Marketing Channels & Channels Design

decisions
 Learning Objectives

• Define Marketing channels

• Importance of using distributors
• Channel levels
• Functions of marketing channels
• Channels design decisions
• Channel management decisions
• Define Retailing, Wholesaling and logistics
• Physical Distribution management
 Supply Chains
• Upstream supply chain is the process of
getting the raw materials, components, parts,
information, finances, and expertise to the
manufacturer.
• Downstream supply chain mean process of
getting products from the manufacturer to
the end consumer
 Value Delivery Network
• Company, suppliers, distributors, and
customers who partner with each other to
improve the performance of the entire
system
 Marketing Channels
(Distribution Channels)
• Interdependent organizations that help make
a product or service available for use or
consumption
• Channel decisions
• Affect every other marketing decision
• Can lead to competitive advantage
• May involve long-term commitments to other
firms
How a Distributor Reduces the Number of
Channel Transactions
How Channel Members Add Value
• Intermediaries create greater efficiency in
making goods available to target markets.
• Role of marketing intermediaries
• Transform the assortments of products made by
producers into the assortments wanted by
consumers
• Bridge the major time, place, and possession
gaps that separate goods and services from
users
Functions of Marketing Channels

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 Number of Channel Levels
• Channel level: A layer of intermediaries that
performs work in bringing the product and its
ownership closer to the final buyer
• Direct marketing channel: No intermediary
levels
• Indirect marketing channels: One or more
intermediary levels
 Number of Channel Levels
• Types of flows that connect the institutions in
the channel:
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow
 Consumer and
Business Marketing Channels
 Importance of using distributors

• Knowledge of the market

• Enhanced customer service
• Market Research
• Expansion
• Storage facilities
• Larger customer base
• Expand Customer service
• Reduced capital expenditure
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 Channel Behavior
• Channel conflict: Disagreements among marketing
channel members on goals, roles, and rewards
• Horizontal conflict occurs among firms at the same level
of the channel.
Eg: Retailers to retailer, Wholesalers to Wholesalers
• Vertical conflict occurs between different levels of the
same channel.
Eg: Retailers to Wholesalers, Producer to Retailer
• Multi- Channel Conflict occur when the manufacturer
has established two or more channels to sell to same
market.
Eg: Newspaper industry
 Vertical Marketing Systems

Conventional distribution channel

• Consists of one or more independent producers, wholesalers,
and retailers
• Each member is a separate business seeking to maximize its
own profits even at the expense of profits for the system as a
whole.

Vertical marketing system (VMS)

• Producers, wholesalers, and retailers act as a unified system.
• Types: Corporate, contractual, and administered
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 Horizontal Marketing System
• Two or more companies at one level join
together to follow a new marketing
opportunity.
Multichannel Distribution Systems
• A single firm sets up two or more marketing
channels to reach customer segments.
• Advantages:
• Expansion of sales and marketing coverage
• Tailor-made products and services for the
specific needs of customer segments
• Disadvantages:
• Harder to control
• Generates conflict
 Multichannel
Distribution System
 Disintermediation
• Occurs when product or service producers cut
out marketing channel intermediaries or
when radically new types of channel
intermediaries displace traditional ones
 Channel Design Decisions
• Marketing channel design involves designing
effective marketing channels by:
• Analyzing customer needs
• Setting channel objectives
• Identifying major channel alternatives
• Evaluating the alternatives
1.Analyzing customer needs

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2.Setting channel objectives

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3.Identifying major channel alternatives

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4.Evaluating the alternatives

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 Designing International Channels
• Channel strategies should be adapted to the
existing structures within each country.
• Distribution systems can have many layers
and a large number of intermediaries.
• Customs and government regulation can
restrict distribution in global markets.
Channel Management Decisions

Managing and
Selecting channel
motivating
members
channel members

Evaluating
channel members
• Marketing channel management calls for selecting, managing, and motivating
individual channel members and evaluating their performance over time.

• When selecting intermediaries, the company should determine what characteristics

distinguish the better ones. It will want to evaluate each channel member’s years in
business, other lines carried, location, growth and profit record, cooperativeness,
and reputation.

• Once selected, channel members must be continuously managed and motivated to

do their best. Many companies practice strong partner relationship management to
forge long-term partnerships with channel members. This creates a value delivery
system that meets the needs of both the company and its marketing partners.

• The company must regularly check channel member performance against standards
such as sales quotas, average inventory levels, customer delivery time, treatment of
damaged and lost goods, cooperation in company promotion and training programs,
and services to the customer. Companies need to be sensitive to the needs of their
channel partners. Those that treat their partners poorly risk not only losing their
support but also causing some legal problems.
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What is retailing?

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Copyright © 2015 Pearson Education Ltd.
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What is wholesaling

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 Marketing Logistics
(Physical Distribution)
• Planning, implementing, and controlling the physical flow of materials, final
goods, and related information from points of origin to consumption
• Customer-centered logistics: Marketplace to the factory or sources of supply
• Outbound logistics
• Inbound logistics
• Reverse logistics

Outbound logistics are the actions required to get the final goods delivered to
the end –users. Inbound logistics is the receiving of raw materials or products
from a supplier to a warehouse. Reverse logistics which involves reusing,
recycling, refurbishing, or disposing of broken, unwanted, or excess products
returned by consumers or resellers
 Supply
Chain Management
 Marketing Logistics and
Supply Chain Management
• The goal of marketing logistics is to deliver a
targeted level of customer service at the least
cost.
• Logistics functions include:
• Warehousing
• Inventory management
• Transportation
• Logistics information management
 Warehousing
• Storage warehouses store goods for
moderate to long periods.
• Distribution centers are large, highly
automated warehouses that receive goods,
take orders, fill them, and deliver goods to
customers.
 Inventory Management
• Should be done in a cost effective and
profitable manner
• Just-in-time logistics systems
• Radio frequency identification (RFID), smart tag
technology, gives the physical location of a
product.
 Transportation
Factors affected by choice of transportation
• Pricing of products
• Delivery performance
• Condition of goods
• Customer satisfaction

Modes
• Trucks, railroads, water carriers, pipelines, air carriers, and the
Internet

Multimodal transportation
• Combining two or more modes of transportation
• Piggyback, fishyback, trainship, and airtruck
Logistics Information Management
• Flows of information closely linked to channel
performance
• Information can be shared and managed
through:
• Electronic data interchange (EDI)
• Vendor-managed inventory (VMI)
 Integrated Logistics Management
• Emphasizes teamwork both inside the
company and among all the marketing
channel organizations
• Forming cross-functional teams inside the firm
• Building logistics partnerships
• Outsourcing to third-party logistics providers
• Third-party logistics (3PL) provider: Performs any or
all of the functions required to get a client’s product to
market