Shah Chapter 13 Marketing Channels

Chapter 13: Marketing Channels
Prepared by Amit Shah, Frostburg State University
Designed by Eric Brengle, B-books, Ltd.
Copyright 2010 by Cengage Learning Inc. All Rights Reserved 1

Learning Outcomes
2
LO1
LO2
LO3
Explain what a marketing channel is and why
intermediaries are needed
Define the types of channel intermediaries and
describe their functions and activities
Describe the channel structures for consumer
and business products and discuss alternative
channel arrangements
Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Learning Outcomes
3
Discuss the issues that influence channel
strategy
Describe the different channel relationship
types and their unique costs and benefits
Explain channel leadership, conflict, and
partnering
LO5
LO6
LO4

Learning Outcomes
4
Discuss channels and distribution decisions
in global markets
Identify the special problems and
opportunities associated with distribution
in service organizations
LO8
LO7

5
Marketing Channels
Explain what a marketing
channel is and why
intermediaries are needed.
LO1

6
Marketing Channels
A set of
interdependent organizations
that ease the transfer of
ownership as products move
from producer to business
user or consumer.

7
Marketing Channel Functions
Specialization and division of labor
Overcoming discrepancies
Providing contact efficiency

8
Specialization and Division of Labor
 Creates greater efficiency
 Provides lower costs
 Achieves economies of scale
 Aids producers who lack resources to
market directly
 Builds good relationships with customers

9
Overcoming Discrepancies
Discrepancy
of
Quantity
Discrepancy
of
Assortment
The difference between the
amount of product produced
and the amount an end user
wants to buy.
The lack of all the items a
customer needs to receive full
satisfaction from a product or
products.

10
Overcoming Discrepancies
Temporal
Discrepancy
Spatial
Discrepancy
A situation that occurs when a
product is produced but a
customer is not ready to buy it.
The difference between the
location of a producer and the
location of widely
scattered markets.

11
Providing Contact Efficiency

12
Review Learning Outcome
Marketing Channels
LO1
Providing Specialization
and Division of Labor
Overcoming
Discrepancies
Providing Contact
Efficiency
Marketing
Channel
Supply
Chain

13
Channel Intermediaries
Define the types of channel
intermediaries and describe
their functions and activities.
LO2

14
Retailer
A channel intermediary that
sells mainly to customers.
Merchant
Wholesaler
An institution that buys goods
from manufacturers, takes title
to goods, stores them,
and resells and ships them.
Agents and
Brokers
Wholesaling intermediaries who
facilitate the sale of a product from
producer to end user by representing
retailers, wholesalers, or
manufacturers.

15
Retailers
Merchant
Wholesalers
Agents
and
Brokers
Take Title to Goods
Take Title to Goods
Do NOT Take Title to Goods

16
Factors Suggesting Type of
Wholesaling Intermediary to Use
Product characteristics
Buyer considerations
Market characteristics

17
Channel Functions Performed
by Intermediaries
Contacting/Promotion
Negotiating
Risk Taking
Researching
Financing
Physically distributing
Storing
Sorting
Facilitating
Functions
Transactional
Functions
Logistical
Functions

18
Logistics
The efficient and cost-effective
forward and reverse flow as
well as storage of goods, services, and
related information, into, through, and
out of channel member companies.

19
Channel Intermediaries and Functions
LO2
CHANNEL
INTERMEDIARIES
Retailers
Wholesalers
Agents and Brokers
CHANNEL
FUNCTIONS
Transactional
Logistical
Facilitating
Perform

20
Channel Structures
Describe the channel
structures for consumer
and business products
and discuss alternative
channel arrangements.
LO3

21
Channels for Consumer Products
Direct Channel - A distribution
channel in which producers
sell directly to consumers.

22
Producer Producer Producer Producer
Consumers Consumers Consumers Consumers
Retailers Retailers Retailers
Wholesalers Wholesalers
Agents or
Brokers
Wholesaler
Channel
Retailer
Channel
Direct
Channel
Agent/Broker
Channel
Channels for Consumer Products

23
Channels for Business Products
Producer
Industrial
User
Direct
Channel
Producer
Govt.
Buyer
Direct
Channel
Producer Producer Producer
Industrial
User
Industrial
User
Industrial
User
Industrial
Distributor
Industrial
Distributor
Agents or
Brokers
Agents or
Brokers
Agent/Broker
Channel
Industrial
Distributor
Agent/Broker
Industrial
Channel

24
Business Exchanges on the Internet
Agents link buyers and sellers
Companies drop the intermediary from
the supply chain
“Private exchanges” with select suppliers
automate the supply chain
Online
http://www.sherwinwilliams.com

