Marketing Chapter 15

Marketing channel of distribution: (marketing channel) consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

• Intermediaries: make possible the flow of products from producers to buyers by performing three basic functions:
• Transactional function: buying, selling, and risk taking (intermediaries stock merchandise in anticipation of sales)
• Logistical function: gathering, storing, and dispensing of products
• Facilitating function: assists producers in making goods and services more attractive to buyers
• Intermediaries create time, place, form, and possession utility for consumers

• Middleman: any intermediary between manufacturer and end-user markets
• Agent or broker: any intermediary with legal authority to act on behalf of the manufacturer
• Wholesaler: an intermediary who sells to other intermediaries, usually to retailers; term usually applies to consumer markets
• Retailer: any intermediary who sells to consumers
• Distributor: an imprecise term, usually used to describe intermediaries who perform a variety of distribution functions, including selling, maintaining inventories, extending credit, and so on; a more common term in business markets but may also be used to refer to wholesalers
• Dealer: a more imprecise term than distributor that can mean the same as distributor, retailer, wholesaler, and so forth

• Transactional function
• - Buying: purchasing products for resale or as an agent for supply of a product
• - Selling: contacting potential customers, promoting products, and seeking orders
• - Risk taking: assuming business risks in the ownership of inventory that can become obsolete or deteriorate

• Logistical function
• - Assorting: creating product assortments from several sources to serve customers
• - Storing: assembling and protecting products at a convenient location to offer better customer service
• - Sorting: purchasing in large quantities and breaking into smaller amounts desired by customers
• - Transporting: physically moving a product to customers

• Facilitating function
• - Financing: extending credit to customers
• - Grading: inspecting, tasting, or judging products, and assigning them quality grades
• - Marketing information and research: providing information to customers and suppliers including competitive conditions and trends

• Traditional marketing channels: describe the route taken by products and services from producers to buyers
• - Direct channel with no intermediaries (producer and ultimate consumers deal directly with each other)
• - Indirect channel (intermediaries [ie: agents, wholesalers, distributors, retailers] are inserted between a producer and consumer and perform numerous channel functions)

Electronic marketing channels: employ the Internet to make goods and services available for consumption or use by consumer or business buyers

• Vertical marketing systems: (VMS) professionally managed and centrally coordinated marketing channels designed to achieve channel economics and maximum marketing impact
• - Corporate VMS: combines successive stages of production and distribution under a single ownership
• - Contractual VMS: exists when independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone
• - Administered VMS: achieves coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership

• Marketing channels for consumer goods and services
• - Direct channel: producer and ultimate consumers deal directly with each other (ie: insurance companies, Schwan Food Company); producer must perform all channel functions
• - Indirect channel: intermediaries are inserted between producer and consumers and perform numerous channel functions (retailer: retailer can buy large quantities from producer, cost of inventory too expensive to use wholesaler; ie: automobile manufacturers: Toyota, local car dealers) (wholesaler: common for low-cost, low-unit value items frequently purchased by consumers) (agent: many small manufacturers and many small retailers; agent used to help coordinate large supply of the product)

• Marketing Channels for Business Goods and Services
• - Direct channel: firms maintain own salesforce and perform all channel functions; buyers large and well defined, sales effort requires extensive negotiations, products are of high unit value and require hands-on expertise for installation or use
• - Indirect channel: use one or more intermediaries to reach industrial users
• (Industrial user: performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing; similar to wholesalers)
• (agent: serves primarily as the independent selling arm of producers and represents a producer to industrial users)

• Perform transactional and facilitating functions effectively and at relatively lower cost than traditional intermediaries
• Efficiencies made possible by information technology
• Incapable of performing elements of logistical function

• Direct marketing channels: allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson
• - mail-order selling, direct-mail sales, catalog sales, telemarketing, interactive media, televised home shopping

Multichannel marketing: the blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional intermediaries and online

Dual distribution: arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product (used to minimize cannibalization of firm's family brand and differentiate the channels)

• Strategic channel alliances: one firm's marketing channel is used to sell another firm's products (ie: Kraft Foods and Starbucks; Kraft distributes Starbucks coffee in supermarkets)
• - popular in global marketing (creation of marketing channel relationships is expensive and time consuming)

• Merchant wholesalers: independently owned firms that take title to the merchandise they handle (ie: industrial distributor)
• Two types of full-service wholesalers:
• - General merchandise (full-line) wholesalers: carry a broad assortment of merchandise and perform all channel functions (ie: hardware, drug, clothing industries) (cons: do not maintain much depth of assortment within specific product lines)
• - Specialty merchandise (limited-line) wholesalers: offer relatively narrow range of products but have an extensive assortment within the product lines carried; perform all channel functions (ie: health foods, automotive parts, seafood industries)
• Four major types of limited-service wholesalers:
• - Rack jobbers: furnish racks or shelves that display merchandise in retail stores, perform all channel functions, sell on consignment to retailers (retain title to products displayed and bill retailers only for merchandise sold) (ie: hosiery, toys, housewares, health and beauty items)
• - Cash and carry wholesalers: take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for merchandise; carry limited assortment, do not make deliveries, extend credit or supply market information (ie: electric supplies, office supplies, hardware products, groceries)
• - Drop shippers (desk jobbers): wholesalers that own the merchandise they sell but do not physically handle, stock, or deliver it (ie: coal, lumber, chemicals, items sold in extremely large quantities)
• - Truck jobbers: small wholesalers that have a small warehouse from which they stock their trucks for distribution to retailers; limited assortments of fast-moving or perishable items

• Manufacturer's agents: (manufacturer's representatives) work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory
• - producer's sales arm in territory
• - responsible for transactional channel functions
• - used in automotive supply, footwear, and fabricated steel industries
• Selling agents: represent single producer and responsible for entire marketing function of that producers (used by small producers in textile, apparel, food, and home furnishing industries)
• Brokers: independent firms or individuals whose principal function is to bring buyers and sellers together to make sales
• - no continuous relationship with buyer or seller
• - negotiate contract between two parties, and move on
• - used by producers of seasonal products (ie: fruits and vegetables) and in real estate industry

• Four factors affect a company's choice and management of a marketing channel (all interact with each other):
• - Environmental factors
• - Consumer factors
• - Product factors
• - Company factors

• Three questions when choosing and managing a marketing channel and intermediaries.
• 1. Which channel and intermediaries will provide the best coverage of the target market?
• (Three levels of market coverage: intensive, selective, or exclusive distribution)
• 2. Which channel and intermediaries will best satisfy the buying requirements of the target market?
• (buying requirements fall into four categories: information, convenience, variety, and attendant services)
• 3. Which channel and intermediaries will be the most profitable?
• (look at margins earned [revenues-cost] for each channel member and for channel as a whole)

Because marketing channels consist of independent individuals and firms, there is always potential for conflict which sometimes results in legal action. So channel members try to find ways to cooperate for their mutual benefit.

• Two types of conflict occur in marketing channels:
• 1. Vertical conflict: occurs between different levels in a marketing channel (ie: between a manufacturer and a wholesaler or retailer; between a wholesaler and retailer)
• 2. Horizontal conflict: occurs between intermediaries at the same level in a marketing channel (ie: two retailers or two or more wholesalers that handle the same manufacturer's brands)

• Because conflict can have destructive effects on the workings of a marketing channel, channel members seek ways to cooperate:
• 1. Channel captain: channel member that coordinates, directs, and supports other channel members (firm becomes channel captain because of its ability to influence the behavior of other channel members)

• Channel conflict can result in legal action. The most common legal actions arise from channel practices that:
• - restrain competition
• - create monopolies
• - represent unfair methods of competition