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Chapter 11

COMM 223 Chapter 11: COMM 223 Chapter 11

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COMM 223
Bonnie Feigenbaum

Comm 223 chapter 11 notes Marketing channels Distribution channels: the value delivery network Producing a product or service and making it available to buyers requires building relationships not just with customers, but also with key suppliers “upstream” in the company’s supply chain, and distributors and resellers that act as intermediaries to help move the product “downstream” - Upstream from the company: set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service - Downstream side: the marketing channels (or distribution channels) that look toward the customer (link producer with customer) Value delivery network: the network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system in delivering customer value. The term supply chain may be too limited as it takes a make-and-sell view of the business. It suggests that raw materials, productive inputs, and factory capacity should serve as the starting point for market planning. A better term would be demand chain because it suggests a sense-and-respond view of the market. Under this view, planning starts by identifying the needs of target customers, to which the company responds by organizing a chain of resources and activities with the goal of creating customer value. What is a channel? 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 customer - A company’s channel decisions directly affect every other marketing decision o Pricing depends on whether the company works with national discount chains, uses high- quality specialty stores, or sells directly to consumers online. - Designing channels and choosing channels partner are strategic marketing decisions, made only after carefully studying the market and considering its opportunities - Sometimes, developing a marketing channel, especially in a new country, requires changing the brand name - Distribution channel decisions often involve long term commitments to other firms - Channel decisions can lead to competitive advantages Comm 223 chapter 11 notes How channel partners add value Producers use intermediaries because they create greater efficiency in making goods available to target markets. Through their contact, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own. Intermediaries reduce the amount of work that must be done by both producers and consumers. From the economic system’s point of view, the role of marketing intermediaries is to transform the assortments of products made by producers to the assortments wanted by consumers. Producers make narrow assortments of products in large quantities, but consumers wan broad assortments of products in small quantities. Marketing channel members buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers. In general, channel members add value by bridging the major time, place and possession gaps that separate goods and services from those who would use them. Specific functions channel partners can perform: - Information gathering and distribution: channel partners, such as retailers that are closer to the final customer, have access to information the manufacturer might not have. Channel partners can collect market intelligence and communicate it back to the original producer. - Promotion at point of purchase: local advertised sales are handled by distributers and retailers. - Contact: finding and communicating with prospective buyers - Matching and arranging: shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, displaying, arranging, assembling, and packaging to offer customers a choice. - Negotiation: negotiate price and terms of delivery so that the product can move from one channel to another - Physical distribution: transporting and storing goods - Financing: companies that offer credit cards, and companies that sell large products may have finance organizations as channel partners - Risk taking: channel members may assume the risk of handling, transporting and storing the product as it moves throught the channel - After sales support: some products require after sales support and servicing (typically performed by channel partners) Who will perform these functions? Type of channel partners Retailers One of the most important, and most visible of Retailing: the business of selling goods or services marketing channels to consumers for their personal use Comm 223 chapter 11 notes Includes all the activities involved in running the Retailers: a business that primarily sells products business and services to customers Wholesalers Do not sell directly to consumers (in general). Wholesalers (merchant wholesalers, distributers): Apple, Samsung both retail and wholesale. (ex) companies whose primary business is wholesaling Wholesaling: all activities involved in selling goods A wholesaler that takes possession of inventory and services to those buying for resale or business also assumes the risk that goes with it use Drop shippers and rack jobbers Drop shipping: process in which intermediary takes the order from the customer and passes it to a manufacturer or wholesaler, which then ships the item directly to the customer Drop shippers: an intermediary that takes orders and payment from the customer, then arranges to have the merchandise shipped to the customer directly from the supplier (do not take possession of the merchandise) Because drop shippers take payment from the customer and later pay the supplier for the order, they are considered wholesalers. Rack jobber: a wholesaler that buys merchandise and resells it on “racks” inside a retail store, in partnership with the retailer (they set point-of-purchase displays, keep inventory records, and retain ownership of the goods until they are sold) Brokers Broker: a wholesaler that does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiations (does not carry inventory, nor is involved in financing, or assume risk) Agents Agent: a representative, either of a buyer or a seller, who performs only a few functions and does not take title to goods (an agent has a more permanent relationship representing either the buyer or the seller than the broker) Manufacturers’ agents don’t have their own sales staff; the agent sells the manufacturer’s goods to buyer and receives a commission from the manufacturer Advertising agencies are valuable members of the marketing channel (other type of agent). They provide marketing communications services such as designing and producing advertisements and buying the media in which to run them. Organization and management of channels (FINAL) Marketing channels must be built to meet strategic business goals, then continually managed Selecting channel partners Producers vary in their ability to attract qualified marketing intermediaries. When considering which channel partners to work with, marketers evaluate each potential partner’s year in business, other lines carried, location, growth, and profit record, cooperativeness, and reputation Comm 223 chapter 11 notes How many 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 vs indirect channels The number of levels of the channel, or number of channel members that function as intermediaries between the producer and the consumer constitutes the length of a channel. Direct marketing channel (the shortest possible channel – no intermediaries): the producer of the goods sells directly to the final customer (channel 1) Indirect marketing channel: one or more intermediaries between producer and consumer (channel 2 and 3) All the institutions in the channel are connected by several types of flows: - Physical flow of products - Flow of ownership - The payment flow - The information flow - The promotion flow Vertical marketing systems Vertical marketing system (VMS): a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate VMS System Description Corporate VMS Combines successive stages of production and distribution under single ownership Contractual Independent firms at differen
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