i t ’s good and

good for you

Chapter 7

Marketing Channels: Delivering

Customer Value

7-1
 Marketing Channels:
Delivering Customer Value
Topic Outline
• Supply Chains and the Value Delivery Network
• The Nature and Importance of Marketing Channels
• Channel Behavior and Organization
• Channel Design Decisions
• Channel Management Decisions
• Marketing Logistics and Supply Chain Management

7-2
 Supply Chains and the
Value Delivery Network
Supply Chain Partners

Upstream partners include raw material

suppliers, components, parts, information,
finances, and expertise to create a
product or service

Downstream partners include the marketing

channels or distribution channels that
look toward the customer

7-3
 Supply Chains and the
Value Delivery Network
Supply Chain Views
Supply chain “make and sell” view includes the
firm’s raw materials, productive inputs, and
factory capacity

Demand chain “sense and respond” view suggests

that planning starts with the needs of the target
customer, and the firm responds to these needs
by organizing a chain of resources and activities
with the goal of creating customer value

7-4
 Supply Chains and the
Value Delivery Network
Value Delivery Network

Value delivery network is

the firm’s suppliers,
distributors, and
ultimately customers
who partner with each
other to improve the
performance of the
entire system

7-5
 The Nature and Importance of
Marketing Channels
How Channel Members Add Value

Intermediaries offer producers greater

efficiency in making goods available to
target markets. Through their contacts,
experience, specialization, and scale of
operations, intermediaries usually offer
the firm more than it can achieve on its
own.

7-6
 The Nature and Importance of
Marketing Channels
How Channel Members Add Value
• From an economic view, intermediaries
transform the assortment of products into
assortments wanted by consumers
• Channel members add value by bridging
the major time, place, and possession gaps
that separate goods and services from
those who would use them

7-7
The Nature and Importance of
Marketing Channels
How Channel Members Add Value

7-8
The Nature and Importance of
Marketing Channels
How Channel Members Add Value

Information Promotion Contact

Physical
Matching Negotiation
distribution

Financing Risk taking

7-9
The Nature and Importance of
Marketing Channels
Number of Channel Levels

7 - 10
 The Nature and Importance of
Marketing Channels
Number of Channel Levels
Connected by types of flows:
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow

7 - 11
 Channel Behavior and Organization

Channel Behavior
Marketing channel consists of firms that
have partnered for their common good
with each member playing a specialized
role
Channel conflict refers to disagreement over
goals, roles, and rewards by channel
members
• Horizontal conflict
• Vertical conflict
7 - 12
 Channel Behavior and Organization

Conventional Distributions Systems

Conventional distribution systems consist of

one or more independent producers,
wholesalers, and retailers. Each seeks to
maximize its own profits, and there is little
control over the other members and no
formal means for assigning roles and
resolving conflict.

7 - 13
 Channel Behavior and Organization

Vertical Marketing Systems

Vertical marketing systems (VMSs) provide channel

leadership and consist of producers,
wholesalers, and retailers acting as a unified
system and consist of:
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems

7 - 14
 Channel Behavior and
Organization
Vertical Marketing Systems
Corporate vertical
marketing system
integrates successive
stages of production
and distribution
under single
ownership

7 - 15
 Channel Behavior and Organization
Vertical Marketing Systems

Contractual vertical marketing system consists of

independent firms at different levels of
production and distribution who join together
through contracts to obtain more economies or
sales impact than each could achieve alone. The
most common form is the franchise
organization.

7 - 16
 Channel Behavior and Organization

Vertical Marketing Systems

Franchise organization links several stages in the

production distribution process
– Manufacturer-sponsored retailer franchise system
– Manufacturer-sponsored wholesaler franchise
system
– Service firm-sponsored retailer franchise system

7 - 17
Channel Behavior and Organization
Vertical Marketing Systems

Administered vertical marketing system has a

few dominant channel members without
common ownership. Leadership comes from
size and power.

