Marketing 2205 Chapter 10: Marketing Channels

Value Delivery Network

A value delivery network is composed of:

• the company,

• suppliers,

• distributors

• the company’s customers

 

It’s a network of partnerships that improve the performance of the entire system in delivering customer value

Supply Chains & Distribution Channels

• Upstream value delivery partners supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service.

 

• Downstream value delivery partners are the distribution channels that link the firm and its customers.

Marketing Channels a.k.a. Distribution Channels

• Interdependent organizations that help make a product or service available for use or consumption

 

• Channel decisions

  • affect every other marketing decision,

  • can lead to competitive advantage,

  • may involve long-term commitments to other firms

How a Distributor Reduces the Number of Channel Transactions

Figure 10.1 

How Channel Members (Intermediaries) Add Value

• Create greater efficiency in making goods available to target markets.

 

• Transform the assortments of products made by producers into the assortments wanted by consumers.

 

• Bridge the major time, place, & possession gaps that separate goods & services from users.

Key Functions Performed by Channel Members

Help to complete transactions

• Information

• Promotion

• Contact

• Matching

• Negotiation

 

Help to fulfil the completed transactions

• Physical distribution

• Financing

• Risk taking

Channel Levels

• Channel level: A layer of intermediaries that performs work in bringing the product & its ownership closer to the final buyer

  • Direct marketing channel: No intermediary levels

  • Indirect marketing channels: One or more intermediary levels

Consumer & Business Marketing Channels

Figure 10.2

Flows Connecting Channel Members

• Types of flows that connect the institutions in the channel:

  • Physical flow of products

  • Flow of ownership

  • Payment flow

  • Information flow

  • Promotion flow

Channel Behaviour

• Channel conflict: Disagreements among marketing channel members on goals, roles, & rewards

  • Horizontal conflict occurs among firms at the same level of the channel.

  • Vertical conflict occurs between different levels of the same channel.

Comparison of Conventional Distribution Channel with Vertical Marketing System

Figure 10.3

Vertical Marketing Systems

• A vertical marketing system (VMS) consists of producers, wholesalers, & retailers acting as a unified system.

• There are three types of VMSs:

  • Corporate

  • Contractual

  • Administered

Horizontal Marketing System

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

(Ex. Tim Hortons & Gas Stations)

Multichannel Distribution Systems

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

  • Example: Canada Goose

 

• Advantages:

  • Expansion of sales & marketing coverage

  • Tailor-made products & services for the specific needs of customer segments

 

• Disadvantages:

  • Harder to control

  • Generates conflict

Multichannel Distribution System

Figure 10.4

Disintermediation

• Occurs when product or service producers cut out marketing channel intermediaries or when radically new types of channel intermediaries displace traditional ones

  • Maytag

Channel Design Decisions

• Marketing channel design involves designing effective marketing channels by:

  • Analyzing customer needs

  • Setting channel objectives

  • Identifying major channel alternatives

  • Evaluating the alternatives

Major Channel Alternatives

• Intermediaries (channel members) carry out channel work.

• Number of intermediaries to use

  • Intensive distribution

  • Exclusive distribution

  • Selective distribution (electronics, furniture)

 

• Responsibilities of each channel member

Supply Chain Management

Figure 10.5

Marketing Logistics & Supply Chain Management

• The goal of marketing logistics is to deliver a targeted level of customer service at the least cost.

• Logistics functions include

  • Warehousing

  • Inventory management

  • Transportation

  • Logistics information management

Marketing Logistics - Physical Distribution

• Planning, implementing, & controlling the physical flow of materials, final goods, & related info from points of origin to consumption

 

• Customer-centred logistics ->starts with  marketplace then works backwards to the factory or sources of supply

  • Outbound logistics (factory to resellers)

  • Inbound logistics (suppliers to factory)

  • Reverse logistics (recycle and return from consumer to resellers)

Warehousing

• Storage warehouses store goods for moderate to long periods.

 

• Distribution centres are large, highly automated warehouses that receive goods, take orders, fill them, & deliver goods to customers.

Inventory Management

• Should be done in a cost effective and profitable manner

  • Just-in-time logistics systems

  • Radio frequency identification (RFID), smart tag technology, gives the physical location of a product.

Transportation

Companies can choose among many transportation modes, including truck, rail, water, pipeline, & air.

Modes of transportation

• Trucks, railroads, water carriers, pipelines, air carriers, & the internet

Factors affected by choice of transportation

• Pricing of products

• Delivery performance

• Condition of goods

• Customer satisfaction

Multimodal transportation

• Combining two or more modes of transportation

• Piggyback, fishyback, trainship, & airtruck

Logistics Information Management

• Flows of info are closely linked to channel performance

 

• Info can be shared and managed through

  • Electronic data interchange (EDI)

  • Vendor-managed inventory (VMI)

Integrated Logistics Management

• Emphasizes teamwork both inside the company & among all the marketing channel organizations

  • Forming cross-functional teams inside the firm

  • Building logistics partnerships

  • Outsourcing to third-party logistics providers for functions required to get a client’s product to market