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Chapter 11

COMM 131 Chapter Notes - Chapter 11: Convenience Store, Demand Chain, Direct Marketing

Course Code
COMM 131
Ethan Pancer

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Chapter 11: Marketing Channels: Retailing and Wholesaling
Upstream supply chain partners those that supply raw materials, components, parts,
information, finances, expertise etc. needed to create a p/s
Downstream supply chain partners marketing or distribution channels (retailers,
wholesalers) that for a vital connection between the firm and its customers
Demand chain would be a better term as it suggests a sense-and-respond view of market
o Chain starts with determining needs, then going through chain to meet them
A firm’s Value delivery network is made up of supply chain members and customers who
“partner” together to improve the performance of the entire customer delivery system
The Nature and Importance of Marketing Channels
A marketing channel is a set of interdependent orgs that help make a p/s available for use
or consumption by the consumer or business user
Pricing depends on the which distribution channels they use (discount or high-end stores)
Firm’s sales force depends on how much training and motivation channel partners need
Some companies leverage their distribution network as a competitive advg (FedEx)
How Channel Members Add Value
Intermediaries create greater efficiency in making gods available to target markets
o Through their contacts, experience, specialization, and scale of operation,
intermediaries usually offer the firm more than it can achieve on its own
Members of the marketing channel perform many key functions:
o Information: Gathering and distributing market research and intelligence info
about actors and forces in the marketing environment needed for planning
o Promotion: Developing and spreading persuasive communications about an offer
o Contact: Find and communicating with prospective buyers
o Matching: Shaping and fitting the offer to the buyer’s needs
o Negotiations: Reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred
o Physical Distribution: Transporting and storing goods
o Financing: Acquiring and using funds to cover the costs of the channel work
o Risk Taking: Assuming the risks of carrying out the channel work
Channel Levels
A channel level is a layer of intermediaries that performs some work in bringing the
product and its ownership to the final buyer
o The number of intermediary levels indicates the length of a channel
Direct marketing channel is a marketing channel that has no intermediary levels
o The company sells directly to the consumer
Indirect marketing channel is a marketing channel including one or more intermediaries
A greater number of levels, means less control for the producer and greater complexity

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Channel Behaviour and Organization
Distribution channels are complex behavioural systems in which people and companies
interact to accomplish individual, company, and channel goals
o Some consist only of informal interactions among loosely organized firms
o Others consist of formal interaction guided by strong organizational structures
Channel Behaviour
A marketing channel consists of firms partnering together for their common good
o Each channel member depends on the others each plays a specialized role
The channel will be most effective when each member assumes the tasks it can do best
o Each should understand and accept their roles, coordinate their activities, and co-
operate to attain overall channel goals
Channel conflict is disagreement among marketing channel members on goals, roles, and
rewards who should do what and for what rewards
o At same level Honda dealers might complain that other Honda dealers are
taking away sales by charging a lower price for the same car
o Between levels creating conflict with a premier independent-dealer channel by
starting to sell through mass-merchant retailers
Vertical Marketing Systems
To perform well, each channel member’s role must be specified and conflict managed
Conventional Distribution Channel consists of one or more independent producers,
wholesalers, and retailers, each a separate business seeking to maximize its own profits,
even at the expense of profits for the system as a whole
o Conventional distribution channels lack leadership and power, often resulting in
damaging conflict and poor performance
A vertical marketing system consists of producers, wholesalers, and retailers acting as a
unified system one channel member owns the others, has contracts with them, or has so
much power that the all co-operate provide channel leadership
Corporate VMS
Corporate VMS is a vertical marketing system that combines successive stages of
production and distribution under single ownership leadership through ownership
Contractual VMS
This is a vertical marketing system in which independent firms at different levels of
production and distribution join together through contracts to obtain more economies or
sales impact than they could achieve alone
A franchise org is a contractual VMS in which a channel member, called a franchisor,
links several stages in the production-distribution process three types
o Manufacturer-sponsored retailer franchise Ford independent franchised dealers
o Manufacturer-sponsored wholesaler Coca-Cola licenses bottlers to bottle and
sell the finished product to retailers in local markets
o Service-firm sponsored retailer franchise Boston Pizza’s 325 locations in CAN

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Administered VMS
A VMS that coordinates successive stages of production & distribution, not through
common ownership/contractual ties, but through the size and power of one of the parties
o ie. Manufacturers of a top brand can obtain strong trade co-operation and
support from resellers
Horizontal Marketing Systems
A channel arrangement in which two or more companies at one level join together to
follow a new marketing opportunity
o By working together, companies can combine their financial, production, or
marketing resources to accomplish more than one could alone
Might join with competitors or non-competitors, permanently or temporarily, or might
make a separate company - ex. Tim’s & Esso, Lowblaw’s and CIBC (made PC financial)
Multichannel Distribution Systems (Hybrid Marketing Channels)
A distribution system in which a single firm sets up two or more marketing channels to
reach one or more customer segments
Ex. Selling to customer directly through catalogue, a website, and through a retailer
With each new channel, the company expands its sales and market coverage and gains
opportunities to tailor its p/s to the specific needs of diverse customer segments
Multichannel systems are harder to control, and they generate more conflict as more
channels compete for customers and sales
Changing Channel Organisation
Changes in technology and the explosive growth of direct and online marketing are
having a profound impact on the nature and design of marketing channels
Disintermediation is the cutting out of marketing channel intermediaries by p/s producers,
or the displacement of traditional resellers by radical new types of intermediaries
o Channel innovators who find new ways to add value in the channel can sweep
aside traditional resellers and reap the rewards
To remain competitive, must develop opportunities to find direct channels (leads to
conflict) to ease problem, companies try making going direct a plus for entire channel
Channel Design Decisions
This involves designing effective marketing channels by analysing consumer needs,
setting channel objectives, identifying major channel alternatives, and evaluating them
Analysing Customer Needs
Marketing channels are part of the overall customer-value delivery network and each
member and level adds value for the customer
Thus, design begin with finding out what the target market wants from the channel
o Nearby locations? In person? Online? Specialization? Variety? Extra services?
The faster the delivery, the greater the assortment provided, and the more add-on services
supplied, the greater the channel’s service level – may not be practical (limited resources)
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