CHAPTER 10: Marketing channels: delivering customer value

Marketing channel

A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user

Members of the marketing channel to complete transactions:

Information: Gathering and distributing information about consumers, producers, and other actors and forces in the marketing environment needed for planning and aiding exchange.
Promotion: Developing and spreading persuasive communications about an offer.
Contact: Finding and engaging customers and prospective buyers.
Matching: Shaping offers to meet the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.
Negotiation: Reaching an agreement on price and other terms so that ownership or possession can be transferred.

members of the marketing channel to help to fulfill the completed transactions:

Physical distribution: Transporting and storing goods.
Financing: Acquiring and using funds to cover the costs of the channel work.
Risk taking: Assuming the risks of carrying out the channel work.

Channel level

The number of intermediaries between a manufacturer and a consumer

Channel conflict

When different sales channels within a company compete with each other

2 types of channel conflict

• Horizontal conflict: occurs between firms at the same level like competing retailers or franchisees

• Vertical conflict: between different levels of a channel like manufacturers and retailers

Conventional distribution channel

One or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits

Vertical marketing system

Producers, wholesalers, and retailers act as a unified system. One channel member owns the others or has contracts with them

3 types of vertical marketing systems

• Corporate VMS: A single company owns multiple levels of the supply chain, including production, distribution, and retail. 

• Contractual VMS: Independent firms at different levels of production and distribution that join together through contracts to obtain more economies or sales impact than each could achieve alone.

• Administered VMS: One member of the supply chain has enough power to coordinate and influence the activities of the other members without the need for formal contracts. 

Franchise organization

The franchisor grants a franchisee the right to operate a business under its brand, following specific guidelines, in exchange for fees and royalties.

3 types of franchise organization

• Manufacturer-Sponsored Retailer Franchise System: A manufacturer licenses retailers to sell its product under the brand name. Retailers operate as independent businesses but follow the manufacturer’s policies

• Manufacturer-Sponsored Wholesaler Franchise System: A manufacturer licenses wholesalers to distribute its product. Wholesaler buys the product, processes it, and sells it to retailers.

• Service-Firm-Sponsored Retailer Franchise System: A service-based company licenses entrepreneurs to provide a service under its brand

Horizontal marketing system

Two or more companies at one level join together to follow a new marketing opportunity combining their financial, production, or marketing resources to accomplish more than any one company could alone.

Multichannel distribution systems:

A single firm sets up two or more marketing channels to reach one or more customer segments.

Disintermediation

Process of removing intermediaries from the supply chain, a business or consumer can directly connect with the producer or manufacturer, bypassing traditional middlemen like wholesalers, brokers, or retailers. 

Direct to consumer brands:

Sell and ship directly to consumers through online and mobile channels

Marketing channel design:

analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating the alternatives.

3 types of distribution

Intensive distribution: Strategy in which they stock their products in as many outlets as possible. Products must be available where and when consumers want them. 

Selective distribution: Use of more than one but fewer than all of the intermediaries who are willing to carry a company’s products. 

Exclusive distribution: Producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. (common in luxury brands)

3 criterias channel alternative should be evaluated against

Economic criteria: a company compares the likely sales, costs, and profitability of different channel alternatives. 

Control issues: Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others. Other things being equal, the company prefers to keep as much control as possible. 

Adaptability criteria: Channels often involve long-term commitments, yet the company wants to keep the channel flexible so that it can adapt to environmental changes.

Marketing channel management:

Selecting, managing, and motivating individual channel members and evaluating their performance over time.