25
Alternative Channel Arrangements
Multiple channels
Strategic channel alliances
Nontraditional channels

26
Channel Structures
LO3
CONSUMER
CHANNELS
Direct
Retail
Wholesaler
Agent/broker
BUSINESS
CHANNELS
Direct
Industrial
Agent/broker
Agent/broker
industrial
ALTERNATIVE
CHANNELS
Multiple
Nontraditional
Strategic
alliances

27
Making Channel Strategy Decisions
Discuss the issues that
influence channel strategy.
LO4

28
Channel Strategy Decisions
Factors
Affecting
Channel
Choice
Producer Factors
Product Factors
Market Factors
Exclusive Distribution
Selective Distribution
Intensive Distribution
Level of
Distribution
Intensity

29
Market Factors
Market
Factors
That Affect
Channel
Choices
Customer profiles
Consumer or Industrial
Customer
Size of market
Geographic location

30
Product Factors
Product
Factors
That Affect
Channel
Choices
Product Complexity
Product Standardization
Product Life Cycle
Product Delicacy
Product Price

31
Producer Factors
Producer
Factors
That Affect
Channel
Choices
Producer Resources
Number of Product Lines
Desire for Channel Control

32
Levels of Distribution Intensity
Intensive
A form of distribution aimed at
having a product available
in every outlet
Selective
A form of distribution achieved
by screening dealers to eliminate
all but a few in any single area
Exclusive
A form of distribution that
established one or a few
dealers within a given area

33
Levels of Distribution Intensity
Intensive
Achieve mass market
selling.
Convenience goods.
Many
Selective
Exclusive
Work with selected
intermediaries.
Shopping and some
specialty goods.
Work with single
intermediary. Specialty
goods and industrial
equipment.
Several
One
Intensity
Level
Objective
Number of
Intermediaries

Issues Influencing Channel Strategy
34
LO4

35
Types of Channel Relationships
Describe the different channel
relationship types and their
unique costs and benefits.
LO5

36
Cooperative
Integrated
Arm’s Length

37
Arm’s Length and Integrated Relationships
Arm’s Length Relationship- A
relationship between companies
that is loose, characterized by
low Relational investment and
trust, and usually taking the form
of a series of discrete
transactions with no/low
expectation of future interaction
or service.
Integrated Relationship- A relationship
between companies that is tightly
connected, with linked processes across
and between firm boundaries, and
high levels of trust and inter-firm
commitment.

38
Cooperative Relationships
A relationship between companies
that takes the form of informal
partnership with moderate levels of
trust and information sharing as
needed to further each company’s
goals.

39
LO5

40
Managing Channel Relationships
Explain channel leadership,
conflicts, and partnering.
LO6

41
Managing Channel Relationships
Partnering
Conflict
Leadership
Control
Power

42
Channel Power, Control, and Leadership
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
Leader
(channel captain)
A member of a marketing
channel that exercises
authority/power over the
activities of other members

43
Channel Conflict and Partnering
Channel Conflict – A clash of
goals and methods between
distribution channel members.
Channel Partnering (Channel Cooperation) –
The joint effort of all channel
members to create a supply
chain that serves customers and
creates a competitive advantage.

44
Channel Conflict
Conflicts may occur if channel members:
• Have conflicting goals
• Fail to fulfill expectations of other channel members
• Have ideological differences
• Have different perceptions of reality

45
Channel Partnering
Supplier /
Manufacturer
Relationships
Short-term
Adversarial
Independent
Price important
Long-term
Cooperative
Dependent
Value-added services
Number of
Suppliers Many Few
Transaction-Based Partnership-Based
Information
Sharing Minimal High
Investment
Required Minimal High

Channel Leadership, Conflict, & Partnering
46
LO6
Channel
Relationship
Synergy
Channel Conflict
Horizontal Vertical
Channel Power,
Control, Leadership
Channel
Partnering

47
Channels and Distribution Decisions
for Global Markets
Discuss channels and
distribution decisions
in global markets.
LO7

48
for Global Markets
Global Channel
Development
Channel structure
and type differ
Gray marketing channels

49
LO7
Global Market Channel & Distribution Decisions
Distribute directly or through
foreign partners
Different channel structures than in
domestic markets
Illegitimate “gray”
marketing channels
Legal and infrastructure differences

50
for Services
Identify the special problems
and opportunities
associated with distribution
in service organizations
LO8

51
for Services
Minimizing wait times
Managing service capacity
Improving service delivery

Distribution in Service Organizations
52
LO8

Shah Chapter 13 Marketing Channels

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