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Marketing Management
30 May 2011
Marketing Channels
Delivering Customer Value
Supply Chains and Value Delivery Networks
• Company relationships are important to ensure that your products get to the end consumer
• Resellers and suppliers are key in a company’s supply chain• Upstream and Downstream partners
– Upstream from the company to create a product or service e.g. raw materials, components
– Downstream marketing channel partners such as wholesalers and retailers
• Supply chain - make and sell view of business process• Demand chain – sense and respond view of the market
– Planning starts with needs of the target consumers• Value Delivery Network: A network made up of the company
suppliers, distributors, and customers who collectively partner to improve the performance of the system in delivering customer value
Nature and Importance of Marketing Channels
• Most companies use intermediaries to bring products to market through distribution channels
• Marketing/Distribution Channels: A set of interdependent organisations that assist in making a product available for use or consumption by the end user
• Channel decisions affect all other marketing decisions• Companies can use their distribution systems to gain a
competitive advantage• Distribution channel decisions are often long-term
contractual agreements• Changing needs and wants should be considered before
decisions are completed
Value of Channel Members
• Producers use intermediaries for greater efficiencies in availing goods to their target market
• Producers make few assortments in large quantities• Consumers require broad assortments in small
quantities• Marketing channel members purchase large quantities
and break them to broader assortments in smaller quantities
• Channel members add value through bridging time, place and possession gaps that separate goods from users
• Marketing channel intermediaries make buying easier for consumers
• What would life be like without your grocery store?
Value of Channel Members
Value of Channel Members
Key Functions of channel members• Information: gathering, distributing, intelligence and aiding
exchange• Promotion: developing and spreading communication• Contact: finding and communicating with buyers• Matching: shaping and fitting offer to the buyer’s needs• Negotiating: reaching an agreement to ensure transfer of
ownership and possessionFor Completed Transactions• Physical Distribution: Transporting and storage of goods• Financing: Acquiring and using funds to cover costs of
channel work• Risk Taking: Assuming the risks of the channel work
Channel Levels• Channel levels are layers of intermediaries which perform
work in bringing products and ownership closer to end buyers• Producers and the end buyer/consumer are also part of every
channel• The number of intermediary levels indicates the length of a
channel• A direct marketing channel has no intermediary levels• An indirect marketing channel has one or more intermediary
levels• For a producer, the greater the levels, the less control and
greater complexity• Institutions within a channel are connected by flows i.e.
physical flow of products, flow of ownership, payment flow, info flow, promo flow
Channel Levels
Channel Levels
Channel Behaviour and Organisation
Channel Behaviour• Firms that have partnered for their common good – marketing
channel• All channel members play a specialised and significant role and
should strive to work together• Agreements may take place over roles, goals and rewards.
These lead to channel conflicts• Horizontal Conflicts: conflict occurs amongst firms at the same
level• Vertical Conflicts: conflict occurs with firms at different levels of
the same channel• Good healthy competition is good for a channel to prevent
passive and non-innovative companies• Severe and prolonged conflicts which impede on the customer’s
value disrupts channel effectiveness
Channel Behaviour and Organisation
Vertical Marketing Systems• A channel always performs better if it includes a firm, an
agency, or leadership to assign roles and to manage conflict
• Conventional distribution channels have often lacked leadership and has led to vertical marketing systems
• Conventional Distribution Channel: one or more independent producers, wholesalers, and retailers. – Each has goals to maximise profits often at the expense of the
holistic system– No channel member has control over the other members– No formal means of assigning roles and resolving conflicts
Channel Behaviour and Organisation
Channel Behaviour and Organisation
• Vertical Marketing System (VMS): consists of producers, wholesalers, and retailers acting as a united system– One channel member owns the others and has
contracts with them– The VMS can be owned by the producer, wholesaler
or retailer
• Three Types of VMSs – Corporate, Contractual and Administered
• They all use different types of leadership, power and control in the channel
Channel Behaviour and Organisation
Corporate VMS• A vertical marketing system which combines successive stages of
production and distribution under single ownership– Channel leadership is through common ownership
Contractual VMS• A vertical marketing system in which independent firms at different
levels of production and distribution join together through contracts for economies or sales impact
– Franchises are the most common and they can be broken into: Manufacturer-sponsored Retailer and Wholesaler Franchise Systems; and Service-firm-sponsored retailer franchise systems
Administered VMS• A vertical marketing system which coordinates successive stages of
production and distribution through the size of one of the parties– No common ownership or contractual ties– Well known and respected manufacturers and resellers
Channel Behaviour and Organisation
• Horizontal Marketing System: A channel arrangement where two or more companies at one level join collectively to follow a new marketing opportunity– Maybe competitors or noncompetitors– E.G. Steers and Total or Macro and Hot Dog Café
• Multichannel Distribution Systems: A distribution system where a firm uses two or marketing channels to reach one or more customer segments– Also called a hybrid marketing channel
• Disintermediation: Cutting out of channel intermediaries by product or service producers, or when new types of intermediaries displace old, traditional ones– Internet and Technology has had a major effect– E.G. low cost airlines and direct bookings
See you next time.
Cheers Guys!