Copyright © 2007 Pearson Education Canada11-1 Marketing: An Introduction Second Canadian Edition Armstrong, Kotler, Cunningham, Mitchell and Buchwitz Chapter

Copyright © 2007 Pearson Education Canada11-1

Marketing: An Introduction Second Canadian Edition

Armstrong, Kotler, Cunningham, Mitchell and Buchwitz

Chapter ElevenMarketing Channels and

Supply Chain Management


• Explain why companies use distribution channels and discuss the functions these channels perform.

• Discuss how channel members interact and how they organize to perform the work of the channel.

• Identify the major channel alternatives open to a company.

• Explain how companies select, motivate and evaluate channel members.

• Discuss the nature and importance of marketing logistics and supply chain management.

Looking Ahead


Marketing or Distribution Channel

• A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.


Why Use Channel Members

• The use of intermediaries results from their greater efficiency in making goods available to target markets.

• Offers the firm more than it can achieve on its own through the intermediaries:– Contacts.– Experience.– Specialization.– Scale of operation.


Channel Functions

• Information.

• Promotion.

• Contact.

• Matching.

• Negotiation.

• Physical distribution.

• Financing.• Risk taking.


Wholesalers/Retailers• Wholesalers.

– Merchant wholesalers.– Agents and brokers.– Manufacturer’s sales branches & offices.

• Retailers.– Amount of service .– Product line.– Relative prices.– Retail organization.


Types of Wholesalers

• Merchant wholesalers.– Largest group of wholesalers.– Account for 50% of wholesaling.– Two broad categories:

• Full-service wholesalers.• Limited-service wholesalers.



• Brokers and agents.– Do not take title to goods.– Perform fewer functions.– Brokers bring buyers and sellers together.– Agents represent buyers on more

permanent basis.– Manufacturers’ agents are most common

type of agent wholesaler.



• Manufacturers’ sales branches and offices.– Wholesaling by sellers or buyers themselves

rather than through independent wholesalers.


Wholesaler Marketing Decisions

• Wholesaler strategy.– Target market.– Service positioning.

• Wholesaler marketing mix.– Product and service assortment.– Prices.– Promotion.– Place (location).


What is Retailing?

• Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, non-business use.


Retailing Functions

• Information function – to customers and manufacturers.

• Product function – help define products.

• Price function – promotions, negotiation.• Place function – convenience to consumers.

• Promotion function – run their own promos.

• Ownership function – take title and absorb the risk.


Classifying Retailers

• Amount of service they offer.

• Breadth and depth of product lines.

• Relative prices charged.

• How they are organized.


Amount of Service• Self-service retailers:

– Serve customers who are willing to perform their own “locate-compare-select” process to save money.

• Limited-service retailers:– Provide more sales assistance because they carry

more shopping goods about which customers need information.

• Full-service retailers:– Usually carry more specialty goods for which

customers like to be “waited on.”


Product Line Retailers• Specialty stores.

– Narrow product line, deep assortment.• Department stores.

– Wide variety of product lines.• Supermarkets.

– Wide variety of food, laundry, household products.

• Convenience stores.– Limited line of high-turnover goods.


• Superstores.– Large assortment of food and non-food

items.

• Category killer.– Big box specialty store.

• Service retailers.– Provide services rather than tangible

goods.

Product Line Retailers (cont’d)


• Discount stores.– Sells standard merchandise at lower prices by

accepting lower margins and selling at higher volume.

• Off-price retailers.– Buys at below wholesale sells at less than retail.– Independents.– Factory outlets.– Warehouse clubs.

Relative Price Retailers


• Corporate chains.– Two or more outlets that owned and controlled in

common.

• Voluntary chain.– Wholesale-sponsored group of independent

retailers that engages in group buying.

• Retailer cooperative.– Independent retailers set up a jointly owned central

warehouse operation.

Retail Organizations


• Merchandising conglomerates.– A free-form corporation that combines

several diversified retailers under central ownership.

• Franchise organizations.– Contractual association between a

manufacturer, wholesaler and independent business people.

Retail Organizations (cont’d)


Retailer Marketing Decisions

• Retailer strategy. – Target market.– Retail store positioning.

• Retailer marketing mix.– Product assortment.– Prices.– Promotion.– Place (location).


Channel Behaviour• The channel is most effective when:

– Each member is assigned tasks it can do best.– All members cooperate to attain channel goals.

• If this does not happen, conflict occurs:– Horizontal Conflict occurs among firms at the same

level of the channel (e.g., retailer to retailer).– Vertical Conflict occurs between different levels of

the same channel (e.g., wholesaler to retailer).

• Some conflict can be healthy competition.


Channel Conflict• Disagreement between members over

goals and roles.• Horizontal conflict.

– Conflict between firms on the same level.• Vertical conflict.

