J.K. Higginson: Noles for Marketing Channels Management, Winter 2008 \.., @James K. Higginson 2001-08. Allrights reserved. Reproduction or copying of this document, in whole or in part,by anymeans (graphic, electronic, or mechanical) is exilressly prohibited. PART 1: OVERVIEW OF MARKETING CHANNELS INTRODUCTION TO MARKETING CHANNEL MANAGEMENT lntroduction Exampte 1: What issues in marketing channel management are illustrated in the following example? j,.,.,, r,, 1 ., .., "1o the early 1970s, Sara Lee Corporation's L'eggs became the first,'niajor brandof i,'" \ pantyhos-e to be.sold throug.h grocery and drug stores. Prior to that, virtually dllpantyhose was sold through discount department stores, traditional department stored, and specialty ;,"?pp€ll€l stores. To increase acceptance of their products by retailers and to bettei enablil " consumers to use self-service, L'eggs developed special display racks for retailers to display L'eggs' uniquely shaped containers. ,1 SaraLee used a similar marketing channel strategy withits Underalls pantyhose brand. Originally, Und^eralls wereonlysold in traditional department stores and upscale retail outlets. ln 1978, Sara Lee started selling Underalls to Kmart andother discoirnt retailers. By 1985, il hgd stopped selling Underalls in traditional department stores, and in 1988, transferred Underalls to its L'eggsdivision. Through this division, Underalls were distributed to grocery stores, drug stores, and mass merchandisers. Since L'eggs andUnderalls are sold to thesame retailers, Sara Lee carefullv distinquished each brand.Each brand has a unique package, separate displays areuse-d wheria store carriesboth brands, and differentpricing strategies are us-ed. The L'eggsbrand designation is notused on the Underalls package oi in Underalls advertising."-- Source: adapted from B. Berman [1996], Marketing Channels. Distribution "Distribution" refers to thefunctions andactivities involved in getting a product froma seller to a buyer. There areeight general functions thatmust becarried outwhen distributing a product: Distribution Function Definition Physicalflow the physical movement of a product fromthe manufacturer through all parties to the final consumer Ownership thetransfer of title to a product from the manufacturer through allparties to thefinal customer Negotiation the negotiation required to taketitle or transfer tiileto goods, or the providing of direct assistance to a buyer or seller , ,v? \-l ,r"9 cll9t^*?.1 i >*!, tr l" rrr/ l/ c ctJl e-- -f*" . ' *?\-l '.'{ _*: , v,-a N 'a Y a&VVr Yt" 'l I ct\4,A'tl-{--,{ *, u **f A. I or^ 9 t t^9l^' *1 i,qd'vttA Y'(nl rra tel,\ ed 'pr"o#,*^S 'tnJ 0L Q *4 d4,relf i^!"R i5 S*u| a .pa.'v.'ovr q S 61 {\A L r}"}sl\ a,fi*+* " I
Transcript
J.K. Higginson: Noles for Marketing Channels Management, Winter 2008
\..,
@James K. Higginson 2001-08. All rights reserved. Reproduction or copying of this document, inwhole or in part, by any means (graphic, electronic, or mechanical) is exilressly prohibited.
PART 1: OVERVIEW OF MARKETING CHANNELSINTRODUCTION TO MARKETING CHANNEL MANAGEMENT
lntroduction
Exampte 1: What issues in marketing channel management are illustrated in the followingexample? j,.,.,, r,, 1
., .., "1o the early 1970s, Sara Lee Corporation's L'eggs became the first,'niajor brand ofi,'" \ pantyhos-e to be.sold throug.h grocery and drug stores. Prior to that, virtually dll pantyhose
was sold through discount department stores, traditional department stored, and specialty;,"?pp€ll€l stores. To increase acceptance of their products by retailers and to bettei enablil" consumers to use self-service, L'eggs developed special display racks for retailers to
display L'eggs' uniquely shaped containers. ,1
Sara Lee used a similar marketing channel strategy with its Underalls pantyhose brand.Originally, Und^eralls were only sold in traditional department stores and upscale retailoutlets. ln 1978, Sara Lee started selling Underalls to Kmart and other discoirnt retailers.By 1985, il hgd stopped selling Underalls in traditional department stores, and in 1988,transferred Underalls to its L'eggs division. Through this division, Underalls weredistributed to grocery stores, drug stores, and mass merchandisers.
