1

Lamb, Hair, McDaniel

CHAPTER 13

Marketing Channels

2010-2011

2

LO 1 Explain what a marketing channel is and why intermediaries are needed

LO 2 Define the types of channel intermediaries and describe their functions and activities

LO 3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements

LO 4 Discuss the issues that influence channel strategy

Learning OutcomesLearning Outcomes

3

LO 5 Describe the different channel relationship types and their unique costs and benefits

LO 6 Explain channel leadership, conflict, and partnering

LO 7 Discuss channels and distribution decisions in global markets

LO 8 Identify the special problems and opportunities associated with distribution in service organizations

Learning OutcomesLearning Outcomes

4

Explain what a marketing channel is

and why intermediaries are needed

Marketing ChannelsMarketing Channels

LO1

5

Marketing Channels

Marketing Channel: A set of

interdependent organizations that ease

the transfer of ownership as products

move from producer to business user

or consumer.

LO1

6

Marketing Channel Functions

Specialization and division of labor Specialization and division of labor

Overcoming discrepancies Overcoming discrepancies

Providing contact efficiency Providing contact efficiency

LO1

7

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

LO1

8

Overcoming Discrepancies

Discrepancyof

Quantity

Discrepancyof

Quantity

Discrepancyof

Assortment

Discrepancyof

Assortment

The difference between the amount of product produced and the amount an end user

wants to buy.

The difference between the amount of product produced and the amount an end user

wants to buy.

The lack of all the items a customer needs to receive full satisfaction from a product or

products.

The lack of all the items a customer needs to receive full satisfaction from a product or

products.

LO1

9

Overcoming Discrepancies

TemporalDiscrepancyTemporal

Discrepancy

SpatialDiscrepancy

SpatialDiscrepancy

A situation that occurs when a product is produced but a

customer is not ready to buy it.

A situation that occurs when a product is produced but a

customer is not ready to buy it.

The difference between the location of a producer and the

location of widely scattered markets.

The difference between the location of a producer and the

location of widely scattered markets.

LO1

10

Providing Contact Efficiency

LO1

11

Define the types of channel intermediaries

and describe their functions and activities

Channel IntermediariesChannel Intermediaries

LO2

12

Channel Intermediaries

RetailerRetailer A channel intermediary that sells mainly to customers.

A channel intermediary that sells mainly to customers.

MerchantWholesalerMerchant

Wholesaler

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

Agents andBrokers

Agents andBrokers

Wholesaling intermediaries who facilitate the sale of a product by representing channel members.

Wholesaling intermediaries who facilitate the sale of a product by representing channel members.

LO2

13

Channel Intermediaries

RetailersRetailers

Merchant WholesalersMerchant

Wholesalers

Agents and

Brokers

Agents and

Brokers

Take Title to GoodsTake Title to Goods

Take Title to GoodsTake Title to Goods

Do NOT Take Title to GoodsDo NOT Take Title to Goods

LO2

14

Sysco: Merchant Wholesaler

Chefs, like any retailer, need large amounts of product inexpensively. Enter Sysco: with more than 400,000 items in their catalogue, Sysco inexpensively provides chefs what they need. From frozen prepared food to regionally grown produce, Sysco supplies fast food and high end hotels, and many restaurants between.

Compare a 25 lb bag of Uncle Ben’s Converted Rice for $20.95 (84 cents/lb) to Amazon grocery’s $2.09 for a pound of the same rice, and it’s easy to see why Sysco dominates as the food wholesaler. http://www.youtube.com/watch?v=oAvQcYcvyaw&NR=1

http://www.youtube.com/watch?v=pEyASBCDLrY&feature=related

Source: Boser, Ulrich. “Every Bite You Take: How Sysco came to monopolize mos of what you eat,” Slate.com, February 21, 2007.

