kerinmarketing15

AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:

•Explain what is meant by a marketing channel of distribution and why intermediaries are needed.

•

•Recognize differences between marketing channels for consumer and business products and services in domestic and global markets.

•Describe the types and functions of firms that perform wholesaling activities.

•

•Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems.

•Describe factors considered by marketing executives when selecting and managing a marketing channel, including channel conflict and legal restrictions.

MANAGING MARKETING CHANNELS AND WHOLESALING

AVON’S MAKEOVER IS
MORE THAN COSMETIC

NATURE AND IMPORTANCE
OF MARKETING CHANNELS

•Defining Marketing Channels of Distribution

Marketing Channel

Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

FIGURE 15-1 Terms used for marketing intermediaries

NATURE AND IMPORTANCE
OF MARKETING CHANNELS

Value Created by Intermediaries

FIGURE 15-2 How intermediaries minimize transactions

NATURE AND IMPORTANCE
OF MARKETING CHANNELS

•Value Created by Intermediaries (cont)

•Functions Performed by Intermediaries

Consumer Benefits from Intermediaries

FIGURE 15-3 Marketing channel functions performed by intermediaries

1. What is meant by a marketing channel?

A: A marketing channel consists of the individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

2. What are the three basic functions performed by intermediaries?

A: Intermediaries perform transactional, logistical, and facilitating functions.

CHANNEL STRUCTURE
AND ORGANIZATION

•Marketing Channels for Consumer Goods and Services

§Direct channel
§Indirect channels

A marketing channel where a producer and ultimate consumer deal directly with each other.

Indirect Channels

A marketing channel where intermediaries are inserted between the producer and consumers and perform numerous channel functions.

FIGURE 15-4 Common marketing channels for consumer goods and services

CHANNEL STRUCTURE
AND ORGANIZATION

•Marketing Channels for Business Goods and Services
§Industrial distributor

Industrial Distributor

Performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing.

FIGURE 15-5 Common marketing channels for business goods and services

CHANNEL STRUCTURE
AND ORGANIZATION

Electronic Marketing Channels

Employ the Internet to make goods and services available for consumption or sue by consumers or industrial buyers.

FIGURE 15-6 Representative electronic marketing channels

CHANNEL STRUCTURE
AND ORGANIZATION

•Direct Marketing Channels
•Multiple Channels and Strategic Alliances
§Dual distribution
§Strategic channel alliances

Direct Marketing Channels

Allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson.

Dual Distribution

An arrangement by which a firm reaches buyers by employing two or more different types of channels for the same basic product.

Strategic Channel Alliances

A practice whereby one firm’s marketing channel is used to sell another firm’s products.

CHANNEL STRUCTURE
AND ORGANIZATION

•A Closer Look at Channel Intermediaries

•Merchant Wholesalers
•Agents and Brokers
§Manufacturer’s agents
§Selling agents
§Brokers
•Manufacturer’s Branches and Offices

Merchant Wholesalers

Independently owned firms that take title to the merchandise they handle.

Manufacturer’s Agents

Work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory.

Represents a single producer and is responsible for the entire marketing function of that product.

Independent firms or individuals whose principal function is to bring buyers and sellers together to make sales.

FIGURE 15-7 Functions performed by independent wholesaler types

CHANNEL STRUCTURE
AND ORGANIZATION

•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.

FIGURE 15-8 Types of vertical marketing systems

CHANNEL STRUCTURE
AND ORGANIZATION

•Vertical Marketing Systems and Channel Partnerships (cont)

•Corporate Systems
•Contractual Systems
§Franchising
•Administered Systems
•Channel Partnerships

Contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchise to operate a certain type of business under an established name and according to specific rules.

Channel Partnership

Agreements and procedures among channel members for ordering and physically distributing a producers product through the channel to the ultimate consumer.

1. What is the difference between a direct and an indirect channel?

A: With direct channels, a producer and ultimate consumers deal directly with each other. With indirect channels, intermediaries are situated between the producer and consumers.

2. Why are channels for business products typically shorter than channels for consumer products?

A: Channels are typically shorter for industrial products, since these users are fewer in number, tend to be more concentrated geographically, and buy in larger quantities.

