© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-2

MANAGING MARKETING

CHANNELS AND WHOLESALING

CHAPTER

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-3

AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO:

2. Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems.

1. Explain what is meant by a marketing channel of distribution and why intermediaries are needed.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-4

AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO:

3. Describe the factors and considerations that affect a company’s choice and management of a marketing channel.

4. Recognize how conflict, cooperation, and legal considerations affect marketing channel relationships.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-5

APPLE STORES: ADDINGHIGH-TOUCH TO HIGH-TECH

MARKETING CHANNELS

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-6

NATURE AND IMPORTANCE OF MARKETING CHANNELS

• What is a Marketing Channel of Distribution?

Marketing Channel

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-7

FIGURE 15-1 FIGURE 15-1 Terms used for marketing intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-8

FIGURE 15-AFIGURE 15-A Structure of marketing channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-9

Functions Performed by Intermediaries

NATURE AND IMPORTANCE OF MARKETING CHANNELS

• Value Created by Intermediaries

• Transactional Function

• Logistical Function

• Facilitating Function

Consumer Benefits From Intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-10

FIGURE 15-2 FIGURE 15-2 How intermediaries minimize transactions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-11

FIGURE 15-3 FIGURE 15-3 Marketing channel functions performed by intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-12

Concept Check

1. What is meant by a marketing channel?

A: A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-13

Concept Check

2. What are the three basic functions performed by intermediaries?

A: Intermediaries perform transactional, logistical, and facilitating functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-14

• Marketing Channels for Consumer Goods and Services

Direct Channel

Indirect Channels

CHANNEL STRUCTURE AND ORGANIZATION

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-15

FIGURE 15-4 FIGURE 15-4 Common marketing channels for consumer goods and services

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-16

• Marketing Channels for Business Goods and Services

Industrial Distributor

Agent

CHANNEL STRUCTURE AND ORGANIZATION

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-17

FIGURE 15-5 FIGURE 15-5 Common marketing channels for business goods and services

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-18

CHANNEL STRUCTURE AND ORGANIZATION

• Electronic Marketing Channels

• Direct Marketing Channels

• Multiple Channels and Strategic Channel Alliances

Dual Distribution

Strategic Channel Alliances

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-19

FIGURE 15-6 FIGURE 15-6 Representative consumer electronic marketing channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-20

MARKETING NEWSNET

Nestlé and General Mills—Cereal Partners Worldwide

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-21

• A Closer Look at Channel Intermediaries

Merchant Wholesalers

CHANNEL STRUCTURE AND ORGANIZATION

• General Merchandise (Full-Line) Wholesalers

• Specialty Merchandise (Limited-Line) Wholesalers

Cash and Carry Wholesalers

Rack Jobbers

Truck Jobbers

Drop Shippers or Desk Jobbers

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-22

FIGURE 15-7 FIGURE 15-7 Functions performed by independent wholesaler types

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-23

• A Closer Look at Channel Intermediaries

Agents and Brokers

CHANNEL STRUCTURE AND ORGANIZATION

• Manufacturer’s Agents (or Representatives)

• Selling Agents

• Brokers

Manufacturer’s Branches and Offices

• Manufacturer’s Branch Office

• Manufacturer’s Sales Office

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-24

Corporate Systems

CHANNEL STRUCTURE AND ORGANIZATION

• Corporate Vertical Marketing System

• Forward Integration

• Vertical Marketing Systems and Channel Partnerships

Vertical Marketing Systems

• Backward Integration

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-25

FIGURE 15-8 FIGURE 15-8 Types of vertical marketing systems

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-26

CHANNEL STRUCTURE AND ORGANIZATION

• Wholesaler-Sponsored Voluntary Chains

• Retailer-Sponsored Cooperatives

• Vertical Marketing Systems and Channel Partnerships

Contractual Systems

• Contractual Vertical Marketing System

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-27

CHANNEL STRUCTURE AND ORGANIZATION

• Vertical Marketing Systems and Channel Partnerships

Contractual Systems

• Franchising

Manufacturer-Sponsored Wholesale Systems

Manufacturer-Sponsored Retail Franchise Systems

Service-Sponsored Franchise Systems

Service-Sponsored Retail Franchise Systems

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-28

CHANNEL STRUCTURE AND ORGANIZATION

• Vertical Marketing Systems and Channel Partnerships

Administered Systems

• Administered Vertical Marketing Systems

Channel Partnership

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-29

Sherwin-Williams and H&R Block What type of vertical marketing system

is used by each?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-30

Concept Check

1. What is the difference between a direct and an indirect channel?

A: A direct channel is one in which a producer of consumer or business goods and services and ultimate consumers or industrial users deal directly with each other whereas an indirect channel has intermediaries that are inserted between the producer and consumers or industrial users and who perform numerous channel functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-31

Concept Check

2. Why are channels for business products typically shorter than channels for consumer products?

A: Business channels are typically shorter because business users are fewer in number, tend to be more concentrated geographically, and buy in larger quantities.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-32

Concept Check

3. What is the principal distinction between a corporate vertical marketing system and an administered vertical marketing system?

