Managing Marketing Channels

Market Intermediaries – Types & Functions

Marketing Channels – Consumer & Industrial Goods

Wholesalers & Retailers

Channel Design Decisions

Channel Management Decisions

Channel Integration & Systems

Terms used for Marketing Intermediaries

Middleman Any intermediary between manufacturer and end-user markets

Agent or Broker

Any intermediary with legal authority to act on behalf of the manufacturer

Wholesaler An intermediary who sells to other intermediaries, usually to retailers; usually applies to consumer

Retailer An intermediary who sells to consumers

Distributor An imprecise term, usually used to describe intermediaries who perform a variety of distribution functions, including

selling, maintaining inventories, extending credit, and so on; a more common term in business markets but may also be used

to refer to wholesalersDealer An even more imprecise term that can mean the same as

distributor, retailer, wholesaler, and so forth

Functions performed by Marketing Intermediaries

Transactional function

Buying Purchasing products for resale or as an agent for supply of a product

Selling Contacting potential customers, promoting products & soliciting orders

Risk taking Assuming business risks in the ownership of inventory that can become obsolete or deteriorate

Logistical function

Assorting Creating product assortments from several sources to serve customers

Storing Assembling & protecting products at convenient location to offer better customer service

Sorting Purchasing in large quantities & breaking into smaller amounts desired by customers

Transporting Physically moving a product to customers

Facilitating function

Financing Extending credit to customers

Grading Inspecting, testing or judging products and assigning them quality grades

Mktg. Info. & Research

Providing info. to customers and suppliers, including competitive conditions and trends

Marketing channels for Consumer Goods

Dominos’ Pizza General Motors Cadburys Kellogg's

Agent

Wholesaler

Consumer Consumer Consumer Consumer

Retailer RetailerRetailer

Wholesaler

Marketing channels for Industrial Goods

IBM / Airbus Caterpillar Stake Fastener Harkman Electric

AgentAgent

Industrial user

Industrial user

Industrial user

Industrial user

Industrial distributor

Industrial distributor

Channel Intermediaries - Wholesalers

How many functions the wholesaler provide?

Service Merchant Wholesaler

General merchandise wholesaler

Single-line or general-line wholesalers

Specialty wholesalers

Yes (merchant wholesalers)

Does wholesaler own the products?

Limited-function Merchant Wholesaler

Cash-and-carry wholesaler

Drop-shippers

Truck wholesalers

Rack Jobbers

Catalog wholesalers

No (agent middlemen)

Agent middlemen

Auction companies

Brokers

Manufacturers’ agents

Selling agents

All functions

Some functions

Merchant Wholesalers

Service Merchant

Wholesaler

General merchandise wholesaler

Carry a wide variety of nonperishable items such as hardware, electrical supplies, furniture, drugs, cosmetics and

automobile equipments

Single-line wholesaler

Carry a narrower line than general w/salers, might be only food, apparel, certain types of industrial tools or supplies

Specialty wholesaler

Carry a very narrow range of products and offer more info. & service than other w/salers, e.g. only health foods

Limited-function Merchant

Wholesaler

Cash-and-carry wholesaler

Operate like service w/salers except customers must pay cash

Drop shippers Take the title but do not handle, stock or deliver, involved in selling, get orders and pass on to producers

Truck wholesalers

Specialize in delivering products stocked in their own trucks

Rack Jobbers Specialize in hard-to-handle assortments of products that a retailer doesn’t want to manage – usually display the

products on their own wire racks

Catalog Wholesalers

Sell out of catalogs that may be distributed widely to smaller industrial customers or retailers

Features of Retailer’s offering

• Convenience – available hours, finding needed products, fast checkout, location, parking

• Product selection – width and depth of assortment, quality• Special services – special orders, home delivery, gift wrap, entertainment• Fairness in dealings – honesty, correcting problems, return privileges,

purchase risks• Helpful information – courteous sales help, displays, demonstrations,

product information• Social image – status, prestige, “fitting in” with other shoppers• Shopping atmosphere – comfort, safety, excitement, relaxation, smell,

sounds

Retailers and their Nature of Offerings

Conventional offerings

Single- & limited-line stores

Expanded assortment and service

Specialty shops and department stores

Expanded assortment and/or reduced

margins and service

Supermarkets, superstores, discount houses, mass-merchandisers,

Added convenience and higher than conventional

margins, usually reduced assortment

Telephone and mail order, vending machines, door to door, convenience stores, some electronic retailing

Expanded assortment, reduced margins and

more informationInternet

Major Store Retailer Types

Specialty Stores

Carry a narrow product line with a deep assortment of products within that line

Style & Chirag Din in Mumbai

Department Stores

Carries several product lines, invariably all that is required by a typical household

Pantaloon, Westside, etc.