Since L'eggs and Underalls are sold to the same retailers, Sara Lee carefullv distinquishedeach brand. Each brand has a unique package, separate displays are use-d wheria storecarries both brands, and different pricing strategies are us-ed. The L'eggs branddesignation is not used on the Underalls package oi in Underalls advertising."--
Source: adapted from B. Berman [1996], Marketing Channels.
Distribution
"Distribution" refers to the functions and activities involvedin getting a product from a seller to abuyer.
There are eight general functions that must becarried out when distributing a product:
Distribution Function Definition
Physicalflow the physical movement of a product from themanufacturer through all parties to the finalconsumer
Ownership the transfer of title to a product from themanufacturer through all parties to the final customer
Negotiation the negotiation required to take title or transfer tiile togoods, or the providing of direct assistance to abuyer or seller
, ,v? \-l ,r"9 cll9t^*?.1 i >*! , t r l" rrr/ l/ c ctJl e---f*" . ' *?\-l '.'{ _*:, v,-a N 'a Y a&VVr Yt" 'l
I c t \ 4 ,A ' t l - { - - , { * , u
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2 J.K. Higginson: Nofes for Marketing Channels Management, Winter 2008
ln the list of eight general distribution functions, members of the marketing channel perform theownership function and the negotiation function:. the ownership function involves taking title and transferring title to goods. the negotiation function includes negotiating to take,Utleo+transfer.title,togoods, or
Thus: r ,^ .k ! ' . , r , .1,r ' ,1{^ ' i , , / t i t ' ' ' ,1, ' , \ '
^d",- - - -1 . i , . ULk' i \ l l , : .
l ' " . \, O- \ i - ! ; r \ ' i . i \ : * ' t \
,rb A ma$gtu4-clnnnelconsists of "those firms or parties who are involved in the 'r , ."\. t c" \ ..- -o.wtrershipand/ornegotiatoryfunctionsasaproductorservicemovesfromproducer ' i ' i \
i ' ,,, ̂ u .l*\ \ . to ultimate user. Only firms or parties who enqaqe in ownership and/or neqotiatory . ."Ulrj
. ' r c' \ ..--owfleishipand/ornegbtiatoryfunctionsasaproductorservicemovesfromproducer , 'r,-u\., ' ' ,^ \. .i o { 1 to ultimate user. Only firms or parties who engage in ownership and/or negotiatory , , Ulr}o"\ - . (, o;\
" functions are members of thb marketinq chainel." Sourcb: adapted'from B.ct .)s''""
Distribution Function Definition ,
Promotion the flow of persuasive communication (advertising;personal selling, sales promotion, and publicity)required to sell a product
Risking (risk-sharing and risk-taking)
the sharing or transferring of risks associated withcarrying and selling a product
Ordering the flow of information associated with the purchaseand sale of a product
Financing the arranging of funds or credit to pay for apurchased product
Payment the disbursement of cash, or receipt and handling ofcash, in payment for a product bought or sold
What Are Marketing Channels?
firms or parties who engage in ownership and/or ners of the marketing channel." Source: adapted\r \ .. 1 o 1 . ," functions are members of the marketing channel." Source: adapted from B.
,i.. .\\":."F:, not perform ownership or negotiatory functions and hence are not part of the. o€$ ,,d'
' marketing channel./ x
s' _Example 2: Which of the following organizations are part of the marketing channel indicated?I o ]
- , - [ ' v . n t -' n t . r i ' ' t , Iuarxet ingChannei ,, ,, trt
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Marketing Channel Organization ls This Organization Part ofthis Marketing Channel?
sale of General Electricstoves by applianceretailers
a salesperson employedby an appliance retailerthat sells General Electricstoves
\ra
sale of U.S. currency a bank t l t ; : , ,
sale of Ford automobilesby Ford auto dealers
a bank $c,
J.K. Higginson: Nofes for Marketing Channels Managemenl Winter 2008 3
Why Do Marketing Channels DeveloP?