A: A corporate vertical marketing system combines successive stages of productionand distribution under a single ownership.An administered vertical marketing system achieves coordination by the size and influence of one channel member rather than through ownership.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-33

CHANNEL CHOICE AND MANAGEMENT

• Factors Affecting Channel Choice and Management

Environmental Factors

Consumer Factors

Product Factors

Company Factors

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-34

FIGURE 15-BFIGURE 15-B Factors affecting channel choice and management

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-35

American Eagle Outfitters What new marketing channel opportunities

are created by the Internet?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

MARKETING NEWSNET

Wrigley Markets a Controlled Substance in Singapore—Chewing Gum

Slide 15-36

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-37

CHANNEL CHOICE AND MANAGEMENT

Target Market Coverage

• Channel Design Considerations

• Intensive Distribution

• Exclusive Distribution

• Selective Distribution

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-38

CHANNEL CHOICE AND MANAGEMENT

Satisfying Buyer Requirements

• Channel Design Considerations

• Information

• Convenience

• Variety

• Attendant Services

Profitability

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-39

Jiffy Lube and PETCO What buyer requirements have been satisfied?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

WEB LINK

Visit an Apple Store to See What Allthe Excitement is About

Slide 15-40

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-41

CHANNEL CHOICE AND MANAGEMENT

• Global Dimensions of Marketing Channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-42

Schick Why the market share leader in Japan?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-43

CHANNEL CHOICE AND MANAGEMENT

Conflict in Marketing Channels

• Channel Conflict

• Channel Relationships: Conflict, Cooperation, and Law

• Vertical Conflict

• Horizontal Conflict

Disintermediation

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-44

CHANNEL CHOICE AND MANAGEMENT

Cooperation in Marketing Channels

• Channel Captain

• Channel Relationships: Conflict, Cooperation, and Law

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-45

FIGURE 15-CFIGURE 15-C Sources of influence for a channel captain

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-46

ETHICS AND SOCIAL RESPONSIBILITY ALERT

The Ethics of Slotting Allowances

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-47

CHANNEL CHOICE AND MANAGEMENT

• Channel Relationships: Conflict, Cooperation, and Law

• Dual Distribution

Legal Considerations

• Vertical Integration

• Exclusive Dealing

• Tying Arrangements

• Refusal to Deal

• Resale Restrictions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-48

FIGURE 15-9 FIGURE 15-9 Channel strategies and practices affected by legal restrictions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-49

Concept Check

1. What are the three degrees of distribution density?

A: intensive; exclusive; selective

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-50

Concept Check

2. What are the three questions marketing executives consider when choosing a marketing channel and intermediaries?

A: The three questions are: (1) Which will provide the best coverage of the target market? (2) Which will best satisfy the buying requirements of the target market? (3) Which will be the most profitable?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-51

Concept Check

3. What is meant by exclusive dealing?

A: Exclusive dealing exists when a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products.It is specifically prohibited under the Clayton Act when it lessens competition or creates monopolies.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-52

FINDING A FRANCHISEFOR YOU

GOING ONLINE

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-53

1. Visit the Franchise.com website, and click on the “Franchise Buyer” link. Which franchise opportunities fit you?

Going Online

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-54

2. Visit the International Franchise Association website, and click on the “Resource Center” link. Then, click on the “News” link. What are the current trends in franchising?

Going Online

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-55

TURNING EXCLUSIVE DISTRIBUTION ON ITS HEAD

SUPPLEMENTALLECTURE NOTE 15-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-56

HOW THE MARKETINGOF BLACK PEARLS

CREATED A BLACK EYEFOR ELIZABETH ARDEN

SUPPLEMENTALLECTURE NOTE 15-2

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-57

GOLDEN VALLEY MICROWAVE FOODS:

THE SURPRISING CHANNEL

VIDEO CASE 15

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-58

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-59

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-60

1. Visit ACT II’s website at www.ACTII.com and examine the assortment of products offered today. Are (a) the assortment or (b) the packaging related to Golden Valley’s distribution channels or the segments they serve?

