Ch.1 Marketing Channel Concept

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Ch.1 Marketing Channel Concept
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Growing Importance of Marketing Channels

• Explosion of information technology and
  E-commerce
• Greater difficulty of gaining a sustainable
  competitive advantage
• Growing power of distributors, especially
  retailers in marketing channels
• The need to reduce distribution costs

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Growing Importance of Marketing Channels

• Explosion of information technology and
  E-commerce
• The introduction of E-commerce leads to a new
  types of middlemen called infomediaries along
  with cyber retailer to connect buyers and sellers
  via the Internet.
• E-commerce didnt change everything, however it
  is now merging with conventional channels in all
  business around the world.

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Growing Importance of Marketing Channels

• Greater difficulty of gaining a sustainable
  competitive advantage
• Sustainable competitive advantage is a
  competitive edge that cannot be quickly/easily
  copied by competitors.
• The large number of offices makes it easy for
  clients in thousands of communities in the U.S.
  as well as Canada and England to visit an offices
  and get in-person advice and assistance from
  professional brokers.

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Growing Importance of Marketing Channels

• Growing power of distributors, especially
  retailers in marketing channels
• The economic power has shifted from the producers
  of goods to the distributors of goods especially
  the power retailers.
• They play the role of gatekeepers act as buying
  agents for their customers rather than as selling
  agents for manufacturers.

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Growing Importance of Marketing Channels

• The need to reduce distribution costs
• Sometimes distribution costs are higher than the
  manufacturing cost or the cost of raw materials
  and component parts. Therefore, the cost control
  in the 21st century will be marketing channels.

Autos Software Gasoline Fax Machines Packaged Foods
Distribution 15 25 28 30 41
Manufacturing 40 65 19 30 33
Raw Materials and Components 45 10 53 40 26
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The Marketing Channel Defined

• The route taken by a product as it moves from
  producer to the customer or other ultimate user.
• The path taken by the title to goods as it moves
  through various agencies.
• A loose coalition of business firms that have
  banded together for purposes of trade.

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The Marketing Channel Defined

• Manufacturer the movement of the product through
  these various intermediaries.
• Intermediaries (wholesalers/retailers) the flow
  of the title to the goods.
• Consumer a lot of middlemen standing between
  them and the producer of the product.
• Researcher the structural dimensions and
  efficiency of operation.

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The Marketing Channel Defined

• The external contactual organization that
  management operates to achieve its distribution
  objectives.
• (a managerial decision-making viewpoint)

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The Marketing Channel Defined

• external the marketing channel exists outside
  the firm (not a part of a firms internal
  organizational structure.)

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The Marketing Channel Defined

• contactual organization firms or parties who are
  involved in negotiatory functions as a product or
  service moves from the producer to its ultimate
  user.

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The Marketing Channel Defined

• operates suggests involvement by management in
  the affairs of the channel.

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The Marketing Channel Defined

• distribution objectives management has certain
  distribution goals to achieve.

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Use of the Term Channel Manager

• Channel manager anyone in a firm or organization
  who is involved in marketing channel decision
  making.
• In practice, the job title involves in channel
  management may vary depends on the firms such as
  business development manager, director of
  channel management, trade marketing manager and
  etc.

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Marketing Channels and Marketing
Management Strategy

• Marketing management process a strategic
  blending of 4 controllable marketing variables
  (marketing mix) to meet the demands of customers
  to which the firm wishes to appeal in the light
  of internal and external uncontrollable variables
  (marketing environments).
• Major tasks to seek out potential target markets
  and develop appropriate and coordinated 4Ps
  strategies to serve those markets in competitive
  and dynamic environment.

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Marketing Channels and Marketing
Management Strategy

• Marketing channel strategy one of the major
  strategic areas of marketing management.
• Management must develop and operate its marketing
  channels in such way as to support and enhance
  the other strategic variables of the marketing
  mix in order to meet the demand of the firms
  target markets.

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Marketing Channels and Marketing
Management Strategy

• Coors Brewing Company is the nations 3rd largest
  brewery in the U.S.
• The company faced the difficulties slowed beer
  consumption, new competitors such as
  microbreweries and foreign brands.
• Issues on product strategy high rates of new
  product failures, short product life cycles and
  competitors offer similar products quickly.
• Issues on price strategy intense price
  discounting (beer wars)
• Issues on promotion strategy high costs and
  short-lived of promotion

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Marketing Channels and Marketing
Management Strategy

• Coors Brewing Company came up with the channel
  strategy establish stronger relationships with
  its independent beer distributors than the chief
  competitors had.
• This strategy has been vital to its competitive
  viability against larger rivals. Strong
  distributor support also helped Coors to increase
  its profits.

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Channel Strategy versus Logistics Management
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Channel Strategy versus Logistics
Management
1st
2nd

• Channel strategy is much broader and more basic
  component than logistics management.
• Channel strategy is concerned with the entire
  process of setting up and operating the
  contactual organization that is responsible for
  meeting the firms distribution objectives.

