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Marketing Channel ConceptsPart 1: Marketing Channel Systems2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.What is a marketing channel?21External contactual organization that management operates to achieve its distribution objectivesorA set of interdependent organizations involved in the process of making product or services available to end user

Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.What is a channel manager?Anyone in a firm or organization who is involved in marketing channel decision making2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Channel Intermediaries?43AgentsWholesalersBrokerManufacturers RepresentativeAny Channels Member other the Manufacturer or End UserRetailIntermediariesObjective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.5Manufacturers Direct -> Product shipped and serviced from manufacturers warehouseManufacturers Owned full service wholesaler and distributor -> Acquired wholesales distribution company serving parent and other manufacturers market and are not restricted to their own distribution only eg Levis, GESCO etcCompany Store Manufacturer Outlet -> Retail product Outlet in high density Market

Manufacturers Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.6License ->Contracting distribution and marketing function eg walt disneyConsignment Locker Stock -> Manufacturers ships product to a point of consumption but the title does not pass until its consumed eg, diamondsBroker -> Specialized sales force contracted by manufacturers e.g. forzen food, paper goods, lumber etcManufacturers Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.7Franchise -> product and merchandising concept is packaged and formatted / territory rights are sold to franchisees e.g. Mc DonaldsDirect Dealers - > Franchised retailers carry a limited number of product lines supplied by a limited number of vendors. Often big Ticket Items needing high after sales and support e.g. Auto DealersBuying Clubs - > Buying Service require menbership e.g. Book ClubsWarehouse Club Wholesale Club -> Appeal is to price concious shopper. Size is 60000 sq/ft. Product selection is limited and products are usually sold in bulk sizes in no frill environment e.g. Price ClubRetail Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.8Department Store -> Offers a wide variety of merchandise with a moderate depth of selection.Mass Merchandiser -> Similar to department store except product selection is broader and prices are usually lower e.g. Wal-MartSpecialty Store -> Offer merchandise in one line e.g. Gap, Kinndy Shoes

Retail Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.9Specialty Discounter Category Killer -> Offer Merchandise in one line with great depth of discounted prices selection at discounted prices. Store usual size ranges 50,000 75,000 square feet e.g. Toys R Us, Office MaxConvenience Stores -> A Small, higher margin grocery store that offer a limited selection of staple groceries e.g. ready to heat and ready to eat foodHypermarket -> A very large food and general merchandise store with at least 100,000 square feet of space e.g. Super Kmart CentersRetail Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.10Contract Warehousing ->public warehousing services provided for fee e.g. dry storage, caterpillar logistics servicesSubprocessors -> Outsourcing of assembly or sub processing e.g. kitting of parts in electronic industryCross Docking -> Trucking companies services high-volume inventory needs by warehousing and backhauling product on routine basisIntegration of Truck and Rail (Intermodal) -> joint venture of Truck and Rail CompanyService Provider Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.11Roller Freight ->Full Truck Load is sent from manufacturer to high density customer via transportation company e.g. Lumber ProductsStack Train and Road Railer - > Technique of speed movement e.g. importers containersSchedule Train -> high speed trains leaves daily of prescribed times from high density areas to high density destinations manufacturer buys a ticket and hooks his rail cart with itOutsourcing -> Service provider signs a contract to provide servicesService Provider Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.12Bartering -> Service Provider usually an advertising company signs a barter agreement with manufacturer to exchange products for media advertising time or space for product e.g. Consumer and commercial products that has been discounted or for which the demand has decreasedValue added reseller -> Designers, engineers or consultant form various industries joint ventures with manufacturer of products to use their design e.g. samsung armani

Service Provider Based Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.13Individual on site -> Very effective in generating new businessRoute -> Used for servicing routine repetitious purchases that do not need to be resold on each call. Milk deliveriesHome Party -> Similar to individual on site sales, this format takes group of individual Multilevel Marketing -> Sales person not only sells products but also recruits other sales person who become a leveraged sales force that gives the original sales person commission on their sales e.g. statelifeDoor to Door Channel Formats2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Why the growing importance of marketing channels?The explosion of information technology and E-commerceA greater difficulty in gaining a sustainable competitive advantageThe growing power of distributors, especially retailers in marketing channelsThe need to reduce distribution costs142Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.15The prediction:Disintermediation reduction of number of intermediaries

The reality:Reintermediation evolution of a new type of intermediary

Yahoo!eBayAmazon.comThe explosion of information technology and E-commerceA greater difficulty in gaining a sustainable competitive advantageThe growing power of distributors, especially retailers in marketing channelsThe need to reduce distribution costs2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The explosion of information technology and E-commerceA greater difficulty in gaining a sustainable competitive advantageThe growing power of distributors, especially retailers in marketing channelsThe need to reduce distribution costs16Place (distribution), or Marketing Channel Strategy

