CHAPTER 12

MARKETING CHANNELS
 Supply Chains and the Value
Delivery Networks

Upstream Downstream
Partners partners
(supply side) (demand side)

The marketing
set of firms that supply the raw
channels or distribution
materials, components, parts,
channels that look toward
information, finances, and
the customer. Example:
expertise
Wholesalers and retailers
 Value delivery network

- A network composed of the firm, suppliers, distributors,

customers who partner with each other to improve the
performance of the entire system in delivering customer
value:
• Toyota manages a huge network of people to deliver
value and establish the brand’s “Let’s Go Places” and “Let’s
Go Beyond” positioning
• Internal SC: from marketing & sales to folks in finance
and operations.
• External SC: suppliers, dealers, and advertising
agencies.
 Nature and Importance of
Marketing Channels
Marketing channel (distribution channel): A set of
interdependent organizations that help make a product or
service available for use or consumption by the consumer or
business user.

• A company’s channel decisions directly affect every

other marketing decisions:
• Pricing: national discount chains or high-quality
specialty stores or directly via online
• Sales force management: how much persuasion,
training, motivation, and support its channel partners
need
How Channel Members Add Value

VS.
 Number of Channel Levels
Why do producers give some of the selling job to channel
partners?
• To have greater efficiency in making goods available to target
markets.
• channel members add value by bridging the major time,
place, and possession gaps that separate goods and services
from consumers.

Channel level: A layer of intermediaries that performs some work

in bringing the product and its ownership closer to the final buyer.
• The number of intermediary levels indicates the length of a
channel
• Direct vs Indirect marketing channel
 Channel Behavior
• Ideally, because the success of individual channel members
depends on the overall channel’s success, all channel firms
should work together smoothly.
• Ex: H&M need to design and R&D à DBL need to produce
perfectly à TML need to manage cargo à Marks line need to
ship à UPS/Fedex need to manage the docs etc..
• Each channel members need to understand & accept their
roles, coordinate activities, and cooperate to attain overall
channel goals.

• Channel conflict: Disagreements among marketing channel

members on goals, roles, and rewards—who should do what
and for what rewards.
• Horizontal vs. Vertical Conflict
 Vertical Marketing Systems

• Conventional marketing
channel vs Vertical marketing
system
• Vertical marketing systems
provide channel leadership
• A channel structure in
which producers,
wholesalers, and retailers
act as a unified system.
• One channel member owns
the others, has contracts
with them, or has so much
power that they all
cooperate.
 Vertical Marketing Systems
Corporate VMS: A vertical marketing system that combines
successive stages of production and distribution under single
ownership—channel leadership is established through common
ownership.
• Amazon: Rather than depending on FedEx or UPS etc. they
are developing own package delivery capabilities.
Contractual VMS: A vertical marketing system in which
independent firms at different levels of production and distribution
join together through contracts.
• McDonald's, as the franchisor, contracts with independent
business owners (franchisees) who operate individual
McDonald's locationsà by following strict guidelines for
operations, marketing, and supply chain.
 Vertical Marketing Systems

Franchise organization: A contractual vertical

marketing system in which a channel member, called a
franchisor, links several stages in the production-
distribution process.

• manufacturer-sponsored retailer franchise system

• manufacturer-sponsored wholesaler franchise system
• service-firm-sponsored retailer franchise system
 Vertical Marketing Systems

Administered VMS: A vertical marketing system that coordinates

successive stages of production and distribution through the size
and power of one of the parties.

• Apple & Its Component Suppliers (e.g., Foxconn): Apple

does not own its suppliers, but its dominance in the
smartphone market means that companies like Foxconn
(assembly), LG (screens) must adjust their production and
timelines according to Apple’s needs.
• Apple controls the supply chain by setting strict quality standards,
product launch schedules, and pricing strategies.
 Horizontal Marketing Systems

• A channel arrangement in which two or more companies at

one level join together to follow a new marketing
opportunity.
• Companies might join forces with competitors or
noncompetitors à by pooling their resources—financial,
production, or marketing.
• McDonald’s & Coca-Cola (Fast Food + Beverage
Giants):McDonald's benefits from Coca-Cola’s strong
brand and distribution, while Coca-Cola secures an
exclusive partnership with one of the biggest fast-food
chains.
 Multichannel Distribution Systems
-A distribution system in which a single firm sets up two or
more marketing channels to reach one or more customer
segments.
 Channel Design Decisions

• Manufacturers struggle between what is ideal (best

customer experience, widest reach) and what is practical
(cost-effective, manageable).

