Marketing Channels

Marketing Channels

• Marketing Channels– Sets of interdependent organizations

participating in the process of making a product or service available for use or consumption

– Intermediaries: merchants, agents, and facilitators

• Intermediaries make distribution and selling processes more efficient.

• Intermediaries offers supply chain partners more than they could achieve on their own.– Market Exposure– Technical Knowledge/Information Sharing– Operational Specialization– Scale of operation

The Importance of Marketing Channels

Channel Efficiency: How Intermediaries Reduce the Number of Channel Transactions

Consumer/Industrial Marketing Channels

Channel Functions and Flows

Channel-Design Decisions

• Analyzing customer needs and wants

Desired lot size Waiting and delivery time Spatial convenience Product variety Service support

Terms / Responsibilities of Channel Members

• Price policy (i.e. MSRP)• Conditions of sale (discounts, allowances,

guarantees)• Distributors’ territorial rights• Mutual services and responsibilities

Copyright 2007, Prentice-Hall Inc. 12-9

Push Vs. Pull Promotion Strategy

• Horizontal Marketing Systems– Two or more companies at one channel level join together to

achieve a marketing goal.• Joint Ventures• Alliances and Partnerships• Co-Marketing, Co-Distribution and Co-Branding

• Multichannel Marketing Systems– Reaching customer segments through multiple marketing

channels. (i.e. hybrid system)• Example: You can buy Starbucks coffee from Starbucks’ stores or

from the Supermarket• Example: In-Store vs. Online Sales• Example: Sell Direct vs. Sell Through Dealers

– Integrated marketing channel systems

Channel Innovation and Integration

• When producers, wholesalers, and retailers act as a unified system.

• Can happen through– Outright ownership of channel member– Contracts– “Channel power”

Vertical Marketing Systems

• How many intermediaries?– Intensive distribution

• Stock product in as many outlets as possible.– Exclusive distribution

• Granting a limited number of outlets the exclusive right to sell product.

– Selective distribution• Somewhere in between Intensive and Exclusive Distribution.

• Factors to Consider– Product Ubiquity– Channel Control

Does the company always get to choose?

Distribution Strategy Alternatives

Selective Distribution

Maytag uses selective distribution like many other furniture and appliance manufacturers do.

The “Where to Buy” page on their Web site assists buyers in finding stores that carry the Maytag brand.

Sales Force vs. Sales Agency

Digital Channels

• Customer support in store / online / phone• Check online for product availability at local stores• Order product online to pick up at store• Return a product purchased online to a nearby

store• Comparison shopping• What other digital opportunities exist?

E-Commerce

• Transact or facilitate the sale of products and services online

• Pure-click vs. brick-and-click vs. brick-and-mortar companies

M-Commerce

• Transaction Potential• Advertising and Promotion• Geofencing• Issues

– Screen size limitations– Privacy / targeting– Technology instability

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Franchise Organizations

• Powerful force in U.S. Retail (40%+ of all sales)

• Franchise Structures• Compensation Arrangements• Advantages

– Brand Name Recognition– Standardized Processes and Procedures– Avoids startup hassles – safer bet– Quick access to capital and huge expansion

potential

• Disadvantages– Over-saturation and territorial issues– Marketing fund disputes – Quality (vs. Company-owned)– Little room for “entrepreneurial creativity”

Conflict and Cooperation

• Channel Conflict– One channel member’s actions prevent

another channel member from achieving its goals

• Channel Coordination– Channel members are brought together to

advance the goals of the channel instead of their own potentially incompatible goals

• Channels are most effective when:– Each member performs the tasks it does best.– Channel members cooperate to attain overall channel goals.

• Channel Conflict– Horizontal Conflict: conflict among firms at the same level of the

channel (e.g., retailer to retailer). • Example: Two retailers compete to carry a supplier’s “exclusive” product.

– Vertical Conflict: conflict between different levels of the same channel (e.g., wholesaler to retailer).

• Example: Manufacturer competes with retailer in selling product to target market.

– Multichannel Conflict: conflict between two different channels for the same customers

• Example: See Goodyear example

• Some conflict can be healthy competition.

Channel Cooperation & Conflict

Causes of Channel Conflict

Goal incompatibility Unclear roles, rights and territories Duplication of effort Spending conflicts (i.e. national advertising) Pricing conflicts Channel member dominance / power

Channel Conflict: Goodyear

Goodyear’s conflicts with its independent dealers once decimated the firm’s replacement tire sales.

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Channel Conflict Example

Branded goods using the Wolfgang Puck, T.G.I. Friday’s, Taco Bell, and Starbuck’s names are now being sold in grocery stores.Which brand stands the greatest risk of causing channel conflict? Why?

Disintermediation

Occurs when producers sidestep intermediaries and sell directly to final buyers, or when radically new

types of channel intermediaries displace traditional ones.

The Internet has made the disintermediation of many traditional retailers possible.

Disintermediation ExampleCalyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, drastically reducing the time it takes flowers to reach consumers via conventional retail channels.

(Non-) Disintermediation Example

Black & Decker chose to avoid disintermediation by not using the Internet to sell their products. Instead B&D directs consumers to stores that carry its products.

Strategies to Manage Conflict

Other Channel Conflict Issues

• Dilution and cannibalization– Marketers must be careful not to dilute or cannibalize

their brands by selling in inappropriate channels

• Legal and ethical issues– Exclusive dealing/territories, tying agreements, and

dealers’ rights– Key Principle: Activities cannot restrain trade or

competition.