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Marketing Channels and Distribution

chapter 10
Harcourt, Inc.

Objectives Objectives
s Recognize

the importance of marketing channels and distribution s Understand marketing channels in terms of creating time, place, and possession utilities s Discuss the three dimensions of channel structure
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Objectives
s Identify

determinants of channel structure s Describe the five major flows in marketing channels s Identify the six major areas of channel management s Discern the difference between logistics and marketing channels
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What is a Marketing Channel? What is a Marketing Channel?


s Marketing channel

(a.k.a. distribution channel) - network of organizations that create time, place, and possession utilities for consumers
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What is a Marketing Channel? What is a Marketing Channel?


Blackstar Beer

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Hal Riney and Partners

Channel Structure Channel Structure


Length of channel

Three Dimensions

sity n nte I

s vel s le riou t va a

Ty pe s

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of in te rm ed ia rie s

Channel Structure Channel Structure


Length of marketing channel
1 level Manufacturer 2 level Manufacturer 3 level Manufacturer 4 level Manufacturer

Agent Wholesaler Retailer Consumer Retailer Wholesaler Retailer Consumer

Dr. Consumer Rosenbloom Consumer

Channel Structure Channel Structure


Intensity at various levels
Exclusive Distribution Selective Distribution Intensive Distribution
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Channel Structure Channel Structure


Intensity at various levels
Exclusive Distribution
s

Practiced when a manufacturer restricts product distribution to a single retailer in a particular market or just a relatively few retailers Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are the most likely candidates for exclusive distribution
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Channel Structure Channel Structure


Intensity at various levels
Selective Distribution

Selectively distributed bands are available in multiple retail outlets in a particular market s Shopping products, or those that consumers seek out, are sold through selective distribution
s

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Channel Structure Channel Structure


Intensity at various levels
Intensive Distribution s

Used when convenience products are sold through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettes

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Channel Structure Channel Structure


Types of intermediaries

Merchant Merchant Middlemen Middlemen


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Functional Functional Middlemen Middlemen

Channel Structure Channel Structure


Types of intermediaries
Do not take title to products; they simply facilitate the exchange process by performing buying and/or selling functions.

Functional Functional Middlemen Middlemen


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Channel Structure Channel Structure


Types of intermediaries
Take title to products and resell them.

Merchant Merchant Middlemen Middlemen


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Channel Structure Channel Structure


s Determinants of channel

structure include:
s s s

Distribution tasks Economics of distribution tasks Management's desire for distribution control
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Channel Structure Channel Structure


s Distribution tasks
s

Familial Relationshipstyle
Concentration Equalization Dispersion

Selection process-style
Accumulating Selecting Sorting

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Channel Structure Channel Structure


s Distribution tasks
s

Resolve discrepancies between consumers and producers


Quantity - buffer mass produced goods Assortment - allow producers to focus while providing customers selection Time - hold goods until ready Place - connect producers and consumers
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Channel Structure Channel Structure

s Economics of

distribution tasks
s

Specialization or division of labor

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Channel Structure Channel Structure


s Economics of distribution tasks
s

Transaction efficiency
Mfg. A Mfg. B Mfg. C

Without intermediaries

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Channel Structure Channel Structure


s Economics of distribution tasks
s

Transaction efficiency
Mfg. A Mfg. B Mfg. C

With intermediaries

Intermediary

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Channel Structure Channel Structure


s Managements desire for

control
s

The shorter the channel structure the higher the control Needed when a manufacturer must protect product image, etc.
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Marketing Channel Flows Marketing Channel Flows


s Product Flow
s

The movement of the product from manufacturer through all parties who take physical possession Interplay of buying/selling tasks associated with title transfer
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s Negotiation Flow
s

Marketing Channel Flows Marketing Channel Flows


s Ownership Flow
s

Movement of title of the product Information to and from the manufacturer Flow of persuasive communication (advertising, personal selling, etc.) Dr. Rosenbloom

s Information Flow
s

s Promotion Flow
s

Marketing Channel Flows Marketing Channel Flows

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Social Aspects of Marketing Channels Social Aspects of Marketing Channels


s Marketing channel power
s

The influence one channel member has over other members behaviors Goal impeding behavior by one or more channel members Territorial encroachment
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s Marketing channel conflict


s

Determinants of Power Determinants of Power


s s

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Ability to offer an award (e.g. granting of exclusive distribution)