3. What is the principal distinction between a corporate vertical marketing system and an administered vertical marketing system?

A: Corporate vertical marketing systems achieve coordination at successive stages of production and distribution by ownership, whereas administered vertical marketing systems achieve the same thing by the size and influence of one channel member.

CHANNEL CHOICE
AND MANAGEMENT

•Factors Affecting Channel Choice and Management

•Environmental Factors
•Consumer Factors
•Product Factors
•Company Factors

CHANNEL CHOICE
AND MANAGEMENT

•Channel Design Considerations

•Target Market Coverage

§Intensive distribution
§Exclusive distribution
§Selective distribution

•

Satisfying Buyer Requirements

•Profitability

•Global Dimensions of Marketing Channels

Intensive Distribution

A firm tries to place its products or services in as many outlets as possible.

Exclusive Distribution

Only one retail outlet in a specific geographical area carries the firm’s products.

Selective Distribution

A firm selects a few retail outlets in a specific geographical area to carry its products.

CHANNEL CHOICE
AND MANAGEMENT

•Channel Relationships: Conflict, Cooperation, and Law

•Conflict in Marketing Channels
§Disintermediation
•Cooperation in Marketing Channels
§Channel captain
•Legal Considerations

Channel Conflict

Arises when one channel member believes another channel member is engaged in behavior that prevents it from meeting its goals.

Disintermediation

Channel conflict that arises when a channel member bypasses another member and sells or buys products direct.

A marketing channel member that coordinates, directs, and supports other channel members; may be a producer, wholesaler, or retailer.

FIGURE 15-9 Channel strategies and practices affected by legal restrictions

1. What are the three degrees of distribution intensity?

A: Intensive, exclusive, selective

2. What are the three questions marketing executives consider when choosing a marketing channel and intermediaries?

A: 1. Which channel and intermediaries will provide the best coverage of the target market?

2. Which channel and intermediaries will best satisfy the buying requirements of the target markets?

3. Which channel and intermediaries will be the most profitable?

3. What is meant by “exclusive dealing”?

A: When a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products.

Chapter 15 - Summary

A marketing channel consists of individuals and firms involved in the process of making a product or service available for use by consumers or business users.
Intermediaries make possible the flow of products and services from producers to buyers by performing transactional, logistical, and facilitating functions. At the same time, intermediaries create time, place, form, and possession utility.
Channel structure describes the route taken by products and services from producers to buyers. Direct channels represent the shortest route because producers interact directly with buyers. Indirect channels include intermediaries between producers and buyers.
In general, marketing channels for consumer products and services contain more intermediaries than do channels for business products and services. In some situations, producers use Internet, direct marketing, multiple channels and strategic channel alliances to reach buyers.
Numerous types of wholesalers can exist within a marketing channel. The principal distinction between the various types of wholesalers lies in whether they take title to the items they sell and the channel functions they perform.
Vertical marketing systems are channels designed to achieve channel function economies and marketing impact. A vertical marketing system may be one of three types: corporate, administered, or contractual.
Marketing managers consider environmental, consumer, product, and company factors when choosing and managing marketing channels.
Channel design considerations are based on the target market coverage sought by producers, the buyer requirements to be satisfied, and the profitability of the channel. Target market coverage comes about through one of three levels of distribution density: intensive, exclusive, and selective distribution. Buyer requirements are evident in the amount of information, convenience, variety, and service sought by consumers. Profitability relates to the margins obtained by each channel member and the channel as a whole.
Marketing channels in the global marketplace reflect traditions, customs, geography, and the economic history of individual countries and societies. These factors influence channel structure and relationships among channel members.
Conflicts in marketing channels are inevitable. Vertical conflict occurs between different levels in a channel. Horizon-tal conflict occurs between intermediaries at the same level in the channel.
Legal issues in the management of marketing channels typically arise from six practices: dual distribution, vertical integration, exclusive dealing, tying arrangements, refusal to deal, and resale restrictions.

Chapter 15

Marketing: Managing Marketing Channels and Wholesaling