Marketing Channels: Functions, Structures, and Strategies

1. 10 MarketingLamb, Hair, McDaniel Designed by Eric Brengle B-books, Ltd. Prepared by Amit Shah Frostburg State University Marketing Channels CHAPTER 13

2. Learning Outcomes Explain what a marketing channel is and why intermediaries are needed Define the types of channel intermediaries and describe their functions and activities Describe the channel structures for consumer and business products and discuss alternative channel arrangements LOI LO2 LO3

3. Learning Outcomes Discuss the issues that influence channel strategy Describe the different channel relationship types and their unique costs and benefits Explain channel leadership, conflict, and partnering Discuss channels and distribution decisions in global markets LO4 LO5 LO6 LO7

4. Learning Outcomes Identify the special problems and opportunities associated with distribution in service organizations LO8

5. Marketing Channels LOI Explain what a marketing channel is and why intermediaries are needed

6. Marketing Channels LOI Marketing Channel A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.

7. Specialization and division of labor Overcoming discrepancies Providing contact efficiency LOI Marketing Channel Functions

8. Specialization and Division of Labor • Creates greater efficiency • Provides lower costs • Achieves economies of scale • Aids producers who lack resources to market directly • Builds good relationships with customers LOI

9. Discrepancy of Quantity The difference between the amount of product produced and the amount an end user wants to buy. Discrepancy of Assortment The lack of all the items a customer needs to receive full satisfaction from a product or products. Overcoming Discrepancies LOI

10. Temporal Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. Spatial Discrepancy The difference between the location of a producer and the location of widely scattered markets. Overcoming Discrepancies LOI

11. Providing Contact Efficiency LOI

12. LOI REVIEW LEARNING OUTCOMEMarketing Channels MarketingChannel Providing Specialization and Division of Labor OvercomingDiscrepancies Providing ContactEfficiency SupplyChain

13. Channel Intermediaries LO2 Define the types of channel intermediaries and describe their functions and activities

14. Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product from producer to end user by representing retailers, wholesalers, or manufacturers. Channel Intermediaries LO2

15. Retailers Take Title to Goods Merchant Wholesalers Take Title to Goods Agents and Brokers Do NOT Take Title to Goods LO2 Channel Intermediaries

16. LO2 Product characteristics Buyer considerations Market characteristics Factors Suggesting Type of Wholesaling Intermediary to Use

17. LO2 Contacting/Promotion TransactionalFunctions Negotiating Risk Taking Physically distributing Logistical Functions Storing Sorting FacilitatingFunctions Researching Financing Channel Functions Performed by Intermediaries

18. The efficient and cost-effective forward and reverse flow as well as storage of goods, services, and related information, into, through, and out of channel member companies. Logistics Logistics LO2

19. LO2 REVIEW LEARNING OUTCOMEChannel Intermediaries and Functions CHANNELINTERMEDIARIES CHANNELFUNCTIONS Retailers Wholesalers Agents and Brokers Perform Transactional Logistical Facilitating

20. Channel Structures LO3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements

21. Direct Channel Channels for Consumer Products LO3 A distribution channel in which producers sell directly to consumers.

22. Retailer Channel Wholesaler Channel Direct Channel Agent/Broker Channel Producer Producer Producer Producer Agents orBrokers Wholesalers Wholesalers Retailers Retailers Retailers Consumers Consumers Consumers Consumers Channels for Consumer Products LO3

23. IndustrialDistributor Agent/Broker Channel Direct Channel Agent/Broker IndustrialChannel Direct Channel Producer Producer Producer Producer Producer Agents or Brokers Agents or Brokers IndustrialDistributor IndustrialDistributor IndustrialUser IndustrialUser IndustrialUser IndustrialUser Govt.Buyer Channels for Business Products LO3

24. Agents link buyers and sellers Companies drop the intermediary from the supply chain “Private exchanges” with select suppliers automate the supply chain http://www.sherwinwilliams.com Online Business-to-Business Exchanges on the Internet LO3