Determinants of Power Determinants of Power


s

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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s s

Threat of punishment (e.g. a manufacturer might threaten a retailer with loss of exclusive distribution)

Determinants of Power Determinants of Power


s

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power from contract agreement or organizational relationships

s s

Determinants of Power Determinants of Power


s

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power resulting from technological expertise or proprietary reasons

s s

Determinants of Power Determinants of Power


s

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power resulting from ability to influence further action

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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s Realize only the place P

provides protection from imitation s Distribution strategies can provide sustainable competitive advantage

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance Set distribution objectives Specify tasks to be performed by the channel Consider alternative structures Choose optimal structure
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Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance s

Optimal structure identified by considering:


s s s s s s

Market variables Product variables Company variables Intermediary variables Behavioral variables External environment variables
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Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select members Motivate channel members Coordinate with marketing mix Evaluate member performance s

Develop selection criteria


Size Attitude Credit and Financial Condition Sales Strength

channel

Management Ability

Prospectiv e channel member

Product Lines

Management succession Sales Performance Market Coverage

Reputation

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Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select members Motivate channel members Coordinate with marketing mix Evaluate member performance
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Find prospective channel members s Evaluate prospective channel members channel s Convert prospectives into actual channel members
s

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance s s

Learn about the needs and problems of channel members


s

Advisory committees Informal support Strategic alliances, partnerships Continuing focus


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Offer support
s s

Provide ongoing leadership


s

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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Product and Channel


s

s s

Retailers (a channel member) play an important role in product positioning Display fixtures Personal selling

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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Pricing and Channel


s

Relevant to channel members:


Profit margins available to channel members Pricing policies Incentives

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
Dr. Rosenbloom

Promotion and Channel


s

s s s

Promotions interface with channel members Point-of-purchase displays Inventory levels Sales person training

Marketing Channel Management Marketing Channel Management


Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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Assessment of success of channel members in implementing strategies


s

Requires good information flows between members Point-of-sale systems, EDI

Marketing Channel Logistics Marketing Channel Logistics


s Logistics make products available to

customers
s s

Also called physical distribution (PD) Supply chain management (SCM) are logistical systems that facilitate close cooperation among firms in a channel
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Marketing Channel Logistics Marketing Channel Logistics


s Total Cost Approach and Systems Concept
Systems Concept
Management views logistics as a system of interrelated components

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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Management tries to reduce cost of using the components as a whole

Total Cost Approach

Marketing Channel Logistics Marketing Channel Logistics


Almost all products must be moved s Generally one of the highest percentage costs
s

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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Use in-house transport or common carriers? s What rates are available? s What are competitors doing?
s

Marketing Channel Logistics Marketing Channel Logistics


s

Growing use of crossdocking

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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How to minimize distances s What equipment should be used? s How to use labor efficiently
s

Marketing Channel Logistics Marketing Channel Logistics


s

Order cycle time (time between order and delivery)

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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How to reduce errors in order processing s How to develop standards for different product types
s

Marketing Channel Logistics Marketing Channel Logistics


s

Economic order quantity (EOQ) is the lowest total cost (inventory carry cost + ordering costs)

s Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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How to balance inventory levels with order sizes

Marketing Channel Logistics Marketing Channel Logistics


s

Growth of single item shipments

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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Where to locate a warehouse s Number of warehousing units and size of units s Ownership question
s

Marketing Channel Logistics Marketing Channel Logistics


s

Effective packaging can help control inventory carry costs and help logistics efficiency

s Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging


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What type of package is required (sturdiness, etc.)

Marketing Channel Logistics Marketing Channel Logistics

s Customer service is the

output of logistics systems

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Vertical Marketing Systems Vertical Marketing Systems


s

Administered VMS

Corporate Systems

Contractual Systems

Conventional channel with one channel member (a manufacturer, wholesaler, or retailer) informally acting as the channel leader.
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Vertical Marketing Systems Vertical Marketing Systems


s

Administered VMS

Corporate Systems

Contractual Systems

Combines all levels of the marketing channel under one companys ownership

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Vertical Marketing Systems Vertical Marketing Systems


s

Administered VMS

Corporate Systems

Contractual Systems

Are integrated via contractual agreement s Franchising is the major form of contractual VMS. Others include voluntary chains and cooperatives
s
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