Chapter 12 Textbook Summary Notes.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 2320A/B
Kevin Thompson

Chapter 12 Textbook Summary Notes Marketing Channels Delivering Customer Value  The supply chain consists of upstream and downstream partners  Upstream from the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service  Marketers, however, have traditionally focused on the downstream side of the supply chain – on the marketing channels (or distribution channels) that look toward the customer (wholesalers or retailers)  A better term would be a demand chain because it suggests a sense and respond view of the market  Value delivery network: made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system  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 user  Many companies have used imaginative distribution systems to gain a competitive advantage  Distribution channel decisions often involve long-term commitments to other firms  How Channel Members Add Value o Through their contacts, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own o Intermediaries reduce the amount of work that must be done by both producers and consumers o They transform the assortment of products made by producers into the assortment wants by consumers o Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them o Information, promotion, contact, matching, negotiation, physical distribution, financing, risk taking and most recently – environmental sustainability o The question is not whether these functions need to be performed – they must be – but rather who will perform them  Number of Channel Levels o Channel Level: Each layer of marketing intermediaries that perform some work in bringing the product and its ownership closer to the final buyer o Number of intermediary levels indicates the length of a channel o Channel 1 – called a direct channel: no intermediary levels o Indirect marketing channels: contain one or more intermediaries o The business can sell to various types of intermediaries, who in turn sell to these customers o From the producers point of view, a greater number of levels means less control and greater channel complexity o All of the institutions in the channel are connected by several types of flows – physical flow of the products, the flow of ownership, the payment flow, the information flow, and the promotion flow o These flows can make even channels with only one or a few levels very complex  Channel Behaviour o Each channel member depends on the others o Each channel member plays a specialized role in the channel o The channel will be most effective when each member assumes the tasks it can do best o The success of individual channel members depends on the overall channel success, all channel firms should work together smoothly o Cooperating to achieve overall channel goals sometimes means giving up individual company goals o They often act alone in their own short run best interests o They often disagree about who should do what and for what rewards o Channel conflict: disagreements among marketing channel members on goals and roles – who should do what and for what rewards o Horizontal conflict occurs among firms at the same level of the channel o Vertical conflict is between different levels of the same channel (more common) o Some conflict in the channel takes the form of healthy competition o Companies should manage channel conflict to keep it from getting out of hand  Vertical Marketing System o The channel will perform better if it includes a firm, agency, or mechanism that provides leadership and ahs the power to assign roles and manage conflict o Conventional distribution channels: a channel consisting 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  Lacked leadership and power, often resulting in damaging conflict and poor performance o 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 must all cooperates. o Three major types:  Corporate VMS: integrates successive stages of production and distribution under single ownership; coordination and conflict management are attained through regular organizational channels  Contractual VMS: consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact that each could achieve alone; channel members coordinate their activities through contractual agreements  Franchise organization: a channel member called a franchisor links several stages in the production- distribution process  Three types of franchises – manufacturer sponsored retailer franchise system (Ford), manufacturer- sponsored wholesaler franchise (Coca Cola), service firm sponsored retailer franchise system (McDonalds)  The fact that consumers cannot tell the difference between contractual and corporate VMSs shows how successfully the contractual organizations compete with corporate chains  Administered VMS: coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through size and power of one of the parties (e.g. Kraft)  Horizontal Marketing System o A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity o Combine their financial, production, or marketing resources to accomplish more than any one company could alone o E.g. McDonald’s now places “express” versions of its restaurants in Walmart  Multichannel Distribution Systems o Often called hybrid marketing channels o Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments o These days, almost every large company and many small ones distribute through multiple channels o The company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments o Generate conflict as more channels compete for customers and sales  Changing Channel Organization o Disintermediation: occurs when a product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones o Presents both opportunities and problems for producers and resellers o Channel innovators who find new ways to add value in the channel can sweep aside traditional resellers and reap the rewards o Product and service products must develop new channel opportunities such as the Internet and other direct channels o Often brings them into direct competition with their establish channels, resulting in conflict o Companies often look for ways to make going direct a plus for the entire channel  Channel Design Decisions o Manufacturers struggle between what is ideal and what is practical o A new firm with limited capital usually stats by selling in a limited market area o If successful, the new firm can branch out to new markets through the existing intermediaries o In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through distributors o Marketing channel design: designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them  Analyzing Consumer Needs o Each channel member and level adds value for the customer o Find out what target consumers want from the channel o Providing the fastest delivery, greatest assortment, and most services may not be possible or practical o Providing higher levels of service results in higher costs for the channel and higher price for consumers o Balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences  Setting Channel Objectives o A company can identify several segments
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