Part 1Part 1

Marketing Channel Systems

Primer on “The Basics”Primer on “The Basics”

What is Marketing?

Primer on “The Basics”Primer on “The Basics”

What is Marketing?

• Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. (Lusch and Marshall 2004)

• Competition for a Differential Advantage (Alderson 1957)

Primer on “The Basics”Primer on “The Basics”

What is the Marketing Concept?

• A management philosophy which advocates that a business organization (or channel):

Primer on “The Basics”Primer on “The Basics”

What is the Marketing Concept?

• A management philosophy which advocates that a business organization (or channel):– Exists to identify and satisfy the needs of its customers (i.e.,

customer orientation)

– That a customer orientation is accomplished through an integrative effort throughout the firm or channel (i.e., integrated effort)

– That the firm’s (or channel’s) focus should be long-term and seek to provide a satisfactory return on owner’s investment (ROI) (i.e., long-term profit orientation)

Primer on “The Basics”Primer on “The Basics”

What are the Eight (8) General Marketing Functions?

Primer on “The Basics”Primer on “The Basics”

What are the Eight (8) General Marketing Functions?

• Buying

• Selling

• Storing

• Transporting

• Sorting

• Financing

• Information Gathering

• Risk Taking

Primer on “The Basics”Primer on “The Basics”

What Purpose do

Marketing Channels Perform?

Primer on “The Basics”Primer on “The Basics”

What Purpose do

Marketing Channels Perform?

• Make products and services conveniently available to customers when, where, and how they want them in order to satisfy demand.

– The farmer, egg, & grocery store example.

Chapter 1Chapter 1

Marketing Channel Concepts

WhyWhy the growing importance of the growing importance of marketing channels?marketing channels?

11

1. The explosion of information technology and

E-commerce

2. A greater difficulty in gaining a sustainable competitive advantage

3. The growing power of distributors, especially retailers in marketing channels

4. The need to reduce distribution costs

Objective 1:

11.. 2. A greater difficulty in gaining a sustainable competitive

advantage 3. The growing power of distributors, especially retailers

in marketing channels 4. The need to reduce distribution costs

11

Yahoo! eBay

Amazon.com

The prediction:Disintermediation — reduction of number of intermediaries

The reality:Reintermediation—evolution of a new type of intermediary

The explosion of information technology and E-commerceThe explosion of information technology and E-commerce

E-commerce is more an evolution than a revolution in marketing.

11.. 2. A greater difficulty in gaining a sustainable competitive

advantage 3. The growing power of distributors, especially retailers

in marketing channels 4. The need to reduce distribution costs

11 The explosion of information technology and E-commerceThe explosion of information technology and E-commerce

1. The explosion of information technology and E- commerce 2.2. 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

11

A greater difficulty in gaining a sustainable competitive advantageA greater difficulty in gaining a sustainable competitive advantage

Place (distribution), or Marketing

Channel Strategy Sustainable competitive advantage

Potential for gaining competitive advantage because place is more difficult for competitors

to copy

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3.3. 4. The need to reduce distribution costs

The growing power of distributorsThe growing power of distributors

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Power retailers as gatekeepers of consumer markets

Act as buying agents for customers rather than as selling agents for manufacturers

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors 4.4.

The need to reduce distribution costsThe need to reduce distribution costs

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Marketing channels are the most recent target for

reducing distribution costs.

The focus is on channel structure and management.

What is a marketing channel?What is a marketing channel?

External contactual organization that management operates to achieve its distribution objectives

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Outside the firm

Firm involved in negotiatory functions

Management’s involvement in the process

Goals that change, causing variationsin contactual organizations involved

Objective 2:

What is a channel manager?What is a channel manager?

Anyone in a firm or organization who is involved

in marketing channel decision making

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Objective 3: 11How does marketing channel strategy relate to How does marketing channel strategy relate to

the the rest of the marketing mix?rest of the marketing mix?

Marketing Mixor

the four Ps

Challenges

Product Limited ability to gain and hold competitive advantage

Price Price wars erode profitability & provide unstable basis for sustaining competitive

advantage

Promotion Expensive and short-lived

Place (Distribution)

Marketing channels support & enhance other Ps to meet demands of

target markets

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The change of focus to channel strategyThe change of focus to channel strategy

• Creates competitive advantage with long-term viability

• Builds strong relationships between manufacturers and channel members

• Based on trust, confidence, and people power

Channel Strategy and Logistics ManagementChannel Strategy and Logistics Management

Parts of the “Place” or “Distribution” Variable

• Concerned with entire process of starting and operating contactual organization

• Formulated before logistics management

Focused specifically on providing product availability at appropriate time & place

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Objective 4: 11

5 Primary Marketing Channel Flows5 Primary Marketing Channel Flows

Product Flow

Promotion Flow

Information Flow

Ownership Flow

Negotiation Flow

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Product FlowProduct Flow

Manufacturer

Transportation Company*

Wholesalers

Retailers

Consumers

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Manufacturer

Wholesalers

Retailers

Consumers

Negotiation FlowNegotiation Flow

Ownership FlowOwnership Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Information FlowInformation Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Transportation Company

Promotion FlowPromotion Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Advertising Agency

Distribution through intermediariesDistribution through intermediaries

Objective 5: 11

Technology the Internet

Economic Specialization &Considerations Division of Labor

Contactual Efficiency

Factors that determine the role of intermediaries

Objective 6: 11

Channel Structure Channel Structure v.v. Ancillary Ancillary StructureStructure

Channel Structure

The group of channel members to which aset of distribution tasks has been

allocated

Ancillary Structure

The group of institutions that assist channel members in performing

distribution tasks

Why are single-channel

structures currentlythe exception?

Why is managing the ancillary structure

most likely to be less complex than

managing the channel structure?