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Marketing Channels

Delivering Customer Value

Chapter 8

Rest Stop: Previewing the Concepts

1. 2. 3. 4. 5.

Explain why companies use marketing channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and integrated supply chain management.
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First Stop
Enterprise Leaves Competitors in the Dust!

Competitive Market
Background: Hertz and Avis were historically #1 and #2 in car rental market. In the late 1990s Enterprise became #1 in revenues, profits, locations and cars, and is currently 50% larger than Hertz. How Did They Do It? Enterprise catered to the home-city market via rental sites in neighborhood areas. Enterprises offer to pick customers up at repair shops, accident sites, etc., became the theme of its value proposition.

Growth at Enterprise
Tapping New Markets: Enterprise expanded distribution to the airport market, and acquired Vanguard Car Rental group in 2007. More recently, Enterprise has ventured into the car-sharing and hourly rental market, called WeCar, in densely populated areas where many dont own vehicles. Customer Satisfaction is Key: Enterprise uses the ESQi (Enterprise Service Quality index) to measure satisfaction; managers arent promoted unless customers are satisfied.
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Producing and making products


available to buyers requires building relationships with upstream and downstream supply chain partners.
Upstream:

Supply Chains and the Value Delivery Network

Firms that supply the raw materials, components, parts, and other elements necessary to create a good. Downstream: Marketing channel partners that link the firm to the customer.
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Supply Chains and the Value Delivery Network

Value delivery network:


The

Marketing channels represent the


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network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system in delivering customer value.

downstream side of the value delivery network.


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Nature and Importance of Marketing Channels

Marketing channel:
A

set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users.
Channel decisions affect other marketing decisions. Channel decisions can lead to competitive advantage.

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Nature and Importance of Marketing Channels

How channel members add value:


The

use of intermediaries results from their greater efficiency in making goods available to target markets. Channel members offer the firm more than it can achieve on its own in terms of:
Contacts. Experience. Specialization. Scale of operation.
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Nature and Importance of Marketing Channels


Key functions performed by channel members:

Transaction
completion:
Information Promotion Contact Matching Negotiation
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Transaction
fulfillment:
Physical

distribution Financing Risk taking

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Nature and Importance of Marketing Channels

Number of channel levels:


The

number of intermediary levels indicates the length of a channel.


Direct marketing channels
Have no intermediary levels between the manufacturer and the customer.

Indirect marketing channels


Contains one or more intermediaries.
All

channel institutions are connected by several types of flows.


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Channel Behavior and Organization

The channel will be most effective when:


Each

If this does not happen, channel conflict occurs:


Horizontal

member is assigned tasks it can do best. All members cooperate to attain overall channel goals.

Some conflict can be healthy competition.


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conflict occurs among firms at the same level of the channel (e.g., retailer to retailer). Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).

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Channel Behavior and Organization

Conventional distribution channel:


Consists

Vertical marketing system (VMS):


A

of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.
distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the other, has contracts with them, or has so much power that they all cooperate.
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Channel Behavior and Organization

Types of vertical marketing systems:


Corporate

VMS. Contractual VMS. Franchise organization. Administered VMS.

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Channel Behavior and Organization

Corporate VMS:
Vertical

Contractual VMS:
Vertical

marketing system that combines successive stages of production and distribution under single ownership. Channel leadership is established via common ownership. marketing system in which independent firms at different levels of production/distribution join together through contracts to obtain more economies of scale than they could alone.
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Channel Behavior and Organization

Franchise organizations are a common


form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process. Types of franchise organizations:
Manufacturer-sponsored

retailer franchise. Manufacturer-sponsored wholesaler franchise. Service-firm sponsored retailer franchise.

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Channel Behavior and Organization

Horizontal marketing systems:


Two

Multichannel distribution system:


Occurs

or more companies at one level join together to follow a new marketing opportunity.

when a single firm sets up two or more marketing channels to reach one or more customer segments. Also called hybrid marketing channel system. Offers many advantages.
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Channel Behavior and Organization

Changing channel organization:


Disintermediation

occurs when product and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries.
Example: Airline firms sell tickets directly to consumers via the Internet.

