Marketing Channels: Delivering Customer Value

Supply Chains

Upstream partners supply raw materials, components, parts, information, finances, and expertise to create a product or service.

Downstream partners serve as distribution channels that link the firm and its customers.

Value Delivery Network

A network composed of the company, suppliers, distributors, and customers partner to improve the entire system's performance in delivering customer value.

Toyota manages a large network to create customer value.

Marketing Channels (Distribution Channels)

Interdependent organizations 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

Intermediaries create greater efficiency in making goods available to target markets.

Marketing intermediaries transform products made by producers into assortments wanted by consumers.

Intermediaries bridge time, place, and possession gaps that separate goods and services from users.

Key Functions Performed by Channel Members

Help to complete transactions:

• Information

• Promotion

• Contact

• Matching

• Negotiation

Help to fulfill completed transactions:

• Physical distribution

• Financing

• Risk-taking

Number of Channel Levels

Channel level: A layer of intermediaries performs work in bringing the product and its ownership closer to the final buyer.

• Direct marketing channel: No intermediary levels

• Indirect marketing channels: One or more intermediary levels

Types of flows that connect institutions in the channel:

• Physical flow of products

• Flow of ownership

• Payment flow

• Information flow

• Promotion flow

Consumer and Business Marketing Channels

Using direct channels, a company sells directly to consumers.

Examples: GEICO and Quicken Loans.

Using indirect channels, the company uses one or more levels of intermediaries to help bring its products to final buyers.

Examples: most of the things you buy.

Channel Behavior

Channel conflict: Disagreements among marketing channel members on goals, roles, and rewards.

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

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

Vertical Marketing Systems

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

Three types of VMSs:

• Corporate (under single ownership)

• Contractual (e.g., franchise)

• Administered (through the size and power of one of the parties)

Horizontal Marketing System

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

Example: McDonald’s in Walmart stores.

Horizontal marketing systems:

Finnair partners with British Airways, American Airlines, and Iberia to their mutual benefit, providing their customers with more choices and better connections.

Multichannel Distribution Systems

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

Advantages:

• Expansion of sales and marketing coverage

• Tailor-made products and services for specific customer segments

Disadvantages:

• Harder to control

• Generates conflict

Disintermediation

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

Toys “R” Us pioneered the superstore format.

Competition has forced the retail giants to close down operations and shutter its stores.

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

Types of intermediaries refer to channel members available to carry out channel work.

Number of intermediaries to use

• Intensive distribution

• Exclusive distribution

• Selective distribution

Responsibilities of each channel member

Designing International Channels

Channel strategies should be adapted to the existing structures within each country.

Distribution systems can have many layers and a large number of intermediaries.

Customs and government regulations can restrict distribution in global markets.

Marketing Channel Management

• Selecting channel members

• Managing and motivating channel members

• Evaluating channel members

Selecting channels: Even established brands may have difficulty getting desired channels. For example, Amazon refuses to sell many Google-branded products.

Public Policy and Distribution Decisions

• Exclusive distribution

• Exclusive dealing

Exclusive arrangements (Clayton Act) are legal as long as the parties:

• Do not substantially lessen competition or tend to create a monopoly

• Enter into the agreement voluntarily

Marketing Logistics (Physical Distribution)

Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to consumption.

Customer-centered logistics: Marketplace backwards to the factory or sources of supply

• Outbound logistics (moving products from the factory to resellers and ultimately to customers)

• Inbound logistics (moving products and materials from suppliers to the factory)

• Reverse logistics (involves reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers)

Marketing Logistics and 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

Warehousing

Storage warehouses store goods for moderate to long periods.

Distribution centers are large, highly automated warehouses that receive goods, take orders, fill them, and deliver goods to customers.

Inventory Management

Should be done cost-effectively and profitably.

• 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, and air.

Factors affected by choice of transportation

• Pricing of products

• Delivery performance

• Condition of goods

• Customer satisfaction

Modes:

Trucks, railroads, water carriers, pipelines, air carriers, and the internet

Multimodal transportation

Combining two or more modes of transportation

Logistics Information Management

Flows of information are closely linked to channel performance.

Information can be shared and managed through:

• Electronic data interchange (EDI)

• Vendor-managed inventory (VMI) (customer shares real-time data on sales and current inventory levels with the supplier)

Integrated Logistics Management

Emphasizes teamwork both inside the company and 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