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-61

2. Use Figure 15–4 to create a description of the channels of distribution being used by Golden Valley today.

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-62

3. Compared to selling through thenon-grocery channels, what kind of product, price, and promotion strategies might Golden Valley use to reach the grocery channel more effectively?

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-63

4. What special marketing issues does Golden Valley face as it pursues growth in global markets?

VIDEO CASE 15Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-64

FASTENAL COMPANY:BRINGING RETAIL

PRINCIPLES TO THE WHOLESALE MARKET

APPENDIX D CASE D-15

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-65

APPENDIX D CASE D-15Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-66

1. What are the significant marketing and sales opportunities available to Fastenal Company given that it has 1,400 stores located throughout North America? In contrast, Fastenal’s major national competitors have stores only in major metropolitan areas and as a result it uses its Internet and catalog divisions to provide sales to customers who are not able to visit its stores in person.

APPENDIX D CASE D-15Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-67

2. Describe three specific things that Fastenal has done to respond to the unique buying requirements of the customers in its three markets.

APPENDIX D CASE D-15Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-68

3. A homeowner who plans to work on a weekend home improvement project comes to the counter late Friday afternoon after spending some time looking at the product displays and asks the store manager the following question—“I have been looking at your cordless drills and I was wondering why all of your drills are so much more expensive [her exact words] than any of the drills I saw advertised in a recent Home Depot ad in the newspaper?” What do you think the store manager should say in response to her question?

APPENDIX D CASE D-15Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-69

Marketing Channel

A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-70

Direct Channel

A direct channel is a marketing channel where a producer and ultimate consumers deal directly with each other.

A direct channel is a marketing channel where a producer and ultimate consumers deal directly with each other.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-71

Indirect Channels

Indirect channels are marketing channels where intermediaries are inserted between the producer and consumers and perform numerous channel functions.

Indirect channels are marketing channels where intermediaries are inserted between the producer and consumers and perform numerous channel functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-72

Industrial Distributor

An industrial distributor is an intermediary that performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing.

An industrial distributor is an intermediary that performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-73

Electronic Marketing Channels

Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumers or business buyers.

Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumers or business buyers.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-74

Direct Marketing Channels

Direct marketing channels allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson.

Direct marketing channels allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-75

Dual Distribution

Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.

Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-76

Strategic Channel Alliances

Strategic channel alliances is a practice whereby one firm’s marketing channel is used to sell another firm’s products.

Strategic channel alliances is a practice whereby one firm’s marketing channel is used to sell another firm’s products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-77

Merchant Wholesalers

Merchant wholesalers are independently owned firms that take title to the merchandise they handle.

Merchant wholesalers are independently owned firms that take title to the merchandise they handle.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-78

Manufacturer’s Agents

Manufacturer’s agents are agents who work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Also called manufacturer’s representatives.

Manufacturer’s agents are agents who work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Also called manufacturer’s representatives.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-79

Selling Agents

Selling agents are agents who representa single producer and are responsible for the entire marketing function of that producer.

Selling agents are agents who representa single producer and are responsible for the entire marketing function of that producer.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-80

Brokers

Brokers are independent firms or individuals whose principal function isto bring buyers and sellers together to make sales.

Brokers are independent firms or individuals whose principal function isto bring buyers and sellers together to make sales.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-81

Vertical Marketing Systems

Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact.

Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-82

Franchising

Franchising is a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules.

Franchising is a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-83

Channel Partnership

A channel partnership consists of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer.

A channel partnership consists of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-84

Intensive Distribution

Intensive distribution is a level of distribution density whereby a firm tries to place its products and services in as many outlets as possible.

Intensive distribution is a level of distribution density whereby a firm tries to place its products and services in as many outlets as possible.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-85

Exclusive Distribution

Exclusive distribution is a level of distribution density whereby only one retail outlet in a specific geographical area carries the firm’s products.

Exclusive distribution is a level of distribution density whereby only one retail outlet in a specific geographical area carries the firm’s products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-86

Selective Distribution

Selective distribution is a level of distribution density whereby a firm selects a few retail outlets in a specific geographical area to carry its products.

Selective distribution is a level of distribution density whereby a firm selects a few retail outlets in a specific geographical area to carry its products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-87

Channel Conflict

Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.

Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-88

Disintermediation

Disintermediation is channel conflict that arises when a channel member bypasses another member and sells or buys products direct.

Disintermediation is channel conflict that arises when a channel member bypasses another member and sells or buys products direct.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 15-89

Channel Captain

A channel captain is a channel member (producer, wholesaler, or retailer) that coordinates, directs, and supports other channel members.

A channel captain is a channel member (producer, wholesaler, or retailer) that coordinates, directs, and supports other channel members.