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Channel Strategy versus Logistics
Management
1st
2nd

• Logistics management is more narrowly focused on
  providing product availability at the appropriate
  times and places in the marketing channel.
• Usually, channel strategy must already be
  formulated before logistics management can even
  be considered.

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Flows in Marketing Channels

• The actual physical movement of the product from
  the manufacturer through all of the parties who
  take physical possession of the product, from its
  point of production to final consumers.
• Product flow
• Negotiation flow
• Ownership flow
• Information flow
• Promotion flow

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Flows in Marketing Channels
Manufacturer

1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow

Transportation company
Wholesalers
Retailers
Consumers
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Flows in Marketing Channels
Manufacturer

1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow

Negotiation involve a mutual exchange between
buyers and sellers
Buying selling functions associated with the
transfer of title (right of ownership)
Wholesalers
Retailers
Consumers
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Flows in Marketing Channels
Manufacturer

1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow

Wholesalers
Retailers
Consumers
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Flows in Marketing Channels
Manufacturer

1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow

Transportation company
Wholesalers
Retailers
Consumers
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Flows in Marketing Channels
Manufacturer

1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow

Advertising agency
Wholesalers
Persuasive commu. in the form of ad., personal
selling, sales promotion, and publicity.
Retailers
Consumers
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1st
2nd

• In the context of channel flows concept
• Channel strategy and management involve planning
  for managing all of the flows
• Logistics is concerned almost exclusively with
  the management of the product flow

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Distribution through Intermediaries

• Economic considerations in determining whether
  intermediaries will appear in marketing channel
• Specialization and Division of Labor
• Breaking down a complex task into smaller, less
  complex ones and allocating them to parties who
  are specialist at performing them, much greater
  efficiency result.
• (see figure 1.5? Specialization and Division of
  Labor Principle Production vs. Distribution)

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Distribution through Intermediaries

• Economic considerations in determining whether
  intermediaries will appear in marketing channel
• Contactual Efficiency
• The level of negotiation effort between sellers
  and buyers relative to achieving a distribution
  objective.
• Or it is the relationship between an input
  (negotiation effort) and an output (distribution
  objective).

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Example of Contactual Efficiency for Granada
Guitar Company
Retailers Only
Negotiation Effort (Inputs) Estimated Dollar Costs of Inputs Distribution Objective (Outputs) Contactual Efficiency
1,500 sales visits _at_ 50 75,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 88,000
1,000 phone calls _at_ 3 3,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 88,000
10 magazine ads _at_1,000 10,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 88,000
Total 88,000 Total 88,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 88,000
Wholesalers
Negotiation Effort (Inputs) Estimated Dollar Costs of Inputs Distribution Objective (Outputs) Contactual Efficiency
100 sales visits _at_ 50 5,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 25,300
100 phone calls _at_ 3 300 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 25,300
20 magazine ads _at_1,000 20,000 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 25,300
Total v 25,300 Total v 25,300 Get 500 music stores to carry new guitar line. Negotiation effort in dollar terms relative to achieving the distribution objective 25,300
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Distribution through Intermediaries

• The use of additional intermediaries will often
  increase the level of contactual efficiency.
• The use of wholesalers has eliminated the need
  for direct contact with retailers, thereby
  greatly reducing the number of contacts needed.
• (see figure 1.6 How the introduction of
  additional intermediary reduces the number of
  contacts)

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Channel Structure

• The group of channel members to which a set of
  distribution tasks has been allocated.
• M?C (2-level)
• M?R?C (3-level)
• M?W?R?C (4-level)
• M?A?W?R?C (5-level)

A Agent C Consumer M Manufacturer R
Retailer W Wholesaler
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A Typical Portrayal of Channel Structure for
Consumer Goods
Two-level
Three-level
Four-level
Five-level
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Channel Structure

• Multi-channel strategy the firm has chosen to
  reach its customers through more than 1 channel.
• This will result in multi-channel structure
  because distribution tasks have been allocated
  among more than 1 channel structure.
• Some firms also developed multi-channel
  structures that include online channels.

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Manufacturer
Polo by Ralph Lauren Web site
http//www.ralphlauren.com/
Upscale department stores
Specialty apparel retailers
Company-owned stores and outlets
Consumers
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Ancillary Structure

• The group of institutions (facilitating agencies)
  that assists channel members in performing
  distribution tasks.
• The role of facilitating agencies is one of
  providing services to the channel members after
  the basic channel decisions have already been
  made.

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• One of the worlds leading manufacturers of power
  tools. BD farm out the nonnegotiatory tasks to
  facilitating agencies (the ancillary structure)
  as the following
• It uses the common carriers to transport its
  power tools to industrial distributors.
• It uses the commercial insurance companies to
  protect against risks while the products are
  transit.
• It uses independent advertising agencies to
  promote its products.

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Homework

• What are the Channel Participants? Explain.
• What are the Environment of Marketing Channels?
  Explain.

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1st Quiz

1. Explain 2 reasons make marketing channel become
   more important.
2. Explain what is marketing channel.
3. Explain what is ancillary structure.
4. Explain flows in marketing channel.
5. Explain the channel strategy and logistics
   management.
6. In the case of Amway, what happened to its
   marketing channel?