Fundamental Principle of Marketing Channel Design and Strategy #1:
can be shifted among members of the distribution channel,channel functions cannot be eliminated.
Sn*-*n* f,t i t o iu"'o^tlo ru fl'n,^t , &@ -t "r ..'r"'{a 'l ''u'sd oY.
ls This Organization Part ofthis Marketing Channel?
a railroad that transPortsthe iron ore to the steelrefinery
sale of iron ore bY amining company to a steelrefinery
a farmer selling applesfrom a roadside stand
sale of apples bY farmers
reserving and renting ofrooms in a hotel
sale of used stereoequipment by consumers
Organizations in theMarketing Channel r
F aci I itati n g O rgan i zations, t . , , . t l r .
Role of particiPants k"\ 9a,r\ , ntlo\io'*t' l
b^\,'. I q ,"i,,'''1M V y i x c ( ' ' l \ \ "
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Examples of members bt"t)i,5osl''q:i'-*'li:;fTxffi;';''I \ r ( ( - v ' t ' " r \
iffili'1 *f,i-r'u'lee
Take title to Products? ne i l0 { r v I0Y > L v r
C*.^ \=^t- ̂ov J* "Y I ;rJv wor
Stake in marketing channeldecision-making rulIrtr#I,:^ f,.,{}9€r^r*,du*1
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J.K. Higginson: Nofes for Marketing Channels Managemenf, Winter 2008
Example 3: Suppose that a retailer does not want to have to deliver the products she sells.
.( a. With which one of the eight distribution functions is the retailer trying to avoid bping(\co.'( ) involved? ',,,, '';-,'-.1 .,1) " b. lf a consumer wishes to buy a product frpm this retailer, what must the consuimdr ''
do?c. What might the retailer do to avoid being involved with this distribution f unction while
attempting to maintain good relations with customers?
The basic decision in the design of distribution channels (and marketing channels) is: shouldintermediaries' be used in the distribution channel (or marketing channel), and if so, which Ifunctions should be allocated to which intermediaries?
The decision to use intermediaries in a distribution channel (and marketing channel) is based ontwo fundamental concepts:
a. contactual efficiency: the amount of contact and negotiation required between .,sellers and buyers in order to achieve a distributign objective. ,^.\_\r..
{r,,r; f,nq,'{,,'q., n rE"T\,'"t
b. speciatization and division of tabour. q-";i. l ; :),:": i,1,;. i '" ' , *d"1 io ,.. l i"to J1'o' ' i ar' i 'uh'o
c.trt bert at qDv{er*'-rrnLt, \[r'i^" '
Example 4: A certain type of product is manufactured by ten different manufacturbrs, andpurchased by approximately 2,000 consumers. DesCribe the concept of contactualefficiency as it applies to this product if a channel intermediary is not used and if a channelintermediary is used.
Why is Managing Marketing Channels Difficult But lmportant?
Costs in Distribution Channels
Example 5: You are an appliance retailer. One product you sell is Maytag washing machines,which you purchase from Maytag, the manufacturer. What are some costs that you mustincur as a result of your decision to sell Maytag washing machines?
Why ls Managing Marketing Channels lmportant But Diff icult?
Marketing channel strategy and management offers a greater potential lor gaining a competitiveadvantage than the other three components of the marketing mix because marketingchannel strategy is more difficult for competitors to copy in the short run.
Why is marketing channelstrqtegy is-more difficult for competitors to copy in the short run?
to&p -^*T, i r \ ) Lr tsIo 5e\r r r rc, l iaf i ^n"1, ' r i i i ( r r i . i . f '
-ilt'J:;";:;"-*lq;:;,it::-j,{{uk€/ltnf{erm "interrpdiqtry'l,refers to any channel member other than the manufacturer or the end-user
(consTmerYibtrcih6.ss-6{pr). The most common types of intermediaries in marketing channels arewholesalers and retailers. The commonly-used term "digtribulor" typic4fly refers top.wholesaler.
' odrS'eY\t€tu,1 fi 7'*'**{io'n- irxen*iva} r . i*.!r I ye^1\z .Lr se.f lMYIfi
J.K. Higginson: Nofes for Marketing Channels Management, Winter 2008 5
Several characteristics of marketing channels complicate their management:I
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