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Chapter 11

Chapter 11.docx

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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 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 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) Setting Channel Objectives  Should state marketing channel objective in terms of targeted levels of customer service o Company wants to minimize the total channel cost of meeting those requirements  Objs. influenced by nature of company, its p/s, intermediaries, competitors, & the enviro  Economic conditions and legal constraints may affect channel objectives and design o Depressed economy –deliver goods in most economical way - shorter channels Types and Number of Intermediaries  What are best types of intermediaries to get your prod to consumers? – Which add value?  Intensive distribution – stocking the product in as many outlets as possible o Maximum brand exposure and consumer experience  Exclusive distribution – Giving a limited number of dealers exclusive rights to distribute How many the company’s products in the territories intermediaries? o Stronger dealer support, more control over prices, enhanced brand image  Selective distribution – The use of more than one, but fewer than all, of the intermediaries who are willing to carry the company’s products o Good relationships with channel, dealer support, control, less costly Evaluating Channel Alternatives  Each alternative should be evaluated against economic, control, and adaptability criteria  Economic criteria – compares likely sales, costs, and profitability of each alternative o Investment needs vs. resulting returns  Control Issues – How much control must you give up in each alternative – less is better  Adaptability criteria – Want to keep the channel flexible – Thus, a channel involving long-term commitments should be greatly superior on economic and control grounds Channel Management Decisions  This calls for selecting, managing and motivating individual channel members and evaluating their performance over time Selecting Channel Members  Companies should determine what characteristics distinguish better intermediaries  They should evaluate each channel member’s years in business, other lines it carries, growth and profit record, cooperativeness, reputation, quality of the sales force, locations Managing and Motivating Channel Members  Companies must not only sell through intermediaries, but with them o Strong partner relationship mgmt. creates a value delivery system that meets the needs of both the company and its marketing partners  The company must also convince distributors that they can succeed better by working together as a cohesive value delivery system  Many companies now have PRM systems to coordinate whole-channel efforts and help recruit, train, organize, manage, motivate, and evaluate relationships w. channel partners  Must regularly check member performance against standards – assist/replace or reward Retailing and Wholesaling Retailing  Retailing includes all activities involved in selling goods or services directly to final consumers for their personal, non-business use  A retailer is a business whos
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