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MarketingMarketingChannels:Channels:DeliveringDelivering

CustomerCustomerValueValue

Chapter 10Next Exit

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10-2

2Prentice Hall, Copyright 2009

Rest Stop:Rest Stop: Previewing the ConceptsPreviewing the Concepts

1. Explain why companies use marketingchannels and discuss the functions thesechannels perform.

2. Discuss how channel members interact andhow they organize to perform the work of thechannel.

3. Identify the major channel alternatives opento a company.

4. Explain how companies select, motivate,and evaluate channel members.5. Discuss the nature and importance of

marketing logistics and supply chainmanagement.

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10-3Prentice Hall, Copyright 2009

Background

Caterpillar dominates the

worlds markets forheavy construction andmining equipment.

Independent dealers arepraised as the key tosuccess, providingcustomer service, marketintelligence, and more.

Distribution system is acompetitive advantage.

CaterpillarCaterpillar The Vital Role of DealersThe Vital Role of Dealers

Case StudyCase Study

Building Partnerships

Distribution system is built on

a base of mutual trust andshared dreams. Caterpillarworks with dealers to bringvalue to customers.

Caterpillar stresses dealerprofitability, extraordinarydealer support, personalrelationships, frequent, full,and honest communicationsand dealer performance.

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Supply Chains and theSupply Chains and the

Value Delivery NetworkValue Delivery Network

Producing and making products

available to buyers requires buildingrelationships with upstream anddownstream supply chain partners.

Upstream: Firms that supply the raw

materials, components, parts, and otherelements necessary to create a good.

Downstream: Marketing channel partnersthat link the firm to the customer.

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The network made up of the

company, suppliers, distributors,and ultimately customers whopartner with each other to

improve the performance of theentire system in delivering

customer value.

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Supply Chains and theSupply Chains and the


Marketing

channelsrepresent thedownstream

side of thevalue deliverynetwork.

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Marketing ChannelMarketing Channel

A set of interdependentorganizations that help make a

product or service available for

use or consumptions by the

consumer or business users.

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Innovative Marketing Channel

Innovative marketing

channels can provide

customer value. Calyx

and Corolla sells freshflowers direct to buyers,

cutting a week or more

off the time it takes

flowers to reach buyersusing conventional retail

channels.

Marketing in Action

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How channel

members add value:The use of

intermediaries results

from their greaterefficiency in making

goods available to

target markets.

Nature and Importance ofNature and Importance of

Marketing ChannelsMarketing Channels

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How channel members add value:

Channel members can provide more:ContactsExperience

SpecializationScale of operationChannel members perform transaction

functions.



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Nature and Importance ofNature and Importance ofMarketing ChannelsMarketing Channels

Transaction

fulfilling: Physical

distribution

Financing Risk taking

Transaction

completing: Information

Promotion

Contact

Matching

Negotiation

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Number of channel levels:The number of intermediary levels

indicates the length of a channel.Direct marketing channels

Have no intermediary levels between themanufacturer and the customer.

Indirect marketing channels Contains one or more intermediaries.

All channel institutions are connected byseveral types of flows.



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Prentice Hall, Copyright 2009 10-14

Figure 10.2Figure 10.2

Consumer and BusinessConsumer and BusinessMarketing ChannelMarketing Channel

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The channel will be most effective

when:Each member is assigned tasks it can

do best.

All members cooperate to attain overallchannel goals.

Channel Behavior andChannel Behavior and

OrganizationOrganization

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Channel conflict occurs when member

cooperation fails: Horizontal conflictoccurs among firms at

the same level of the channel (e.g., retailer toretailer).

Vertical conflictoccurs between differentlevels of the same channel (e.g., wholesalerto retailer).

Some conflict can be healthy.



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Channel Conflict

Goodyears 1992

decision to sell tires

via Sams, Wal-Mart,

and Sears created

conflict with its

prized network ofindependent

dealers.

Marketing in Action

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Figure 10.3Figure 10.3

Comparison of Conventional DistributionsComparison of Conventional DistributionsChannel with Vertical Marketing SystemChannel with Vertical Marketing System

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Types of vertical marketing

systems:

Corporate VMS

Contractual VMS

Franchise organization

Administered VMS



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Corporate VMS: Vertical marketing

system thatcombinessuccessive stage ofproduction and

distribution undersingle ownership.Channel leadershipis established viacommon ownership.

Contractual VMS: Vertical marketing

system in whichindependent firms atdifferent levels ofproduction/distribution

join together throughcontracts to obtainmore economies ofscale than they couldalone.



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Franchise organizations are a

common form of contractual verticalmarketing system.

Types of franchise organizations:

Manufacturer-sponsored retailer franchise

Manufacturer-sponsored wholesalerfranchise

Service-firm sponsored retailer franchise



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Franchising

Many businesses, suchas convenience stores

like 7-Eleven andrestaurants such asMcDonalds, seekgrowth via franchising.

Learn more about what7-Eleven offers itsfranchisees by visitingtheir Web site.

Marketing in Action

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Fuel for ThoughtFuel for Thought


You may be surprised to learn thatStarbucks does not franchise itsbusiness, and that they have no plans

to franchise in the foreseeable future.Starbucks may enter into licensingarrangements with firms who provideaccess to select locations such as

airports, national grocery chains, etc.Why do you think that Starbucks haschosen to forgo franchising?

Learn more at Starbucks Web site.

