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Chapter 13

MKC1200 - Chapter 13 and 14 (week 9 and 10).docx

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Dr Maya Mandery

MARKETING CHANNELS AND LOGISTICS NETWORKS Marketing channel – it is a set of interdependent organisations that are involved in the process of making the product available to the users. WHY ARE MARKETING INTERMEDIARIES IMPORTANT 1) Direct transfer of goods requires a huge amount of financial and other resources. 2) Greater efficiency in making products available to the target market 3) Through their contacts, experience, specialisation and scale of operations, they can achieve much more than the company itself 4) It matches demand with the supply as companies product a narrow assortments of products in large quantities and customers want a broad assortment of products in small quantities 5) It provides economies due to large scale of production. ROLE/FUNCTIONS OF MARKETING CHANNELS 1) Information – providing information on marketing research and intelligence about the external forces of the environment that the companies to plan and facilitate exchange. 2) Promotion – developing and communicating of information to the customers. 3) Contact – finding and communicating with prospective buyers. 4) Matching – it requires shaping of a market offering according to the needs of the customers. 5) Negotiation – it is the adjustment of price and other factors of the market offering between the intermediary and customer. 6) Physical distribution – transporting and storage of the product. 7) Financing – covering the costs of the marketing channel. 8) Risk taking – the risks associated with the transfer of goods. CHANNEL LEVEL – it is a layer of intermediaries that brings the product and its ownership closer to the final buyer. NUMBER OF CHANNEL LEVELS – different products need different number of channel levels. Some companies prefer to have no intermediaries between the producer and the consumer and follow a direct marketing channel. Avon sells its products door-to- door. Other companies use indirect marketing channels with one or more intermediaries. Channel 2 has one marketing intermediary between the producer and the consumer and it is usually a retailer. Philips sells its products through Harvey Norman. Channel 3 has two marketing intermediaries namely the wholesaler and then the retailer. It is used by small manufacturers of food, hardware and pharmaceuticals. In the business sector channel 2 has a business distributor and channel 3 has a sales branch and a business distributor. There are channel levels special for service sectors too. CHANNEL ORGANISATION 1) Vertical marketing networks – it is a distribution channel structure in which the producers, wholesalers and retailers act as a unified network where one channel member usually owns the others, contracts with them or has an overall much greater power. However in the past, conventional marketing channel was used where the producer, wholesaler and retailer would act as complete individuals acting to maximise their own profits ignoring the benefits of the overall marketing channel. 2) Horizontal marketing networks – it is distribution channel structure where two or more companies of the same level join together to increase the amount of resources and hence production in the organisation. They might be competitors or non-competitors and may join together temporarily or permanently for strategic purposes and might even create separate company. 3) Multichannel/hybrid channels – it is a distribution channel system where the company sets up two or more channels to reach one or more marketing segments. Boost juice sells its products directly through its own shops and also in supermarkets like Coles and Woolworths. It offers mass market coverage and allows the company to tailor its products according to the diverse needs of the customers but it can lead to many conflicts as each channel is competing for sales and profits. DISINTERMEDIATION – it is the cutting out of marketing channel intermediaries to reach directly to the final buyers, create new intermediaries or move from a physically bound business to an online one. REINTERMEDIATION –it occurs as a consequence of disintermediation and involves creation of new marketing channel intermediaries. CHANNEL DESIGN DECISIONS 1) Analysing consumer service needs –it requires companies to analyse the needs of the customers, whether they are willing to travel distances for their product or whether they want it everywhere, whether they prefer internet, mail or physical locations 2) Setting channel objectives and constraints – refers to the objectives the company has. Whether they are willing to have customers search for the product, whether it prefers direct or indirect marketing. 3) Identifying major channel alternatives a) Types of intermediaries include company’s sales force, manufacturer’s agency and industrial distributors b) Number of marketing intermediaries 1) Intensive distribution – it includes stocking up the products in every outlet possible. Customers do not want to travel long distances for this product and want it close to them. Milk, chocolate and bread. 2) Exclusive distribution – it includes stocking their products only in a few outlets in a region. It provides greater control of the price and promotion of the products and allows significant mark-ups. Companies like Louis Vuitton and Mont Blanc follow this strategy and allows building of product image.
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