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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
11
Define the types of channel intermediaries
and describe their functions and activities
Channel Intermediaries and Channel Intermediaries and Their FunctionsTheir Functions
LO2
12
Channel Intermediaries
RetailerRetailer A channel intermediary that sells mainly to customers.
A channel intermediary that sells mainly to customers.
MerchantWholesalerMerchant
WholesalerAn 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.
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 OUTCOMEChannel 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 Managing Channel RelationshipsRelationships
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