Marketing Channels
Marketing Framework
What Is a Marketing Channel?
A marketing channel system is the particular set
of interdependent organizations involved in the
process of making a product or service available
for use or consumption.
Members in Distribution Channels
• Manufacturing firms
• Intermediaries
• Consumers
Intermediaries
• Merchants- buy, take title to, and resell the
merchandise- wholesalers and retailers
• Agents- search for customers and may negotiate on
the producer’s behalf but do not take title to the goods-
brokers, manufacturers’ representatives, sales agents
• Facilitators- assist in the distribution process but
neither take title to goods nor negotiate purchases or
sales- transportation companies, independent
warehouses, banks, advertising agencies
Channel Member Functions
• Gather information
• Develop and disseminate persuasive communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
Activities in Distribution Channels
• Customer oriented: ordering, handling, shipping,
etc.
• Product-oriented: storage & display, etc.
• Marketing-centric: promotion, etc.
• Financial-oriented
• Logistics
Channels and Marketing Decisions
• Push strategy
• Pull strategy
Push Strategy
• Uses sales force, trade promotion money, or other
means to induce intermediaries to carry, promote,
and sell the product to end users. Appropriate when
there is:
• low brand loyalty in a category,
• brand choice is made in the store,
• the product is an impulse item, and
• product benefits are well understood.
Push strategy characteristics
• Advertise to partners (and consumers)
• Distribute more selectively
• Employ a sales force
• Offer incentives to sales force
• Offer price and/or quantity discounts
• Offer financing
• Offer allowances for marketing activities
Pull Strategy
• Uses advertising, promotion, and other forms of
communication to persuade consumers to demand
the product from intermediaries. Appropriate when
there is:
• high brand loyalty
• high involvement in the category,
• Consumers perceive differences between
brands,
• Consumer choose the brand before they go to the
store
Pull strategy characteristics
• Advertise to consumers
• Distribute widely
• Offer price and/or quantity discounts
• Offer inexpensive trials or free samples
• Offer coupons and/or rebates
• Offer financing
• Offer loyalty programs/points
Hybrid channels or multichannel marketing
When a single firm uses two or more marketing
channels to reach customer segments.
E.G. HP uses multiple channel for various segments –
• sales force for large accounts,
• outbound telemarketing medium for sized accounts,
• direct mail with an inbound number for small
accounts,
• Retailers for smaller accounts
• Internet for specialty items.
E-Commerce
Pure-click
Brick-and-click
M-Commerce
• Widespread penetration of smart cell phones
• allows people to connect to the Internet and place
online orders on the move
• GPS-type features can help identify purchase
opportunities for consumers for their favorite brands
Buyer Expectations for Channel Integration
• Ability to order a product online and pick it up at a
convenient retail location
• Ability to return an online-ordered product to a nearby
store
• Right to receive discounts based on total online and
offline purchases
Marketing Flows in the Marketing Channel
for Trucks
Marketing Channel Levels
• Zero-level channel (direct marketing channel)
• One-level channel
• Two-level channel
• Three-level channel
Consumer Markets
Reverse-Flow Channels
Required for:
(1)reuse products or containers (such as
refillable chemical-carrying drums);
(2)refurbish products for resale (such as
circuit boards or computers)
(3)recycle products (such as paper)
(4)dispose of products and packaging
Designing a Marketing Channel System
• Analyze customer needs
• Establish channel objectives
• Identify major channel alternatives
• Evaluate major channel alternatives
Service Outputs of Channels
Lot size
Waiting and delivery time
Spatial convenience
Product variety
Service backup
Identifying Channel Alternatives
• Types of intermediaries
• Number of intermediaries
• Terms and responsibilities
Number of Intermediaries
• Exclusive
• Selective
• Intensive
Intensive Distribution
• Widely distributed
• Drugstores, supermarkets, discount stores,
convenience stores, etc.
• Usually for simple, inexpensive, easily transported
products
• Snack food, shampoo, newspapers, etc.
• Pull strategy
Selective Distribution
• Less widely distributed
• Usually for complex and/or expensive products that
require assistance
• Computers, appliances, etc.
• Manufacturer has more control due to fewer
relationships to manage
• Push strategy
Exclusive Distribution
• Extreme case of selectivity
• Manufacturers have the most control
Terms and Responsibilities
of Channel Members
• Price policy
• Condition of sale
• Distributors’ territorial rights
• Mutual services and responsibilities
Evaluating Major Channel Alternatives
The Value-Adds versus Costs of Different Channels
Source: Oxford Associates, adapted from Dr. Rowland T. Moriarty. Cubex Corp.
