Marketing Kerin – Chapter 15: Managing Marketing Channels and Wholesaling

Marketing Channels
consist of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users
intermediaries
value is created by these – Ex. middleman, agent or broker, wholesaler, retailer, distributor, dealer
Important Functions performed by intermediaries
1. Transactional function, 2. Logistical Function, 3. Facilitating Functions
Transactional Function
buying, selling, risk taking
Logistical Function
assorting, storing, sorting, transporting
Facilitating Functions
financing, grading, marketing information and research
Marketing channels help create value for consumers through four utilities
time,place,form,possesion
Direct Channel for Consumer Goods and Services
Producer directly to ultimate consumers (producer must perform all channel functions)
Indirect Channel for Consumer Goods and Services
have intermediaries between producer and ultimate consumer
Ex: Producer->Wholesalers->Retailer-> Consumer
Direct Channel for B2B
producer -> industrial user. Buyers are large and well defined, products are of high unit value and require hands-on expertise
Indirect channel for B2B
same as for consumer. Industrial distributor – performs a variety of functions (a lot like wholesalers)
Electronic marketing Channels
employ the internet to make goods and services available for consumption or use by consumers or business buyers. Incapable of performing elements of the logistical function
Direct marketing channels
allow consumer to buy products by interacting with various advertising media without face to face meeting with a salesperson (mail order selling, direct mail sales, etc.)
multichannel marketing
the blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shot and buy in traditional intermediaries and online
Dual distribution
an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product Ex. GE sells directly to home and apt builders, but also sells in lowes and sears
strategic channel alliances
one firm’s marketing channel is used to sell another firms products (Ex. General Mills and Nestle) ?? Shuuuure
Merchant Wholesalers
independently owned firms that take title to the merchandise they handle
Full Service Wholesalers (2)
1. General merchandise (full-line) wholesalers and 2. specialty merchandise (limited-line) wholsealers
General merchandise (full-line) wholesalers
carry a broad assortment of merchandise and perform all channel functions. Ex: hardware, drug, and clothing
Specialty merchandise (limited-line) wholesalers
offer a relatively narrow range or products but have an extensive assortment within the product lines carried Ex. Health foods, automotive parts, seafood industries
Agents and broker. how do they make their money
from commissions or fees paid for their services
Manufacturer’s Agent (representatives)
work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Used in automotive supply, footwear
Selling Agents
represent a single producer and are responsible for the entire marketing function of that producer. Used by small producers in textile, apparel, food, and home furnishing industries
Brokers
independent firms or individuals whose principal function is to bring buyers and sellers together to make sales. Used by producers of seasonal products (fruits) and in real estate
Vertical Marketing Systems
professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact
Major Types of Vertical Marketing Systems
1. Corporate Systems
2. Contractual Systems
3. Administered Systems
4. Channel Partnerships
Corporate vertical marketing system
combination of successive stages of production and distribution under a single ownership
Forward integration
a producer might own the intermediary at the next level down in the channel
Backward integration
a retailer might own a manufacturing operation
Contractual Vertical Marketing System
independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone
Three Variations of Contractual Systems
1. Wholesaler- sponsored voluntary chains 2. Retailer-sponsored cooperatives 3. Franchising (most visible form)
Wholesaler sponsored voluntary chains
involve a wholesaler that develops a contractual relationship with small, independent retailers to standardize and coordinate buying practices, merchandising programs, and inventory management efforts
Retailer sponsored cooperatives
when small independent retailers form an organization that operates a wholesale facility cooperatively
Franchising
a contractual arrangement between a parent company and an individual or firm that allows the franchise to operate a certain type of business under an established name and according to specific rules
Types of Franchises
1. Manufacturer – sponsored retail franchise (Auto Industry)
2. Manufacturer – sponsored wholesale systems (Soft Drink Industry)
3. Service – sponsored retail franchise (McDonalds)
4. Service – sponsored franchise systems (H&R Block)
Administered vertical marketing systems
achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership
Channel Partnerships
consist of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer
Factors Affecting Channel Choice and Management
Environmental Factors, Consumer Factors, Product Factors, Company Factors
Achieving the best coverage of target markets requires these 2 things
1. Attention to density – # of stores in a specific area
2. Type of Intermediaries to be used at the retail level of distribution
Intensive Distribution
a firm tries to place its products and services in as many outlets as possible. (candy, fast food, newspapers)
Exclusive Distribution
extreme opposite of intensive distribution. Only one retailer in a specified geographical area carriers the firm’s products. (yachts, women’s fragrances)
Selective Distribution
lies between these two extremes and means that a firm selects a few retailers in a specific geographical area to carry its products
4 Elements of Satisfying Buyer Requirements
1. Information 2. Convenience 3. Variety 4. Pre- or postsale services
Information
an important requirement when buyers have limited knowledge or desire specific data about a product or service
Convenience
has multiple meanings for buyers, (proximity and driving time are examples)
Variety
reflects buyer’s interest in having numerous competing and complementary items from which to choose
Pre- or postsale services
important buying requirement for products such as large household appliances — delivery, installation, and credit
Profitability
determined by the margins earned (revenue minus cost) for each channel member and for the channel as a whole
Channel Conflict
arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals
Vertical Channel Conflict
occurs between different levels in a marketing channel.
Three sources of vertical Channel Conflict
1. Disintermediation – a channel member bypasses another member and sells or buys the product direct
2. Disagreements over how profit margins are distributed
3. Manufacturers believe wholesalers or retailer are not giving their products adequate attention
Horizontal Conflict
occurs b/w intermediaries at the same level in the marketing channel, such as b/w two or more retailers.
Two Sources of horizontal channel conflict
1. when a manufacturer increases its distribution coverage in a geographical area
2. different types of retailers carry the same brand
Channel Captain
a channel member that coordinates, directs, and supports other channel members. Can be producers, retailers, or wholesalers.
4 Forms of Channel Influence
1. Arises from the ability of a firm to reward other members given its strong financial position or customer franchise
2. Expertise
3. Identification with a particular channel member can create influence for that channel member
4. The legitimate right of one channel member to direct the behavior of other members
Practices in Channels that Have caught Legal Attention
1. Dual Distribution and vertical integration are seen as anti competitive
2.Exclusive Dealing
3. Tying arrangements
4. Full line forcing
5. Refusal to Deal
Exclusive dealing
exists when a supplier requires channel members to sell only its products or restricts distributions from selling directly competitive products
Tying arrangements
occur when a supplier requires a distributor purchasing some products to buy others from the supplier
Full line enforcing
special kind of tying arrangement. involves a supplier requiring that a channel member carry its full line of products in order to sell a specific item in the supplier’s line
Refusals to deal
resale restrictions – refer to a supplier’s attempt to stipulate to whom distributors may resell the suppliers products and in what specific geographical areas or territories they may be sold.