Management and Organizational Studies 2320A/B Chapter Notes - Chapter 12: Marketing Channel, Disintermediation, Supply Chain Management Software

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Published on 21 Apr 2013
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Western University
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Management and Organizational Studies
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Management and Organizational Studies 2320A/B
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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

Document Summary

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.