Channel Management

Chapter Outline

The Nature of Marketing ChannelsTypes of Marketing ChannelsIntensity of Market CoverageLegal Issues in Channel Management

The Nature of Marketing Channels

DistributionThe activities that make products available

to customers when and where they want to purchase them

Marketing ChannelA group of individuals and

organizations directing products from producers to customers

The Nature of Marketing Channels (cont’d)

Marketing IntermediaryA middleman linking producers to other middlemen or

to ultimate consumers through contractual arrangements or through the purchase and resale of products

ProducerProducerProducer

ProducerProducerProducer

CustomerCustomerCustomer

CustomerCustomerCustomerIntermediaryIntermediaryIntermediary

Direct ChannelDirect Channel

Indirect ChannelIndirect Channel

ProducerProducerProducer

ProducerProducerProducer

CustomerCustomerCustomer

CustomerCustomerCustomerIntermediaryIntermediaryIntermediary

ProducerProducerProducer

ProducerProducerProducer

CustomerCustomerCustomer

CustomerCustomerCustomerIntermediaryIntermediaryIntermediary

Direct ChannelDirect Channel

Indirect ChannelIndirect Channel

The Nature of Marketing Channels (cont’d)

Marketing Channels Create UtilityTime utility:

Place utility:

Possession utility:

The Nature of Marketing Channels (cont’d)

Marketing Channels Facilitate Exchange EfficienciesReduce the overall costs of market

exchangesReduce search costs for customersMaintain order in the marketplace

Marketing Channels Form a Supply Chain

Supply Chain ManagementLong-term partnerships among marketing channel

members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers

Optimizes costs throughout the whole channel for efficiency and service

Includes all entities that facilitate product distribution and benefit from cooperative efforts

Arises from the need to achieve a more competitive position

Typical Marketing Channels forConsumer Products

Typical Marketing Channels forBusiness Products

Distribution Intermediaries

Industrial DistributorAn independent business that takes title to

business products and carries inventories

Advantages of using a distributor

Disadvantages of using a distributor

Distribution Intermediaries (cont’d)

Manufacturers’ AgentAn independent businessperson who sells, on

commission, the complementary products of several producers; does not takes title to or hold inventories.

Advantages of using an agent

Disadvantages of using an agent

Multiple Marketing Channels and Channel Alliances

Dual DistributionThe use of two or more channels to

distribute same product to the same target market

Strategic Channel Alliance

Intensity of Market Coverage

Intensive DistributionUsing all available outlets to distribute a

product.Convenience products with high replacement

rates

Intensity of Market Coverage (cont’d)

Selective DistributionUsing only some available outlets to

distribute a productShopping products and durable goods with low

replacement rates

Intensity of Market Coverage (cont’d)

Exclusive DistributionUsing a single outlet in a fairly large

geographic area to distribute a productExpensive, high-quality products purchased

infrequently

.

Example: Amazon.com

Channel Leadership

Channel CaptainThe dominant member (producer, wholesaler, or

retailer) of a marketing channel or supply chain

Channel PowerThe ability of one channel member

to influence another member’s goal achievement

Channel Cooperation

Benefits of CooperationSpeeds up inventory replacementImproves customer serviceReduces distribution costs

Improving Channel CooperationUnifying channel to maintain market orderAgreeing to direct efforts toward common objectivesPrecisely defining each channel member’s tasks

Channel Conflict

Sources of Channel ConflictDisagreements arising among channel membersCommunication difficulties jeopardizing coordinationIncreased use of multiple distribution channels by

manufacturers creating conflicts with distributors and retailers

Intermediaries diversifying into and offering competing products

Producers attempting to circumvent intermediaries and dealing directly with retailers

Channel Integration

Vertical Channel IntegrationTwo or more stages of the marketing channel are under one

management.Channel members coordinate their efforts to reach a target

market.Vertical Marketing System (VMS)

A marketing channel managed by a single channel member to achieve efficient, low-cost distributionCorporate VMSAdministered VMSContractual VMS

Corporate VMS:

Corporate vertical marketing system can be involved with the ownership that of the levels of distribution or production chain that is associated with a single company.

Administered VMS

This is a kind of VMS that has one member from the production as well as the distribution chain has more dominance and they organize the whole nature that is associated with the vertical marketing system in an informal manner.

Contractual VMS

This is a kind of vertical marketing system that has formal agreement involved in it that exists between various levels that of the production or it can be between the levels of distribution channel.

Strategic Channel Alliance

ICICI Bank, India’s largest private sector bank and Vodafone India, one of India’s largest telecom service providers, announced a strategic alliance to launch a unique mobile money transfer and payment service called ‘m-pesa’. ‘m-pesa’ is the trademark of Vodafone. The announcement was made by Chanda Kochhar, MD & CEO, ICICI Bank and Marten Pieters, MD & CEO, Vodafone India Ltd.

  ICICI Bank and Vodafone India through its 100% subsidiary, Mobile Commerce

Solutions Ltd. (“MCSL”) have finalized plans to launch mobile payment services this year, under the brand name ‘m-pesa’. This offering will comprise: a mobile money account with ICICI Bank and a Mobile Wallet - issued by MCSL.

The partnership between ICICI Bank and Vodafone effectively leverages the strengths of Vodafone’s significant distribution reach and the security of financial transactions provided to customers by ICICI Bank. These services are made convenient using a vast network of authorized agents who will enable the customer to deposit and withdraw cash in and from their account. By facilitating banking transactions at such agent locations, this alliance effectively delivers the last mile access in remote areas.

Legal Issues in Channel Management

Dual DistributionA producer can have two different channels into the

same market unless it is using one channel to compete with independent distributors of its products.

Restricted Sales TerritoriesGranting exclusive sales territory rights to distributors

is permissible if the rights do not restrain trade.Tying Arrangements

Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier

Legal Issues in Channel Management (cont’d)

Full-Line ForcingRequiring a channel member to carry a

supplier’s entire product line to obtain any of the supplier’s products

Exclusive DealingForbidding an intermediary to carry

products of a competing manufacturer

Legal Issues in Channel Management (cont’d)

Refusal to DealSuppliers can choose their distributors and

refuse to deal with others so long as their decisions are not based on anticompetitive motives or part of an organized refusal-to-deal with certain channel members.