Break-Even Cost Chart (furniture example)
Channel-Management Decisions
• Selecting channel members
• Training channel members
• Motivating channel members
• Evaluating channel members
• Modifying channel members
Channel Power
Coercive
Reward
Legitimate
Expert
Referent
Integrated Marketing Channel System
• An integrated marketing channel system is one
in which the strategies and tactics of selling
through one channel reflect the strategies and
tactics of selling through one or more other
channels.
Channel Conflict
• What types of conflict arise in channels?
• What causes conflict?
• What can marketers do to resolve it?
Types of Channel Conflict
• Horizontal- Within channel same level
• Vertical- Within channel different levels
• Multichannel- Between channels
Causes of Channel Conflict
• Goal incompatibility
• Unclear roles and rights
• Differences in perception
• Intermediaries’ dependence on manufacturer
Managing Retailing,
Wholesaling and Logistics
Major Retailer Types
• Specialty store • Discount store
• Department store • Off-price retailer
• Supermarket • Superstore
• Convenience store • Catalog showroom
Levels of Retail Service
• Self service
• Self selection
• Limited service
• Full service
Nonstore Retailing
• Direct selling
• Direct marketing
• Automatic vending
• Buying service
Franchising System
• The franchisor
• owns a trade mark and licenses it to franchisees in
return for royalty payments
• provides its franchisees with a system for doing
business
• The franchisee pays for the right to be part of the system
Changes in the Retail Environment
• New retail forms and combinations
• Competition between store-based and non-store-
based retailing
• Growth of giant retailers
• Decline of middle market retailers
• Growing investment in technology
• Global profile of major retailers
• Growth of shopper marketing
Retailers’ Marketing Decisions
• Target market • Store atmosphere
• Product assortment • Store activities
• Procurement • Store experiences
• Prices • Communications
• Services • Location
Retailer Services Mix
• Prepurchase services- accepting telephone and mail
orders, advertising, window and interior display, fitting
rooms, shopping hours, fashion shows
• Postpurchase services shipping and delivery, gift
wrapping, adjustments and returns, alterations and
tailoring, installations, engraving
• Ancillary services- general information, check cashing,
parking, restaurants, repairs, interior decorating, credit,
rest rooms, baby-attendant service
Store Atmosphere and Experiences
• Store atmosphere refers to the look and physical layout
of the store
Location Decision
• Central business districts
• Regional shopping centers
• Community shopping centers
• Shopping strips
• Location within a larger store
• Stand-alone stores
Private Label Brands
• Also known as reseller, store, house, or distributor brand
• Growing phenomenon- Consumer accepts private labels
• Consumer loyalty shifts from manufacturers to retailers
• Buyers from all socioeconomic strata
• Comprise more than 75 percent of the stock at Trent,
Reliance, and Pantaloon, but less than 20 percent at
Shoppers Stop and Spencer’s.
Wholesaling Functions
• Selling and promoting • Transportation
• Buying and • Financing
assortment building • Risk bearing
• Bulk breaking • Market information
• Warehousing • Management services
and counseling
Major Wholesaler Types
• Merchant
• Full-service
• Limited-service
• Brokers and agents
• Specialized
Supply Chain Management
Supply chain management means strategically
procuring the right inputs (raw materials,
components, and capital equipment); converting them
efficiently into finished products; and dispatching
them to the final destinations.
Market Logistics
• Planning the infrastructure to meet demand,then
implementing and controlling the physical flows of
materials and final goods from points of origin to
points of use, to meet customer requirements at a
profit
Market Logistics Activities
• Sales forecasting • In-plant warehousing
• Distribution scheduling • Shipping-room processing
• Production plans • Outbound transportation
• Finished-goods inventory • Field warehousing
decisions • Customer delivery and
• Packaging servicing
Market Logistics Planning
Four steps:
[Link] on the company’s value proposition to its
customers
[Link] on the best channel design and network
strategy
[Link] operational excellence
[Link] the solution
What Are
Integrated Logistics Systems?
An integrated logistics system (ILS) includes
materials management, material flow systems,
and physical distribution, aided by information
technology.
Market Logistics Decisions
• How should orders be handled?
• Where should stock be located?
• How much stock should be held?
• How should goods be shipped?
Determining Optimal Order Quantity
Transportation Factors
• Speed • Air
• Frequency, • Rail
• Dependability, • Road
• Capability, • Sea
• Availability,
• Traceability,
• Cost