LO2

15

Factors Suggesting Type of Wholesaling Intermediary to Use

Product characteristicsProduct characteristics

Buyer considerationsBuyer considerations

Market characteristicsMarket characteristics

LO2

16

Factors Suggesting Type of Wholesaling Intermediary to Use

Factor Merchant Wholesalers

Agents/ Brokers

Nature of product Standard Nonstandard, custom

Technicality of product Complex Simple

Product’s gross margin High Low

Frequency of ordering Frequent Infrequent

Time between order and receipt of shipment

Shorter lead time Longer lead time

Number of customers Many Few

Concentration of customers Dispersed Concentrated

LO2

17

Channel Functions Performed by Intermediaries

Contacting/Promotion

Negotiating

Risk Taking

Researching

Financing

Physically distributing

Storing

Sorting

FacilitatingFunctions

FacilitatingFunctions

TransactionalFunctions

TransactionalFunctions

Logistical Functions

Logistical Functions

LO2

18

Logistics

LogisticsThe process of strategically

managing the efficient flow

and storage of raw

materials, in-process

inventory, and finished

goods from point of origin to

point of consumption.

LO2

19

Channel Intermediaries and Functions

CHANNELINTERMEDIARIES

CHANNELINTERMEDIARIES

Retailers

Wholesalers

Agents and Brokers

Retailers

Wholesalers

Agents and Brokers

CHANNELFUNCTIONSCHANNEL

FUNCTIONS

Transactional

Logistical

Facilitating

Transactional

Logistical

Facilitating

Perform

LO2

20

Describe the channel structures for consumer and

business products and discuss

alternative channel arrangements

Channel StructuresChannel Structures

LO3

21

Channels for Consumer Products

Producer Producer Producer Producer

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents orBrokers

WholesalerWholesalerChannelChannel

RetailerRetailerChannelChannel

DirectDirectChannelChannel

Agent/BrokerAgent/BrokerChannelChannel

LO3

22

Channels for Consumer Products

A distribution channel in

which producers sell

directly to consumers.

Direct Channel

Direct Channel

LO3

23

Producer

IndustrialUser

DirectDirectChannelChannel

Producer

Govt.Buyer

DirectDirectChannelChannel

Producer Producer Producer

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialDistributor

IndustrialDistributor

Agents orBrokers

Agents orBrokers

Agent/BrokerAgent/BrokerChannelChannel

IndustrialIndustrialDistributorDistributor

Agent/BrokerAgent/BrokerIndustrialIndustrialChannelChannel

LO3

Channels for Business Products

24

Business-to-Business Exchanges on the Internet

Companies drop the intermediary from the supply chainCompanies drop the intermediary from the supply chain

“Private exchanges” with select suppliers automate the supply chain

“Private exchanges” with select suppliers automate the supply chain

Online

http://www.sherwinwilliams.com

LO3

The Internet has forced traditional distributors to expand their model.

25

Alternative Channel Arrangements

Multiple channels

Strategic channel alliances

Nontraditional channels

LO3

26

REVIEW LEARNING OUTCOME

Channel Structures

CONSUMERCHANNELS

CONSUMERCHANNELS

Direct

Retail

Wholesaler

Agent/broker

Direct

Retail

Wholesaler

Agent/broker

BUSINESSCHANNELSBUSINESSCHANNELS

Direct

Industrial

Agent/broker

Agent/brokerindustrial

Direct

Industrial

Agent/broker

Agent/brokerindustrial

ALTERNATIVECHANNELS

ALTERNATIVECHANNELS

Multiple

Nontraditional

Strategicalliances

Multiple

Nontraditional

Strategicalliances

LO3

27

Discuss the issues that influence

channel strategy

Making Channel Making Channel Strategy DecisionsStrategy Decisions

LO4

28

Channel Strategy Decisions

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Producer FactorsProducer Factors

Product FactorsProduct Factors

Market FactorsMarket Factors

Exclusive DistributionExclusive Distribution

Selective DistributionSelective Distribution

Intensive DistributionIntensive Distribution

Level ofLevel ofDistributionDistribution

IntensityIntensity

Level ofLevel ofDistributionDistribution

IntensityIntensity

LO4

29

Market Factors

Market Market FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Market Market FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Customer profilesCustomer profiles

