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Principles of Marketing

Chapter 10 Marketing Channels to Create Value for Customers

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Marketing Channel

• Group of organizations involved in selling and promoting goods from the time they are produced until they reach the end user.

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Channel Members

• The firms a company partners with to actively promote and sell a product as it travels through its marketing channel to users.

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Channel Designs

• Smallest possible channel is between two members- a producer and consumer.

• Any other addition to the channel involves the inclusion of intermediaries.

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Intermediaries

• Using intermediaries should have some benefit– Shipping company and their logistics– Distribution center and their trucks– Local business and their market knowledge– Dealer for their customers– etc

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Intermediaries

• Using intermediaries also should streamline processes– Selling to 500 customers versus selling to 20

dealers

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Intermediaries

• Should always be evaluated and monitored for alternatives– Could be to technology changes (record stores,

encyclopedias)– Efficiency changes as some companies just get

outdated

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Types of Partners

• Wholesalers- Businesses that:– purchase products in large quantities– can store the products– can break down the pallets into smaller units– can deliver desired quantities to distributors,

retailers, and consumers.

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Types of Partners

• Types of wholesalers-– Merchant wholesalers (distributors)- Wholesalers that take

title to the goods• Full service- perform more than just distribution, but also aid in

inventory management, credit for buyers, goods delivery, and employing salespeople to assist customers.

• Limited-service- few services but lower prices. – Drop shippers- generally deal in bulky items and make commissions on

the sale of orders from buyers to suppliers– Mail order wholesalers- sell via catalogs and ship direct to buyers– Truck jobbers- sell directly off of a truck generally selling high

perishability products– Rack jobbers- sell products that are displayed on their own racks in stores.

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Types of Partners

• Types of wholesalers-– Brokers- don’t purchase the products they sell, just

connect buyers and sellers.– Paid on commissions from sales

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Types of Partners

• Types of wholesalers-–Manufacturers agents- A form of factory outlet• Sell to stores and sometimes consumers at a discount

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Types of Partners

• Retailers- Buy from wholesalers, agents, or distributors and sell to consumers

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Types of Partners

• Types of retailers– Supermarkets- self-service retailers that provide

full range of food products and household products• There is a wide variety of supermarkets that have

different levels of assortments and prices that dictate their position (think Whole foods versus Kroger)

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Types of Partners

• Types of retailers– Convenience stores- Miniature supermarkets• Easy in and out• Generally an average variety, but little depth

– High markup

• Often paired with similar businesses

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Types of Partners

• Types of retailers– Specialty Stores- Narrow but deep product lines– High service– Knowledgeable staff– A large specialty store that dominates a product

line is called a category killer (PetSmart for pet products)

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Types of Partners

• Types of retailers– Department stores- wide variety • Generally are chain stores• Wide variety of department stores (Saks and Kmart are

both department stores)

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Types of Partners

• Types of retailers– Superstores- oversized department stores that carry

a very broad range of merchandise and groceries

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Types of Partners

• Types of retailers–Warehouse clubs- Supercenters that sell at a

discount• Pay an annual fee to become a member to gain price

benefits

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Types of Partners

• Types of retailers– Off-price retailers- general merchandisers that sell

overruns, seconds, and liquidations of last season’s items.

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Types of Partners

• Types of retailers– Pop-up store- Small, temporary stores that drive

business to larger stores– New form of retailing

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Typical Marketing Channels

• Direct channel is from producer to customer• Indirect is anything other than a direct channel

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Disintermediation

• Cutting out intermediaries• Becoming increasingly popular due to the

internet alleviating the need for middlemen. – Information allows for the best price and the

ability to find customers directly or be found by customers directly

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Multiple Channels and Alternate Channels

• Channels are rarely a straight line– Generally quite complex and often vary based on

situations• Might sell directly to a consumer if they buy in bulk,

but to a distributor for smaller orders

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Channel Partner Functions

• Push strategy- manufacturer convinces wholesaler, distributor, or retailer to sell its products.

• Pull strategy- stimulate demand among consumers to create demand for a product

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Channel Partner Functions

• Sorting and regrouping products– As mentioned before, some businesses are in place

to break down larger quantities and well smaller portions (wholesaler)

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Channel Partner Functions

• Storing and Managing Inventory– Keeping inventory in stock and close at hand can

make replenishment easier and prevent missed sales

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Channel Partner Functions

• Distributing products– Sometimes this is handled in house, Walmart, or it

could be handled through a third party.

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Channel Partner Functions

• Assume ownership risk and extend credit– Damage happens, so there needs to be someone to

take the hit– Free on board designates who is responsible for

the goods and at what point• Not as odd as it might sound. Think about buying

perishable goods in a snowstorm.

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Marketing Channel Strategies

• Channel Selection Strategies– Selecting the correct marketing channel is a must

to be successful• Internet helps this by allowing customers to make some

of these decisions

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Marketing Channel Strategies

• Types of customers– Individual versus institutional buyer– Automated versus manual buying– Customized versus commoditized

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Marketing Channel Strategies

• Type of Product– Not all products are best sold through the same

medium• How many of you want to buy groceries online?

Clothes? Television?

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Marketing Channel Strategies

• Channel partner capabilities– Abilities that you have the advantage over other

organizations– Some firms are good at getting into large retailers,

others are not

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Marketing Channel Strategies

• Business environment and technology– Economy always is a driver• When money is tight everyone is affected

– Technological changes can also alter channels• Targeting is getting easier and easier with better ability

to track consumers and even partners• Specialization’s ease is also altering the landscape for

firms

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Factors That Affect a Product’s Intensity of Distribution

• Intensive distribution- sell a product in as may outlets as possible– Commodities and convenience offerings fit here

• Selective distribution- selling at select outlets in specific locations– Sell the high end of the product line at a high end

retailer, etc.

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Factors That Affect a Product’s Intensity of Distribution

• Exclusive distribution– Selling through one or few outlets– Drives traffic to a specific store if the name is

strong enough to pull customers in

• Gray market- market which a producer hasn’t authorized its products to be sold.– Omega and Costco

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Channel Dynamics

• Channel power- ability to influence channel partner’s goals and efforts– Category killers can dictate what products they

want– Large retailers can basically tell suppliers what to

do

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Channel Dynamics

• Channel Conflict- Dispute in a channel– All about incentives• This is a normal battle in most businesses

– Sell through versus replenishment versus sales– Inventory level debates- who holds inventory– Contractual debates with partners– Multi-channel issues

» Selling in stores and online with different prices

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Channel Dynamics

• Vertical versus Horizontal conflicts– Vertical is among channel members– Horizontal is between organizations• Company A and Company B both want exclusive rights

to sell a product

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Channel Dynamics

• Ethical cooperation– Some firms have a positive image and just by

dealing with them, the positive benefits can be had– Avoid manipulating the supply chain for personal

gain• Big discounts to make sales numbers against the better

judgement of the rep

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Channel Integration

• Vertical marketing system- buying along the channel lines– Manufacturer buying a retail store

• Conventional marketing system- channel members have no affiliation with one another– Sometimes just a one-time sale

• Horizontal marketing system- Two companies at the same channel level agree to cooperate with one another to sell products– Two manufacturers coming together to sell a product is not

collusion, unless there are some rules they break