CH 14 – MARKETING CHANNELS

Key Concept: Explain what marketing channels and channel intermediaries are, and describe their functions and activities.
A marketing channel is a business structure of interdependent organizations that reach from the point of production to the consumer. Intermediaries negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller. Retailers are those firms in the channel that sell directly to consumers.
marketing channel (channel of distribution)
a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer
channel members
all parties in the marketing channel who negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer
A marketing channel is a business structure of interdependent organizations that are involved in
the process of making a product or service available for use or consumption by end customers or business users
form utility
the elements of the composition and appearance of a product that make it desirable
time utlitity
the increase in customer satisfaction gained by making a good or service available at the appropriate time
place utitlity
the usefulness of a good or service as a function of the location at which it is made available
exchange utility
the increased value of a product that is created as its ownership is transferred
retailer
a channel intermediary that sells mainly to consumers

takes title 1/2 – ownership

merchant wholesaler
an institution that buys goods from manufacturers and resells them to businesses, government agencies, and other wholesalers or retailers and that receives and takes title to goods, stores them in its own warehouses, and later ships them

takes title 1/2 – ownership

agents and brokers
wholesaling intermediaries who do not take title to a product but facilitate its sale from producer to end user by representing retailers, wholesalers, or manufacturers
standardized, customized, or highly complex products such as insurance
are usually sold through an agent or broker who may represent one or multiple companies. In contrast, a standardized product such as soda is sold through a merchant wholesaler and retailer channel.
buyer considerations such as purchase frequency or customer wait time
influence channel choice. When there is no time pressure, customers may save money on books by ordering online and taking direct distribution from a wholesaler. However, if a book is needed immediately, it will have to be purchased at retail—at the school bookstore, for example—and will include a markup.
Market characteristics such as how many buyers are in the market and whether they are concentrated in a general location
also influence channel design. In a home sale, the buyer and seller are localized in one area, which facilitates the use of a simple agent/broker relationship, whereas mass-manufactured goods such as automobiles may require parts from all over the world and therefore many intermediaries.
Intermediaries in marketing channels perform essential functions that enable goods to flow between producer and consumer
Transactional functions
Logistics functions
Facilitating functions
Transactional functions
involve contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages, and benefits
Logistics functions
typically include transportation and storage of assets, as well as their accumulation, consolidation, and/or allocation for the purpose of conforming to customer requirements.
Facilitating functions
includes research and financing.
Key Concept: Describe common channel structures and strategies, and the factors that influence their choice.
When possible, producers use the direct channel to sell directly to consumers. When one or more channel members are small companies, an agent/broker channel may be the best solution. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Dual distribution may be used to distribute the same product to target markets, and companies often form strategic channel alliances to use already-established channels. Managers must decide what role distribution will play in the overall marketing strategy. In addition, they must be sure that the channel strategy chosen is consistent with product, promotion, and pricing strategies. Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution.
direct channel
a distribution channel in which producers sell directly to consumers
Marketing Channel for Consumer Products: Retailer Channel
Producer
Retailers
Consumers
Marketing Channel for Consumer Products: Wholesaler Channel
Producer
Wholesalers
Retailers
Consumers
Marketing Channel for Consumer Products: Agent/Broker Channel
Producer
Agent/Brokers
Retailers
Consumers
Channels for Business and Industrial Products: Direct Channels
Producer
Industrial Users