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Horizontal marketing systems:

Two or more companies at one level

join together to follow a new marketing

opportunity.

McDonalds recently joined forceswith Sinopec, Chinas largest gasoline

retailers, to place restaurants at more

than 30,000 gas stations in China.



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Multichannel distribution system:

Occurs when a single firm sets up two

or more marketing channels to reach

one or more customer segments.

Also calledhybrid marketing channelsystem.



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Figure 10.4Figure 10.4Multichannel Distribution SystemMultichannel Distribution System

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Disintermediation

Online travel sales via

the Internet spelledthe death of traditional

travel agencies. Music

download services are

now threatening tomake traditional CD

sellers obsolete.

Marketing in Action

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Analyzing consumer needs

Setting channel objectives

Identifying major alternatives

Evaluating the major alternatives

Channel Design DecisionsChannel Design Decisions

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Analyzing consumer needs:

Requires answering key questions to help

determine customer needs: Do consumers want to buy from nearbylocations or are they willing to travel?

Do they value breadth of assortment or do theyprefer specialization?

Do consumers want many add-on services? Firm must balance needs against costs and

consumer price preferences.


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Setting channel objectives: Objectives are stated in terms of targeted

levels of customer service.

Channel objectives are influenced by: Cost

Nature of the company

The firms products

Marketing intermediaries Competitors

Environment


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Identifying major alternatives:

Types of intermediaries:

Company sales force, manufacturersagency, or industrial distributors

Number of marketing intermediaries:

Intensive, selective, or exclusivedistribution Responsibilities of channel members

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Quick FlickQuick Flick

GeneralElectricsdistribution

strategy

Click to play

video

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Evaluating the major alternatives

involves comparing alternatives in

terms of:

Economic criteria:

A company compares the likely sales,costs, and profitability of differentchannel alternatives.

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Evaluating the major alternativesinvolves comparing alternatives in

terms of:Control issues:

How and to whom should control begiven?

Adaptive criteria:

Consideration of long-term channelcommitment vs. channel flexibility

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Designing internationaldistribution channels is

a complex process. Avon was forced to

abandon its traditionaldirect marketing approach

and sell through retailstores when the Chinesegovernment banned door-to-door selling.

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Channel Management DecisionsChannel Management Decisions

Selecting channel members

Managing and motivating channel

members:

Partner relationship management

Evaluating channel members

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Public Policy andPublic Policy and

Distribution DecisionsDistribution Decisions

Exclusive distribution

Exclusive dealing

Exclusive territorial agreements

Tying agreements

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Figure 10.5Figure 10.5Supply Chain ManagementSupply Chain Management

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Marketing LogisticsMarketing Logistics

Planning, implementing, and

controlling the physical flow ofgoods, services, and related

information from points of originto points of consumption to meet

customer requirements at a profit.

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Marketing Logistics andMarketing Logistics and

Supply Chain ManagementSupply Chain Management

Marketing logistics is often referred to

asphysical distribution. Marketing logistics involves the entire

supply chain:

O

utbound distribution Inbound distribution

Reverse distribution

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Greater emphasis has been placed onlogistics recently because:

Firms can gain a competitive advantage whenlogistics result in better service or lower prices.

Improved logistics can lower costs.

Increased product variety has created a need

for improved logistics management. Improvements in information technology have

created the means for major gains indistribution efficiency.



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Goals of the logistics system:

D

eliver a targeted level of customer serviceat the least cost.

Major logistics functions:

Warehousing

Inventory management Transportation

Logistics information management



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Warehousing:

How many,

what types,and where?

Storagewarehouses

Distributioncenters

Automatedwarehouses

Inventorymanagement:

Must balancebetween too muchand too littleinventory

Just-in-timelogistics systems

RFID or smart tagtechnology

Marketing Logistics and SupplyMarketing Logistics and Supply

Chain ManagementChain Management

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Inventory management

is being revolutionalizedby the RFID or smarttag technology.

Smart tags have the

potential to make the entiresupply chain intelligent andautomated, potentiallydecreasing product cost.



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Trucks

Railroads

Water carriers

Pipelines

Air

Internet

Intermodal

transportation Piggyback,

fishyback,trainship

Transportation alternatives:



M k ti i A ti

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Roadway Provides Value

Roadway and other

transportation firms

have added many

services recently.

Roadway provides

value via its

Customer CareTeams, which focus

on specific customer

needs.

Marketing in Action

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Integrated LogisticsIntegrated Logistics

ManagementManagement

The logistics concept thatemphasizes teamwork, both inside

the company and among all the

marketing channel organizations,

to maximize the performance ofthe entire distribution system.

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Integrated logistics management

often requires:

Cross-functional teamwork inside the

company

Building logistics partnerships

Use of third-party logistics providers

Integrated Logistics ManagementIntegrated Logistics Management

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10-50

50

Prentice Hall, Copyright 2009

Rest Stop:Rest Stop: Reviewing the ConceptsReviewing the Concepts

1. Explain why companies use marketingchannels and discuss the functions thesechannels perform.

2. Discuss how channel members interact andhow they organize to perform the work of thechannel.

3. Identify the major channel alternatives opento a company.

4. Explain how companies select, motivate,and evaluate channel members.5. Discuss the nature and importance of

marketing logistics and supply chainmanagement.

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51

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

Copyright 2009 Pearson Education, Inc.Copyright 2009 Pearson Education, Inc.Publishing as Prentice HallPublishing as Prentice Hall

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