Chapter 12 – marketing channels delivering customer value:
- Building key relationships with not only buyers but suppliers and resellers is the company’s
- Upstream – comes from company is the set of firms that supply the raw materials, components,
parts, information, finance and expertise needed to create a product or service.
- Downstream – focuses on marketing channel that look toward the customer, such as
wholesalers, and retailers.
- Aka term call the demand chain because it suggest a sense and respond view of the market.
- Firms are forming more complex chains with other firms.
- Value delivery network –is 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. (this chapter focuses on downstream)
The nature and importance of marketing channels:
- Marketing channel (distribution channel) – a set of interdependent organization that help make
a product or service available for use or consumption by the consumer or business users. (affect
every other marketing decisions – pricing etc, high end shop, discount)- good fit
- Some companies use imaginative distribution systems to gain a competitive advantage.
- Distribution channel decisions often involve long-term commitments to other firms. (Contracts)
How channel member add values:
- Producers use intermediaries because they create greater efficiency in making goods available
to target markets. Through their contracts, experience, specialization, and scale of operations,
intermediaries usually offer the firm more than it can achieve on its own. This thus reduces work
done by both producers and consumers.
- Economic point view is the role of marketing intermediaries is to transform the assortment of
production made by producers into the assortment by consumers.
- Channel member add value by bridging the major time, place, and possession gaps that separate
goods and service from those who would use them.
- Some key function they perform is
- Information: gathering and distributing marketing research and intelligence information about
actors and forces in the marketing and plan and aid the exchange.
- Promotion – spreading persuasive communication about an offer.
- Contact – finding and communicating with prospective buyers.
- Matching – shape and fit the buyers need include all packaging etc.
- Negotiation – reach an agreement on price and other terms so ownership can be transferred.
- Complete transaction by:
- Physical distribution: transporting and storing goods.
- Financing – using funds to cover the cost of the channel work.
- Risk taking – carrying out the channel work: Number of channel levels:
- Channel level – a layer of intermediaries that perform some work in bringing the product and its
ownership closer to the final product.
- The number of intermediary levels indicate the length of a channel:
- Direct marketing channel – a marketing channel that has no intermediary levels.
- Indirect marketing channel – a marketing channel contain one or more intermediary levels.
Usually cause greater channel complexity.
- They have many flows such as the flow of ownership, the payment flow, info flow, promotion.
Channel behavior and organization:
- Channel behavior
- Each channel members plays a special role in the channel. Do best when each assumes the task
it can do best. And cooperate to attain overall channel goals.
- Channel conflict – disagreements among marketing channel members on goals and roles – who
should do what and for what rewards.
- Horizontal conflict – occurs at the same level of channel. (Same dealership). Vertical conflict
between different levels of the same channel.
Vertical marketing system:
- Must be specified and managed well.
- Conventional distribution channel – a channel consisting of one or more independent
producers, wholesalers, and retailers, each a spate business seeking to maximize its own
profits, even at the expense of profit for the system as a whole. (o control, no means of
- 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
contract with them, or has so much power that they must all cooperate.
- Corporate VMS – a vertical marketing system that combines successive stages of production
and distribution under single ownership – channel leadership is establish through common
- Contractual VMS – a vertical marketing system in which independent firm at different levels of
production and distribution join together through contracts to obtain more economies or sales
impact than they could achieve alone.
- Franchise organization – a contractual vertical marketing system in which a channel member,
called a franchisor, links several stages in the production – distribution processes.
- There is type such as manufacturer- sponsored retailer franchise system (network of
independent franchised dealers).
- Manufacturer sponsored wholesaler franchised system and service firm sponsored retailers
franchise system. (Cannot tell the difference between contractual and corporate) - Administered VMS – a vertical marketing system that coordinate successive stage of production
and distribution, not through common ownership or contractual ties, but through the size and
power of the parties. Can obtain strong trade cooperation 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. Combine resources and accomplish
more than one company could do alone.
- Multi distribution system – a distribution system in which a single firm set up two or more
marketing channel to reach one or more customer segment. (Hybrid). Using telemarketing,
internet, retailers etc. They are harder to control, generate conflict as more channel compete
for customers and sales.
- Changing channel organization:
- Change in technology and explosive growth of direct and online marketing are having a
profound impact on the nature and design of marketing channel.
- Disintermediation – the cutting off of marketing channels by product or services producers, or
the displacement of traditional resellers by radical new types of intermediaries. There are often
potential challenges to traditional intermediaries.
Channel design decision:
- Manufacturer struggling between what is deal and what is practical, problem lies in how to tell
few good intermediaries to handle the line.
- Channel systems often evolve to meet market opportunities and conditions.
- Marketing channel design – designing effective marketing channels by analyzing consumer
needs, setting channel objectives, identifying major channel alternatives, and evaluating them.
Analyzing consumer needs:
- Designing the marketing channel starts with finding out what target consumers wants from the
- The faster the delivery, the greater the assortment provided, and the more add-on service
supplied, the greater the channel’s service level. Price and the level of service exchange.
Setting channel objectives:
- the company should decide which segment to serve and the best channels to use in each other.
Thus minimizing the cost would be one. The nature of the company, its product can influ