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Channel Behavior and Organization

Changing channel organization:


Disintermediation

presents both problems and opportunities for both producers and resellers.
Resellers and intermediaries must innovate to survive. Producers must seek additional direct channels to remain competitive, though channel conflict often results.

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Channel Design Decisions

Firms often struggle between what is


ideal and what is practical. Marketing channel design:
Designing

effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major alternatives, and evaluating them.

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Channel Design Decisions

Analyzing consumer needs:


Do

Firm must balance needs against costs


and consumer price preferences.
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consumers want to buy from nearby locations or are they willing to travel? Do they want to buy-in person, by phone, or online? Do they value breadth of assortment or do they prefer specialization? Do consumers want many add-on services?

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Channel Design Decisions

Setting channel objectives:


Objectives

Channel objectives are influenced by:


Cost

are stated in terms of targeted levels of customer service.

of customer-service requirements. Nature of the company. The firms products. Marketing intermediaries. Competitors. Environment.
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Channel Design Decisions

Identifying major alternatives:


Types

of intermediaries:

Retailers, value-added retailers, independent distributors, dealers, etc.


Number

of marketing intermediaries: of channel members:

Intensive, selective, or exclusive distribution.


Responsibilities

Price policies, conditions of sale, territories and services to be performed.


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Channel Design Decisions

Evaluating the major alternatives involves


comparing each alternative to:
Economic

criteria:

A company compares the likely sales, costs, and profitability of different channel alternatives.
Control

issues:

How and to whom should control be given?


Adaptive

criteria:

Consideration of long-term channel commitment vs. channel flexibility.


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Designing International Channels

Channel design decisions can be very


challenging:
Each

country has its own unique distribution system. Distribution systems can be complex with many layers and a large number of intermediaries. Distribution systems in developing countries may be scattered or inefficient. Customs and government regulation can restrict distribution in global markets.
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Channel Management Decisions

Marketing channel management:


Selecting

channel members. Managing and motivating channel members:


Partner relationship management.
Evaluating

channel members.

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Public Policy and Distribution Decisions

Laws affecting channel decisions seek to

prevent the exclusionary tactics that some firms might use to keep another from using a desired channel. Situations with the potential to violate Clayton Act include:
Exclusive

distribution. Exclusive dealing. Exclusive territorial agreements. Tying agreements.


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Marketing Logistics and Supply Chain Management

Marketing logistics (physical distribution):


Planning,

Involves supply chain management:


Outbound

implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

distribution. Inbound distribution. Reverse distribution.


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Marketing Logistics and Supply Chain Management

Greater emphasis has been placed on logistics


recently because:
Firms

can gain a competitive advantage when logistics result in better service or lower prices. Improved logistics can lower costs. Increased product variety has created a need for improved logistics management. Improvements in information technology have created the means for major gains in distribution efficiency. Logistics affect the environment as well as the firms environmental sustainability efforts.
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Goals of the logistics system:


Deliver

Marketing Logistics and Supply Chain Management


a targeted level of customer service at the least cost.

Major logistics functions:


Warehousing. Inventory

management. Transportation. Logistics information management.


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Marketing Logistics and Supply Chain Management

Warehousing:
How

Inventory
management:
Balance

many, what types, and where? Storage warehouses Distribution centers

between too much and too little inventory Just-in-time logistics systems RFID or smart tag technology
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Marketing Logistics and Supply Chain Management


Transportation alternatives:

Trucks Railroads Water carriers Pipelines Air carriers


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Internet Intermodal
transportation
Piggyback,

fishyback, trainship, airtruck


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Integrated Logistics Management

Integrated logistics management:


The

Requires:

logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.
teamwork inside the

Cross-functional

company. Building logistics partnerships. Outsourcing to third-party logistics providers.


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Rest Stop: Reviewing the Concepts

1. 2. 3. 4. 5.

Explain why companies use marketing channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and integrated supply chain management.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 32