Marketing channel design: Designing effective marketing

channels by_
- analyzing customer needs,
- setting channel objectives,
- identifying major channel alternatives,
- and evaluating those alternatives.
 Channel Design Decisions

-Analyzing customer needs:

• Do consumers want to buy nearby, or are they willing to

travel to more centralized locations?
• Would customers rather buy in person, by phone, or
online?
• Do they want a range of assortment, or do they prefer
specialization?

-Companies must balance consumer needs, feasibility and

customer price preferences.
 Channel Design Decisions
-Setting Channel Objectives:
• Define channel objectives in terms of targeted levels
of customer service. (e.g., same day delivery,
premium service)
• Objectives depend on: Product type, competition,
market coverage (intensive, selective, exclusive
distribution)
• Channel strategy shaped by company characteristics,
products, intermediaries, and competition.
• Economic conditions and legal constraints may affect
channel decision and objectives.
 Channel Design Decisions
o Identifying Major Alternatives:
• Types & number of intermediaries: Wholesaler, Dealers,
Retailers
• Responsibilities of each channel member.

• Example: Nike’s Multi-Channel Distribution

• Nike’s own retail stores and website ([Link])
provide full brand control
• Nike sells through Foot Locker, JD Sports, Amazon
• Nike allows customers to order online and pick up
in partner stores
 Channel Design Decisions
-Number of Marketing Intermediaries: There are three strategies:
1. Intensive distribution: Stocking the product in as many outlets
as possible.
• Best For: (FMCG), low-cost products. Pepsi in all store, vending,
supermarket.
2. Exclusive distribution: Giving a limited number of dealers the
exclusive right to distribute the company’s products in their territories.
• Best For: Luxury goods, high-end brands (Tesla, Rolex)
3. Selective distribution: The use of more than one but fewer than
all of the intermediaries that are willing to carry the company’s
products.
• Best for: Electronics, appliances, fashion brands (Apple Products
– Sold in Apple Stores, select authorized resellers)
 Channel Design Decisions
-Evaluating the Major Alternatives: Each identified alternative
should be evaluated against economic, control, and adaptability
criteria.
• Economic criteria: likely sales, costs, and profitability (Nike
pulled its products from Amazon in 2019 to focus on its
Direct-to-Consumer (DTC) strategy, boosting its profits)
• Control issues: Chanel only sells through its own stores and
official website to keep full control over pricing and brand
experience.
• Adaptability issues: McDonald's Franchising vs. Company-
Owned Stores:
• McDonald's operates both company-owned restaurants and
franchised locations.
• Franchising allows for rapid expansion, but company-owned stores
offer more direct control.
 Channel Design Decisions
-Designing International Distribution Channels:
• Channel systems can vary widely from country to
country
• Large-scale retail chains dominate the U.S.
• However, most of the retailing in India and Indonesia
is done by small, independent retailers. Ex: Unilever in
India run by thousands of small retailers.
• BIG retailers have centralized warehouses, reduced
costs and improved logistics à Walmart, Target,
Tesco, Carrefour, Amazon, etc.
• Also P&G or Unilever distributes products through
massive retail chains like Walmart, Costco, and
Amazon.
 Marketing Logistics and Supply Chain
Management

• Companies must decide on the best way to store,

handle, and move their products and services so that
they are available to customers.

• Logistics effectiveness has a major impact on both

customer satisfaction and company costs.
Nature and Importance of Marketing Logistics

“marketing logistics does not mean only trucks and

warehouses”

It is the planning, implementing, and controlling the

physical flow of materials, final goods, and related
information from points of origin to points of consumption.
Nature and Importance of Marketing Logistics

Inbound, Outbound, and Reverse Logistics

Nature and Importance of Marketing Logistics
Emphasis on logistics is important for several reasons:

• Give competitive advantage to the company

• Improved logistics can yield tremendous cost

savings to both a company and its customers

• The explosion in product variety has created a

need for improved logistics management.

• Logistics affects the environment and a firm’s

environmental sustainability efforts
 Major Logistics Functions

Inventory
Warehousing
management

Logistics
Transportation Information
Management