– Conflict between firms on different levels.• Disintermediation.

– Displacement of a traditional member from the marketing channel.

– Selling direct via the Internet.


Types of Channels• Conventional channel.

– Channel members independently owned.

• Vertical channel.– Channel members act as a unified system.

• Horizontal channel.– Two or more companies on the same level

join together for mutual gain.

• Hybrid channel.– Combination to serve different segments.


Vertical Marketing System

• A distribution channel structure in which producers, wholesalers and retailers act as a unified system.

• One channel member owns the other, has contracts with them or has so much power that they all cooperate.


Vertical Marketing Systems

• Corporate VMS– Common ownership at different levels of the

channel (e.g., Sears) – highest control

• Contractual VMS– Contractual agreements among channel members

(e.g., IDA Drugs) – medium control

• Administered VMS– Leadership is assumed by one or a few dominant

members (e.g., Kraft) – low control


Franchise Organization

• Manufacturer-sponsored retailer franchise system.– Ford and its independent franchised dealers.

• Manufacturer-sponsored wholesaler franchise system.– Coca-Cola’s licensed bottlers.

• Service-firm sponsored retailer franchise system.– McDonald’s, Avis and Holiday Inn.


Innovative Channels• Horizontal marketing system

– Two or more companies at one channel level join together to follow a new marketing opportunity.

– Example: Banks in grocery stores

• Hybrid marketing system – A single firm sets up two or more marketing

channels to reach one or more customer segments.

– Example: Retailers and catalogues


Disintermediation

• Bypassing intermediaries and going directly to final buyers.

• Radically new types of channel intermediaries that compete with or displace traditional ones.

• Internet and e-commerce the most cause of disintermediation.


Channel Design Decisions

• Analyzing consumer needs.

• Setting channel objectives.

• Identifying major alternatives.– Types of intermediaries.– Number of intermediaries.– Responsibilities of intermediaries.


Types of Intermediaries• Company sales force.

– company employees provides the most control over selling activities, but high fixed costs and require supervision.

• Manufacturer’s agency.– independent companies who sell non-competing,

complementary products to a group of customers, paid a commission based on amount sold.

• Industrial distributors.– independent companies specializing in the selling,

storage and servicing of other business customers.


Number of Intermediaries• Intensive distribution.

– As many distributors as possible.

• Exclusive distribution.– Only one distributor in a given territory.

• Selective distribution.– A select few distributors in a given territory.


Evaluating the Alternatives

• Economic criteria:– A company compares the likely sales, costs

and profitability of different channel alternatives.

• Control issues:– How and to whom should control be given?

• Adaptive criteria:– Consider long-term commitment vs.

flexibility.


International Distribution• Exporting.

– Direct.– Indirect.

• Joint ventures.– Licensing.– Contract manufacturing.– Management contracting.– Joint ownership.

• Direct investment.


Channel Design/Management• Selection.

– Fit with channel objectives.

• Motivation.– Maintain strong partnerships.– Reward good performance. – Assist or replace weaker ones.

• Evaluation.– Compare performance against standards

and objectives.


Public Policy Issues• Exclusive distribution.

– Leads to exclusive dealing.– Prohibiting dealers from handling

competitors’ products.– Exclusive territorial agreements can result

that prevent a dealer from selling outside of his territory.

• Tying agreements.– Forcing a dealer to carry an entire product

line rather than the ones he wishes to carry.


Logistics and Supply Chain• Planning, implementing and controlling

the physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit.

• Includes:– Outbound distribution.– Inbound distribution.– Reverse distribution.


Major Logistics Functions

• Order processing.

• Warehousing.

• Inventory management.

• Transportation.

• Integrated supply chain management.– Cross-functional teamwork in company.– Building channel partnerships.


Warehousing

• How many, what types and where?

– Storage warehouses.

– Distribution centres.

– Automated warehouses.


Inventory Management

• Must balance between too much and too little inventory.

• Just-in-time logistics systems.

• RFID, AutoID or Smart Tag technology.


Transportation

• Trucks.

• Railroads.

• Water carriers.

• Pipelines.

• Air.

• Internet.

• Intermodal.


Integrated Logistics• Emphasizes teamwork, both inside the

company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.– Cross-functional teamwork inside the

company.– Building logistics partnerships.– Third-party logistics.


• Explain why companies use distribution channels and discuss the functions these channels perform.

• Discuss how channel members interact and how they organize to perform the work of the channel.

• Identify the major channel alternatives open to a company.

• Explain how companies select, motivate and evaluate channel members.

• Discuss the nature and importance of marketing logistics and supply chain management.

Looking Back

Documents

Copyright © 2007 Pearson Education Canada11-1 Marketing: An Introduction Second Canadian Edition Armstrong, Kotler, Cunningham, Mitchell and Buchwitz Chapter