Supermarkets Large, low-cost, low-margin, high volume, self-service operation designed to serve the customer’s need for food, laundry and household maintenance products

Foodland & Garware’s in

Mumbai

Convenience Stores

Relatively small stores located near residential areas, carry limited line of high-turnover convenience products

Street corner grocery store

Discount Stores

Sell standard merchandise at lower prices, by accepting lower margins, but pushing for higher sales volume

Big Bazar

Off-Price Retailer

Sell merchandise bought at less-than-regular wholesale prices and sold at less than retail

Bata

Superstores Very large stores traditionally aimed at meeting consumers’ total needs for routinely purchased food and

nonfood items

Wal-Mart

Marketing Channels Across PLC

Growth

Dedicated stores:

Computer Stores, Shopper’s Stop

Mature

Department stores like Akbarallys

Introductory

Specialist channels like boutiques in

fashion/designer wear

Decline

Discount stores

Low cost alternatives like “Discount Sales”

High

High

Low

LowValue Added by Channel Members

Market Growth

Rate

Summary of the alternative Channels of Distribution available to a Manufacturer

Vending

Direct Mktg.

Institutional

New Channels

Retailing related

Direct delivery to customers

Monetary services Theme parks

Universities Hospitals

Educational

Door-to-door sales

Loyalty schemes

Sales promotion

Railway station Underground Airports

Sports centers

Department stores Convenience

Freecourt retailing Chemists Discounters

Interactive Kiosks CD ROMs TV channels Virtual stores

Online services Internet

Channel Design Decisions

• Analyzing Customers’ Desired Service Output Levels- Lot Size- Waiting and Delivery Time- Spatial Convenience- Product Variety- Service backup

• Establishing objectives and constraints• Identifying Major Channel Alternatives

- Types of intermediaries- Number of Intermediaries- Terms and Responsibilities of Channel Members

• Evaluating the Major Alternatives- Economic Criteria- Control and Adaptive Criteria

Channel Management Decisions

• Selecting Channel Members

• Training Channel Members

• Motivating Channel Members

• Evaluating Channel Members

• Modifying Channel Arrangements

Channel Integration and Systems

Vertical Marketing Systems

Corporate VMS Contractual VMS Administered VMS

Horizontal Marketing Systems(Two or more unrelated companies put together resources or

programs to exploit an emerging marketing opportunity)Multichannel Marketing Systems

(Single firm uses two or more marketing channels to reach one or more customer segments)

Comparison between Conventional Channel Structure and VMS

Members FunctionsFunctions Members

Manufacturer

Wholesaler

Retailer

Consumer

Design, Make, Brand, Price, Promote

Buy, Stock, Promote, Display, Sell, Deliver,

Finance

Buy, Stock, Promote, Display, Sell, Deliver,

Finance Retailer

Wholesaler

Manufacturer

Consumer

Design Make

Brand Price

Promote Buy Stock

Display Sell Deliver Finance

Conventional Marketing Channel

Vertical Marketing System

Vertical Marketing Systems

Franchise program

Corporate Vertical Marketing

System (Polo/Ralph Lauren)

Contractual Vertical Marketing

System

Administered Vertical Marketing

System (Procter & Gamble)

Wholesaler-sponsored

voluntary chains

Vertical Marketing System

Retailer-sponsored cooperatives

Manufacturer- sponsored retail franchise system

(Ford)

Manufacturer- sponsored

wholesaler franchise system (Coca Cola)

Service-sponsored retail franchise

system (McDonald’s)

Service-sponsored

franchise system (H&R Block)

Channel Conflict

TypesVertical Channel Conflict Horizontal Channel Conflict Multichannel

Conflict

CausesGoal Incompatibility Unclear roles & rights

Difference in perceptions Dependence on the manufacturer

Managing Channel Conflict• Adoption of super ordinate goals – survival, market share, high quality, etc.• Exchange of persons between two or more channel levels• Co-option – Effort by an organization to win the support of the leaders of other

organization by including them in advisory councils• For acute or chronic conflicts, parties may resort to diplomacy, mediation or

arbitration

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