Consumer or IndustrialCustomer

Consumer or IndustrialCustomer

Size of marketSize of market

Geographic location

LO4

30

Product Factors

Product Product FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Product Product FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Product Complexity Product Complexity

Product StandardizationProduct Standardization

Product Life CycleProduct Life Cycle

Product DelicacyProduct Delicacy

Product PriceProduct Price

LO4

31

Producer Factors

Producer Producer FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Producer Producer FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Producer Resources Producer Resources

Number of Product LinesNumber of Product Lines

Desire for Channel ControlDesire for Channel Control

LO4

32

Levels of Distribution Intensity

IntensiveIntensiveA form of distribution aimed at having a product available in every outlet

A form of distribution aimed at having a product available in every outlet

SelectiveSelectiveA form of distribution achievedby screening dealers to eliminate all but a few in any single area

A form of distribution achievedby screening dealers to eliminate all but a few in any single area

ExclusiveExclusiveA form of distribution that established one or a few dealers within a given area

A form of distribution that established one or a few dealers within a given area

LO4

33

Levels of Distribution Intensity

IntensiveAchieve mass marketselling. Convenience goods.

Many

Selective

Exclusive

Work with selected intermediaries. Shopping and some specialty goods.

Work with singleintermediary. Specialty goods and industrial equipment.

Several

One

Intensity Level Objective Number of

Intermediaries

LO4

34

Types of Channel Relationships

LO5

Describe the different channel relationship types and their unique

costs and benefits

35

Benefits Hazards

Arm’s Length Relationship

Fulfills a one time or unique need; low involvement/risk

Parties unable to develop relationship; low trust level

Cooperative Relationship

Formal contract without capital investment/long-term commitment; “happy medium”

Some parties may need more relationship definition

Integrated Relationship

Closely bonded relationship; explicitly defined relationships

High capital investment; any failure could affect every channel member

LO5

Types of Channel Relationships

36

Explain channel leadership, conflict,

and partnering

Managing Channel RelationshipsManaging Channel Relationships

LO6

37

Social Dimensions of Channels

PartneringPartnering

ConflictConflict

LeadershipLeadership

ControlControl

PowerPower

LO6

38

Channel Power, Control, and Leadership

ChannelPower

ChannelPower

A channel member’s capacity to control or influence the behavior of other channel members

A channel member’s capacity to control or influence the behavior of other channel members

ChannelControl

ChannelControl

A situation that occurs when one marketingchannel member intentionally affects another member’s behavior

A situation that occurs when one marketingchannel member intentionally affects another member’s behavior

Channel Leader

Channel Leader

A member of a marketing channel that exercises authority/power over the activities of other members

A member of a marketing channel that exercises authority/power over the activities of other members

LO6

39

Channel Conflict and Partnering

ChannelConflict

ChannelConflict

A clash of goals and methods

between distribution channel

members

A clash of goals and methods

between distribution channel

members

ChannelPartnering

ChannelPartnering

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

LO6

40

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

41

Channel Partnering

Supplier / Manufacturer Relationships

Short-termAdversarialIndependentPrice important

Long-termCooperativeDependentValue-added services

Number of Suppliers Many Few

Transaction-Based Partnership-Based

Information Sharing Minimal High

InvestmentRequired Minimal High

LO6

42

Discuss channels and

distribution decisions

in global markets

Channels and Distribution Channels and Distribution Decisions for Global Markets Decisions for Global Markets

LO7

43

Channels and Distribution Decisions for Global Markets

Global Channel Development

Global Channel Development

Channel structure and type differ

Channel structure and type differ

Gray marketing channelsGray marketing channels

Distribute directly or through foreign partners

Legal and infrastructure differences

LO7

44

Identify the special problems and

opportunities associated with distribution in

service organizations

LO8

Channels and Distribution Channels and Distribution Decisions for ServicesDecisions for Services

45

Distribution in Service Organizations

LO8