Chapter 1 Marketing Channel Strategy

What is a marketing channel?
One of the 4 P’s- Place(Channel). Set of interdependent organizations involved in the process of making a good or service available for use or consumption.
Importance of Marketing Channel Strategies
Represents about 1/3 of the worlds annual GDP, path from manufacturer to end user, channel experience strongly affects perception of manufacturer brand image, source of sustainable competitive advantage
Marketing Channel Process
Makes the good or service available for use or consumption, the distribution process is time consuming, purpose is to satisfy end users in the market.
Why is the distribution process time consuming?
Even when the sale is made the relationship is not over. Example- Hospital’s demand for post sale service after purchasing a piece of medical equipment.
What do all managers of the marketing channel focus on?
End users
What can happen when managers invest resources to make marketing channels strategic assets?
Increases customers satisfaction, reduces distribution costs, minimizes competitor rivalry, and results in superior financial performance for firm.
Marketing Channel Strategy
Set of activities focused on designing and managing a marketing channel to enhance a firm’s sustainable competitive advantage and financial performance.
Who are the three key entities in a marketing channel?
Manufacturers, Intermediaries and End-Users
Producer of product being sold, is most often the channel captain.
Branded Manufacturing
Brand products and thus are known by name to end users.
Private-Label Manufacturing
Do not use brand name
Any channel member other than manufacturer or end user. They create utility for end-users through possession, place and time. Three basic types are wholesalers, retailers and facilitating agencies.
Can include merchant wholesalers and distributors, manufacturers’ representatives, agents and brokers. Sell to other intermediaries such as retailers or business end-users, but not to individual consumer end-users. Major functions are promotion and negotiation.
What do wholesalers do/How do they make money?
Take the title and physical possession of inventory and they earn money by marking up price to their customers.
Retail Intermediaries
Department stores, mass merchandisers, supermarkets. Sell directly to individual customers.
How does the role of retail intermediaries go further today?
The role used to be amassing an assortment of goods that would appeal to customers.
3 new ways they expanded
– now they may contract private label goods, vertically integrating upstream in the supply chain
-may sell to buyers other than consumer end-users
-Ex) Office depot have significant sales to businesses, although storefronts are identified as retailers. 1/3 of their sales are B2B.
Facilitating Intermediaries
These firms enter the channel to perform a specific function such as financing, promotion, physical possession, ordering or payment functions. Not heavily involved in core business represented by products being sold.
Financing function (intermediaries)
Insurance companies, finance companies and credit card companies
Promotion function
Advertising agencies
Physical Possession function
Logistics and shipping firms
Ordering or payment functions
Information technology firms
Are channel members as well, can be business or individual customers, they can and frequently perform channel functions just as other members do. Ex) Consumers who shop at costco, stock up on paper towels -> physical possession and pay for their goods-> financing function.
What affects the range and # of channel members?
The needs of end-users and manufacturers.
Benefits of downstream channel members
Bulk breaking, assorting and volume negotiation
Bulk Breaking
Break large supplies down into smaller and smaller lots, also known as allocation.
Build up of an assortment of products for resale in association with each other.
Volume Negotiation
Generate cheaper per unit price than could be accomplished by single retailer.
Benefits for upstream channel members
Routinization of transactions and reduction in number of contacts.
Routinization of transactions
Every transaction is subject to negotiation(which is accompanied by loss of efficiency), costs of distribution can be minimized, leads to standardization of goods and services
Standardization of goods and services
Encourages production of items w/ greater value.
Reduction in number of contacts
W/O intermediaries every producer would interact with every potential buyer, serve to reduce the complexity of this exchange system and facilitate transactions.
9 universal channel functions
Physical possession, ownership, promotion, negotiation, financing, risking, ordering, payment and information sharing.
Which functions move forward in the channel?
Physical possession and ownership
Which functions move backwards in the channel?
Ordering and payment
Which functions can move both ways?
Promotion, negotiation, financing, risking and information sharing.