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CHAP 12: MARKETING CHANNELS: DELIVERING CUSTOMER VALUE
A. SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK
Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service Downstream partners include the marketing channels or distribution channels that look toward the customer Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer, and the firm responds to these needs by organizing a chain of resources and activities with the goal of creating customer value Value delivery network is the firm’s suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system B. THE NATURE AND IMPORTANCE OF MARKETING CHANNELS Marketing channel (or distribution channel): A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user. 1. How channel members add value Intermediaries offer producers greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own. From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them Key functions: Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange. Promotion: Developing and spreading persuasive communications about an offer. Contact: Finding and communicating with prospective buyers. Matching: Shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Others help to fulfill the completed transactions: Physical distribution: Transporting and storing goods. Financing: Acquiring and using funds to cover the costs of the channel work. Risk taking: Assuming the risks of carrying out the channel work 2. Number of channel levels Channel level: A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Direct marketing channel: A marketing channel that has no intermediary levels. Indirect marketing channel: Channel containing one or more intermediary levels. Connected by types of flows: Physical flow of products Flow of ownership Payment flow Information flow Promotion flow C. CHANNEL BEHAVIOUR AND ORGANIZATION 1. Channel behaviour Marketing channel consists of firms that have partnered for their common good with each member playing a specialized role Channel conflict refers to disagreement over goals, roles, and rewards by channel members Horizontal conflict: intermediaries in same level of same channel Vertical conflict: intermediaries in different level of same channel 2. Vertical marketing system Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits, and there is little control over the other members and no formal means for assigning roles and resolving conflict. Vertical marketing systems (VMSs) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: Corporate marketing systems: integrates successive stages of production and distribution under single ownership Contractual marketing systems: consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organization Franchise organization links several stages in the production distribution process – Manufacturer-sponsored retailer franchise system – Manufacturer-sponsored wholesaler franchise system – Service firm-sponsored retailer franchise system Administered marketing systems: has a few dominant channel members without common ownership. Leadership comes from size and power 3. Horizontal marketing system Horizontal marketing systems (HMSs) are when two or more companies at one level join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. 4. Multichannel distribution systems Multichannel Distribution systems (Hybrid marketing channels) are when a single firm sets up two or more marketing channels to reach one or more customer segments.
5. Changing channel organization
Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones. D. CHANNEL DESIGN DECISIONS Marketing channel design: Designing effective marketing channels byanalyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives. 1. Analyzing Consumer Needs 2. Setting channel objectives Targeted levels of customer service What segments to serve Best channels to use Minimizing the cost of meeting customer service requirements 3. Identifying major alternatives a. Types of intermediaries b. Number of marketing intermediaries Intensive distribution: Stocking the product in as many outlets as possible. (candy and toothpaste) Exclusive distribution: Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories. (luzury automobiles and prestige clothing) Selective distribution: The use of more than one but fewer than all the intermediaries who are willing to carry the company’s products. (tevevision and home appliance) c. Responsibilities of channel members Agree on: price policies, conditions of sale, territory rights, and the specific services to be performed by each party 4. Evaluating the major alternatives Each alternative should be evaluated against: – Economic criteria – Control – Adaptive criteria 5. Designing international distribution channels Channel systems can vary from country to country Must be able to adapt channel strategies to the existing structures within each country E. CHANNEL MANAGEMENT DECISIONS Marketing channel management: Selecting, managing, and motivating individual channel members and evaluating their performance over time. 1. Selecting channel members 2. Managing and motivating channel members - Practice strong partner relationship management (PRM) -> long term relationships 3. Evaluating channel members F. PUBLIC POLICY and DISTRIBUTION DECISIONS Exclusive distribution is when the seller allows only certain outlets to carry its products Exclusive dealing is when the seller requires that the sellers not handle competitor’s products Exclusive territorial agreements are where producer or seller limit territory Tying agreements are agreements where the dealer must take most or all of the line G. MARKETING LOGISTIC and SUPPLY CHAIN MANAGEMENT 1. Nature and importance of marketing logistic Marketing logistics (or physical distribution): Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. Supply chain management: Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.