7 - 18
 Channel Behavior and Organization
Horizontal Marketing System
Horizontal marketing
systems are when two or
more companies at one
level join together to
follow a new marketing
opportunity. Companies
combine financial,
production, or marketing
resources to accomplish
more than any one
company could alone.

7 - 19
Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels

Multichannel Distribution systems (Hybrid

marketing channels) are when a single firm
sets up two or more marketing channels to
reach one or more customer segments

7 - 20
Channel Behavior and
Organization
Multichannel Distribution System

7 - 21
Channel Behavior and Organization

Changing Channel Organization

Disintermediation occurs
when product or service
producers cut out
intermediaries and go
directly to final buyers, or
when radically new types
of channel intermediaries
displace traditional ones

7 - 22
Channel Design Decisions

Analyzing Setting
consumer channel
needs objectives

Identifying
major
channel Evaluation
alternatives

7 - 23
 Channel Design Decisions
Setting Channel Objectives

• Targeted levels of customer service

• What segments to serve
• Best channels to use
• Minimizing the cost of meeting customer service
requirements

7 - 24
 Channel Design Decisions
Identifying Major Alternatives

• Types of intermediaries
• Number of marketing intermediaries
• Responsibilities of channel members

7 - 25
Channel Design Decisions
Identifying Major Alternatives

Intensive distribution
• Candy and toothpaste

Exclusive distribution
• Luxury automobiles and prestige
clothing
Selective distribution
• Television and home appliance

7 - 26
 Channel Design Decisions
Evaluating the Major Alternatives

Each alternative should

be evaluated against:
– Economic criteria
– Control
– Adaptive criteria

7 - 27
 Channel Design Decisions
Designing International Distribution Channels

• Channel systems
can vary from
country to country
• Must be able to
adapt channel
strategies to the
existing structures
within each country

7 - 28
 Channel Management Decisions

Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members

7 - 29
 Public Policy and Distribution
Decisions
Exclusive distribution is when the seller allows only
certain outlets to carry its products
Exclusive dealing is when the seller requires that
the sellers not handle competitor’s products
Exclusive territorial agreements are where
producer or seller limit territory
Tying agreements are agreements where the dealer
must take most or all of the line

7 - 30
 Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing
Logistics
Marketing logistics (physical
distribution) involves planning,
implementing, and controlling
the physical flow of goods,
services, and related
information from points of
origin to points of consumption
to meet consumer
requirements at a profit

7 - 31
 Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics

7 - 32
 Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics

Supply chain management is the process of

managing upstream and downstream value-
added flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers

7 - 33
 Marketing Logistics and
Supply Chain Management
Major Logistics Functions

Inventory
Warehousing
management

Logistics
Transportation information
management
7 - 34
 Marketing Logistics and
Supply Chain Management
Warehousing Decisions
• How many
• What types
• Where to locate
• Warehouses
• Distribution centers

7 - 35
 Marketing Logistics and
Supply Chain Management
Inventory Management
• Just-in-time systems
• RFID
– Knowing exact product location
• Smart shelves
– Placing orders automatically

7 - 36
 Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Transportation affects the pricing
of products, delivery
performance, and condition of
the goods when they arrive

Truck Rail Water

Pipeline Air Internet

7 - 37
 Marketing Logistics and
Supply Chain Management
Logistics Information Management

Logistics information management is the

management of the flow of information,
including customer orders, billing, inventory
levels, and customer data
• EDI (electronic data interchange)
• VMI (vendor-managed inventory)

7 - 38
 Marketing Logistics and
Supply Chain Management
Integrated Logistics Management

Integrated logistics management

is the recognition that providing
customer service and trimming
distribution costs requires
teamwork internally and
externally

7 - 39
 Marketing Logistics and
Supply Chain Management
Integrated Logistics Management

Third-party logistics is
the outsourcing of
logistics functions to
third-party logistics
providers (3PLs)

7 - 40
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Copyright © 2012 Pearson Education, Inc.

Publishing as Prentice Hall

7 - 41