumer Factors
Product Factors
Company Factors
Channel Choice Considerations
Target market coverage
Intensive distribution-means that firm tries to place its products and
services in as many outlets as possible

Exclusive distribution- the extreme opposite of intensive distribution

because only one retailer in a specified geographical area carries the
firms products
Selective distribution- lies between these two extremes and means
that a firm selects a few retailers in a specific geographical area to
carry its products
Satisfy Buyer Requirements
A consideration in channel choice is gaining access to channels and
intermediaries that satisfy at least some of the interests buyers might
want fulfilled when they purchase a firms products or services
4 categories
Information- an important requirement when buyers have limited
knowledge or desire specific data about a product or service
Convenience- has multiple meanings for buyers, such as proximity
or driving time to retail outlet
Variety reflects buyers interest in having numerous competing and
complementary items from which to choose
Pre- or postal services- provided by intermediaries and are an
important buying requirement for products such as large household
appliances that require delivery, installation, and credit
Channel Relationships: Conflict, Cooperation, and Law
Sources of conflict in Marketing channels
Channel conflict- arises when one channel member believes another
channel member is engaged in behavior that prevents it from
achieving its goals
2 types of conflict occur in marketing
Vertical conflict- occurs between different levels in a marketing
channel
Disintermediation- conflict arises when a channel member
bypasses another member and sells or buys products direct
Horizontal conflict- occurs between intermediaries at the same
level in a marketing channel, such as between two or more
retailers (Target and Kmart) or two or more wholesalers that
hand the same manufacturers brands
Securing Cooperation in Marketing Channels
Channel captain- a member that coordinates, directs, and supports
other channel members