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

Sustainable competitive advantage2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The explosion of information technology and E-commerceA greater difficulty in gaining a sustainable competitive advantageThe growing power of distributors, especially retailers in marketing channelsThe need to reduce distribution costsPower retailers as of consumer marketsAct as buying agents for customers rather than as selling agents for manufacturersGatekeepers 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The explosion of information technology and E-commerceA greater difficulty in gaining a sustainable competitive advantageThe growing power of distributors, especially retailers in marketing channelsThe need to reduce distribution costsMarketing channels are the most recent target for reducing distribution costs.The focus is on channel structure and management.2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.How does marketing channel strategy relate to the rest of the marketing mix? Marketing Mixor the four Ps ChallengesProductLimited ability to gain and hold competitive advantagePricePrice wars erode profitability & provide unstable basis for sustaining competitive advantagePromotionExpensive and short-livedPlace (Distribution)Marketing channels support & enhance other Ps to meet demands of target markets3Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The change of focus to channel strategyCreates competitive advantage with long-term viabilityBuilds strong relationships between manufacturers and channel membersBased on trust, confidence, and people power202013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Marketing Channel Flows Product Flow Promotion Flow Information Flow Ownership Flow Negotiation Flow4Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Product Flow Manufacturer Transportation Company Wholesalers Retailers ConsumerProduct Flow: Refers to the movement of Physical Product2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Negotiation Flow Manufacturer Wholesalers Retailers ConsumerNegotiation Flow: Encompasses the institutions that are associated with actual exchange of products2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Ownership Flow Manufacturer Wholesalers Retailers ConsumerOwnership Flow: Shows movement of title2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Information Flow Manufacturer Transportation Company Wholesalers Retailers ConsumerInformation Flow : identifies the individuals who participate in the flow of information either up to down2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Promotion Flow Manufacturer Advertising Agency Wholesalers Retailers ConsumerPromotion Flow: Refers to the flow of persuasive communication in for of advertising, personal selling sales promotion and PR2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Distribution through intermediaries

Technology The Internet

Economic Specialization &Considerations Division of Labor Contactual EfficiencyFactors that determine the role of intermediaries5Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Specialization & Division of LaborDistribution TasksProduction TasksDistributed Inter-organizationallyDistributed intraorganizationally2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Contactual Efficiency Granada Guitar Co. Negotiation EffortEstimated Dollar Costs of InputsDistribution Objective(Output)Contactual Efficiency100 sales visits100 phone calls20 magazine ads@ $50 = $5,000@ 3 = 300@1,000 = 20,000 $25,300Get 500 music stores to carry new guitar lineNegotiation effort in dollar terms relative to achieving the distribution objective = $25,3002013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Channel Structure v. Ancillary StructureChannel Structure

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

The group of institutions that assist channel members in performing distribution tasks

Why are single-channelstructures currentlythe exception?Why is managing the ancillary structure most likely to be less complex than managing the channel structure?6Objective2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.ROCKAUTO.COM is a leading online auto parts store that prides itself for offering a huge selection of auto parts, everyday low prices, fast shipping, and an easy-to-use Web site. Some ROCKAUTO.COM advertisements have even claimed that this online auto parts store is head and shoulders above any brick and mortar auto parts store. The companys slogan, All The Parts Your Car Will Ever Need, suggests that customers have all the choice they could possibly want from ROCKAUTO.COM and that they need look no further than this online auto parts store to satisfy all their needs.

Do you agree with ROCKAUTO.COMs claim? Might customers seeking auto parts need other channel options? Explain.Discussion Question #12013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Growth in online retail sales has been outstripping conventional sales in retail stores. This online sales growth might be enhanced significantly by the latest online sales phenomenon of mobile commerceshopping via mobile smart phones such as Apples iPhone, Research in Motions Blackberry, or Googles NexusOne. But so far, of the almost 50 million smart phone users that have access to the Internet, only about 7 million (under 15%) have actually bought something through their phones during the course of a year.

Do you think mobile commerce via smart phone will grow rapidly in the future? Why or why not?Discussion Question #22013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.One of the major themes presented in this chapter is the need for choice as to how products and services are made available to customers. Thus, multi-channel strategies that provide a wide range of channels including an Internet based online channel option have become imperative. Yet there are very successful firms that take a virtually opposite view by purposely limiting choice. A case in point is Edward Jones, a financial services company with the largest network of brokerage offices in the U.S.more than 10,000 and still growing. Edward Jones has a Web site that its customers can visit but it does not offer its customers the option of trading online. Instead, all transactions must take placethrough an Edward Jones broker. Even with this single channel strategy, the company is still growing and is very profitable.

Why do you think Edward Jones has been able to buck the trend toward multi-channel strategy that would include an online channel as a key option?Discussion Question #32013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.