Producer
Government Buyers

Channels for Business and Industrial Products: Industrial Distributor
Producer
Industrial Distributors
Industrial Users
Channels for Business and Industrial Products: Agent/Broker Channel
Producer
Agent/Brokers
Industrial Users
Channels for Business and Industrial Products: Agent/broker industrial distributor
Producer
Agent/Brokers
Industrial Distributors
Industrial Users
dual distribution (multiple distribution)
the use of two or more channels to distribute the same product to target markets
nontraditional channels
non-physical (often electronic) channels that facilitate the unique market access of products and services
strategic channel alliance
a cooperative agreement between business firms to use the other’s already established distribution channel
gray marketing channels
used to sell stolen or counterfeited products
reverse channel
a channel that enables customers to return products or components for reuse or remanufacture
drop and shop
a system that allows customers to recycle used electronics at the entrance of a retailer
market factors
Among the most important market factors affecting the choice of distribution channel are target customer considerations. Specifically, managers should answer the following questions: Who are the potential customers? What do they buy? Where do they buy? When do they buy? How do they buy? Additionally, the choice of channel depends on whether the producer is selling to consumers or to industrial customers—due to differences in the buying routines of these groups. The geographic location and size of the market are also important to channel selection. As a rule, if the target market is concentrated in one or more specific areas, then direct selling through a sales force is appropriate, whereas intermediaries would be less expensive in broader markets.
product factors
Complex, customized, and expensive products tend to benefit from shorter and more direct marketing channels. These types of products sell better through a direct sales force.

The product’s life cycle is also an important factor in choosing a marketing channel. In fact, the choice of channel may change over the life of the product. As products become more common, producers tend to look for alternative channels. Similarly, perishable products such as vegetables and milk have a relatively short life span, and fragile products like china and crystal require a minimum amount of handling. Therefore, both require fairly short marketing channels. Online retailers such as eBay facilitate the sale of unusual or difficult-to-find products that benefit from a direct channel

producer factors
Several factors pertaining to the producer itself are important to the selection of a marketing channel. In general, producers with large financial, managerial, and marketing resources are better able to use more direct channels. These producers have the ability to hire and train their own sales forces, warehouse their own goods, and extend credit to their customers. Smaller or weaker firms, on the other hand, must rely on intermediaries to provide these services for them. Compared to producers with only one or two product lines, producers that sell several products in a related area are able to choose channels that are more direct. Sales expenses then can be spread over more products.
A producer’s desire to control pricing, positioning, brand image, and customer support also tends to influence channel selection. For instance, firms that sell products with exclusive brand images, such as designer perfumes and clothing, usually avoid channels in which discount retailers are present
*intensive distribution
a form of distribution aimed at having a product available in every outlet where target customers might want to buy it
*selective distribution
a form of distribution achieved by screening dealers to eliminate all but a few in any single area
*exclusive distribution
a form of distribution that establishes one or a few dealers within a given area
Key Concept: Discuss channel relationship types and roles, and their unique benefits and drawbacks.
In addition to considering the multiple different types of channel relationships and their costs and benefits, managers must also be aware of the social dimensions that are constantly affecting their relationships.
channel power
the capacity of a particular marketing channel member to control or influence the behavior of other channel members
channel control
a situation that occurs when one marketing channel member intentionally affects another member’s behavior
channel captain
a member of a marketing channel that exercises authority and power over the activities of other channel members
channel conflict
a clash of goals and methods between distribution channel members
horizontal conflict
a channel conflict that occurs among channel members on the same level
vertical conflict
a channel conflict that occurs between different levels in a marketing channel, most typically between the manufacturer and wholesaler or between the manufacturer and retailer
Key Concept: Discuss multichannel and omnichannel marketing in both B2B and B2C structures and explain why these concepts are important.
Many companies have begun employing multichannel marketing strategies, whereby customers are offered information, goods, services, and/or support through one or more synchronized channels. While it can promote better consumer behavior, the multichannel design also creates redundancy and complexity in the firm’s distribution system. Selling through multiple channels is typified by multiple parallel supply chains, each with its own inventory, processes, and performance metrics. Many companies are transitioning to omnichannel distribution operations that support their multichannel retail operations and unify their retail interfaces. With omnichannel operations, every customer receives equally efficient service.
Key Concept: Discuss new developments in channel marketing and the effects on existing channel activities and structures.
With technology changing rapidly, there are always new trends developing in channel management. M-commerce enables consumers using wireless mobile devices to connect to the Internet and shop. The use of m-commerce has become increasingly important as users grow in both number and purchasing power. Firms are also using social media to connect with customers. On the demand management side, facial recognition technology allows market researchers to record consumers’ nonverbal reactions to products and advertisements, giving them more information about customer preferences.
m-commerce
the ability to conduct commerce using a mobile device for the purpose of buying or selling goods or services