25. Multiple channels Nontraditional channels Strategic channel alliances LO3 Alternative Channel Arrangements

26. LO3 REVIEW LEARNING OUTCOMEChannel Structures CONSUMERCHANNELS BUSINESSCHANNELS ALTERNATIVECHANNELS • Direct • Retail • Wholesaler • Agent/broker • Direct • Industrial • Agent/broker • Agent/brokerindustrial • Multiple • Nontraditional • Strategicalliances

27. Making Channel Strategy Decisions LO4 Discuss the issues that influence channel strategy

28. Factors Affecting Channel Choice Level ofDistributionIntensity Market Factors Intensive Distribution Product Factors Selective Distribution Producer Factors Exclusive Distribution LO4 Channel Strategy Decisions

29. Market FactorsThat Affect ChannelChoices Customer profiles Consumer or Industrial Customer Size of market Geographic location Market Factors LO4

30. Product Complexity Product FactorsThat Affect ChannelChoices Product Price Product Standardization Product Life Cycle Product Delicacy Product Factors LO4

31. Producer FactorsThat Affect ChannelChoices Producer Resources Number of Product Lines Desire for Channel Control Producer Factors LO4

32. Intensive Exclusive A form of distribution aimed at having a product available in every outlet A form of distribution that established one or a few dealers within a given area Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Levels of Distribution Intensity LO4

33. Intensity Level Objective Number of Intermediaries Achieve mass marketselling. Convenience goods. Many Intensive Selective Work with selected intermediaries. Shopping and some specialty goods. Several Exclusive Work with singleintermediary. Specialty goods and industrial equipment. One LO4 Levels of Distribution Intensity

34. LO4 REVIEW LEARNING OUTCOME Issues Influencing Channel Strategy

35. Types of Channel Relationships LO5 Describe the different channel relationship types and their unique costs and benefits

36. Arm’s Length Integrated Cooperative LO5 Types of Channel Relationships

37. A relationship between companies that is loose, characterized by low Relational investment and trust, and usually taking the form of a series of discrete transactions with no/low expectation of future interaction or service. Arm’s Length Relationship A relationship between companies that is tightly connected, with linked processes across and between firm boundaries, and high levels of trust and inter-firm commitment. Integrated Relationship Arm’s Length, Integrated, and Cooperative LO5

38. A relationship between companies that takes the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals. Cooperative Relationship Channel Conflict and Partnering LO5

39. LO5 REVIEW LEARNING OUTCOMETypes of Channel Relationships

40. Managing Channel Relationships LO6 Explain channel leadership, conflict, and partnering

41. Power Control Leadership Conflict Partnering Managing Channel Relationships LO6

42. Channel Power Channel Leader (channel captain) The capacity of a particular marketing channel member to control or influence the behavior of other channel members A member of a marketing channel that exercises authority/power over the activities of other members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Power, Control, and Leadership LO6

43. Channel Conflict A clash of goals and methods between distribution channel members Channel Partnering (channel cooperation) The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage Channel Conflict and Partnering LO6

44. Channel Conflict Conflicts may occur if channel members: • Have conflicting goals • Fail to fulfill expectations of other channel members • Have ideological differences • Have different perceptions of reality LO6

45. Transaction-Based Partnership-Based Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Supplier / Manufacturer Relationships Number of Suppliers Information Sharing InvestmentRequired Many Minimal Minimal Few High High LO6 Channel Partnering

46. LO6 REVIEW LEARNING OUTCOMEChannel Leadership, Conflict, & Partnering Channel Power,Control, Leadership Channel Partnering ChannelRelationship Synergy Channel Conflict Horizontal Vertical

47. Channels and Distribution Decisionsfor Global Markets LO7 Discuss channels and distribution decisions in global markets

48. LO7 Channel structure and type differ Global Channel Development Gray marketing channels Channels and Distribution Decisionsfor Global Markets

49. LO7 REVIEW LEARNING OUTCOME Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray”marketing channels Legal and infrastructure differences Global Market Channel & Distribution Decisions

50. Channels and Distribution Decisionsfor Services LO8 Identify the special problems and opportunities associated with distribution in service organizations