Channels

a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer.A Marketing Channel is 2013 by Cengage Learning Inc. All rights reserved

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2013 by Cengage Learning Inc. All rights reserved

Channel Intermediaries 2013 by Cengage Learning Inc. All rights reserved

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Channel Functions Performed by Intermediaries 2013 by Cengage Learning Inc. All rights reserved

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LogisticsLogisticsThe efficient and cost-effective forward and reverse flow and storage of goods, services, and related information, into through, and out of channel member companies. 2013 by Cengage Learning Inc. All rights reserved

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Designing a Marketing Channel SystemAnalyze customer needsEstablish channel objectivesIdentify major channel alternativesEvaluate major channel alternatives

Exhibit 13.3 Marketing Channels for Consumer Products 2013 by Cengage Learning Inc. All rights reserved

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Channels for Consumer ProductsDirect Channel 2013 by Cengage Learning Inc. All rights reserved

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Exhibit 13.4 Channels for Business and Industrial Products 2013 by Cengage Learning Inc. All rights reserved

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Business-to-Business Exchanges on the Internet 2013 by Cengage Learning Inc. All rights reserved

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Reverse-Flow ChannelsCopyright 2012 Pearson Education, Inc. Publishing as Prentice Hall Reverse-flow channels are important to: reuse products or containers (such as refillable chemical-carrying drums); refurbish products for resale (such as circuit boards or computers)recycle products (such as paper)dispose of products and packaging

Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

Channel Strategy Decisions 2013 by Cengage Learning Inc. All rights reserved

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Market Factors 2013 by Cengage Learning Inc. All rights reserved

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Levels of Distribution Intensity 2013 by Cengage Learning Inc. All rights reserved

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Explain channel leadership, conflict, and partnering 2013 by Cengage Learning Inc. All rights reserved

*Managing Channel Relationships


Social Dimensions of Channels 2013 by Cengage Learning Inc. All rights reserved

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Channel Power, Control, and Leadership 2013 by Cengage Learning Inc. All rights reserved

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Causes of Channel ConflictGoal incompatibilityUnclear roles and rightsDifferences in perceptionIntermediaries dependence on manufacturer

Identify the special problems and opportunities associated with distribution in service organizations 2013 by Cengage Learning Inc. All rights reserved

*Channels and Distribution Decisions for Services


Terms and Responsibilities of Channel MembersPrice policyCondition of saleDistributors territorial rightsMutual services and responsibilities

Figure 14.4 Break-Even Cost Chart

Channel-Management DecisionsSelecting channel membersTraining channel membersMotivating channel membersEvaluating channel membersModifying channel members

Channel PowerCoerciveRewardLegitimateExpertReferent

Table 14.2 Strategies for Managing Channel ConflictStrategic justificationEmployee exchange

CooptationDiplomacyMediationLegal recourse

Distribution in Service Organizations 2013 by Cengage Learning Inc. All rights reserved

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Chapter 13 Marketing Channels

*Notes:A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer.

Marketing channels facilitate the physical flow of goods through the supply chain, representing place or distribution in the marketing mix.


*Notes:Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final consumer.


*Notes:The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Retailers and merchant wholesalers take title to goods, while agents and brokers do not.


*Notes:The three basic functionstransactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 13.2.


**To design a marketing channel system, marketers analyze customer needs and wants, establish channel objectives and constraints, and identify and evaluate major channel alternatives.Chapter 13 Marketing Channels

*Notes:Exhibit 13.3 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise.

Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel.

Discussion/Team Activity:Identify various products and discuss the channel for distribution utilized by each.


*Chapter 13 Marketing Channels

*Notes:Exhibit 13.4 illustrates the five channel structures common in business and industrial markets.

Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel.

Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products.


*Notes:More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliers

Channels normally describe a forward movement of products from source to user, but reverse-flow channels are also important: (1) to reuse products or containers (such as refillable chemical-carrying drums); (2) to refurbish products for resale (such as circuit boards or computers); (3) to recycle products (such as paper); and (4) to dispose of products and packaging. Reverse-flow intermediaries include manufacturers redemption centers, community groups, trash collection specialists, recycling centers, trash-recycling brokers, and central processing warehousing. *Chapter 13 Marketing Channels

*Notes:Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows.


*Notes:Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy?

Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and dont require much service, whereas industrial customers purchase in larger quantities and require more customer service.

If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive.

In general, a large market requires more intermediaries.


*Notes:This slide compares the three options for intensity of distribution.

Discussion/Team Activity:Discuss product examples in each of the intensity levels, and in which stores the products are stocked.


*Chapter 13 Marketing Channels

*Notes:In addition to considering the multiple different types of channel relationships and their costs and benefits, managers must also be aware of the social dimensions that are constantly impacting their relationships.

The basic social dimensions of channels are shown on this slide and defined on the following slides.


**Some causes of channel conflict are easy to resolve, others are not. Several causes are listed in the slide. For instance, the manufacturer may want to achieve rapid market penetration through a low-price policy. Dealers, in contrast, may prefer to work with high margins and pursue short-run profitability. HP may sell personal computers to large accounts through its own sales force, but its licensed dealers may also be trying to sell to large accounts. Territory boundaries and credit for sales often produce conflict. The manufacturer may be optimistic about the short-term economic outlook and want dealers to carry higher inventory. Dealers may be pessimistic. In the beverage category, it is not uncommon for disputes to arise between manufacturers and their distributors about the optimal advertising strategy. The fortunes of exclusive dealers, such as auto dealers, are profoundly affected by the manufacturers product and pricing decisions. This situation creates a high potential for conflict.Chapter 13 Marketing Channels

**Each channel member must be treated respectfully and given the opportunity to be profitable. The main elements in the trade-relations mix are price policies, conditions of sale, territorial rights, and specific services to be performed by each party. Price policy calls for the producer to establish a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient. Conditions of sale refers to payment terms and producer guarantees. Most producers grant cash discounts to distributors for early payment. They might also offer a guarantee against defective merchandise or price declines, creating an incentive to buy larger quantities. Distributors territorial rights define the distributors territories and the terms under which the producer will enfranchise other distributors. Distributors normally expect to receive full credit for all sales in their territory, whether or not they did the selling. Mutual services and responsibilities must be carefully spelled out, especially in franchised and exclusive- agency channels.Firms will try to align customers and channels to maximize demand at the lowest overall cost. Clearly, sellers try to replace high-cost channels with low-cost channels as long as the value added per sale is sufficient. A Delhi-based furniture manufacturer wants to sell its line of furniture to retailers in South India. One alternative is to recruit 10 salespersons and locate them in Chennai or Bangalore under a branch head. The other alternative is to use either a Bangalore- or a Chennai-based sales agency which has extensive contacts with retailers in major cities in South India. This agency employs about 30 salespersons on a fixed salary and commission to cover the territory. The first step is to estimate how many sales each alternative will likely generate. The next step is to estimate the costs of selling different volumes through each channel. The cost schedules are shown in Figure 14.4. Engaging a sales agency is less expensive than establishing a new company sales office, but costs rise faster through an agency because sales agents get larger commissions. The final step is comparing sales and costs. As Figure 14.4 shows, there is one sales level (SB) at which selling costs are the same for the two channels. The sales agency is thus the better channel for any sales volume below SB, and the company sales branch is better at any volume above SB. Given this information, it is not surprising that sales agents tend to be used by smaller firms, or by large firms in smaller territories where the volume is low.**After a company has chosen a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel. It must also modify channel design and arrangements over time. As the company grows, it can also consider channel expansion into international markets.*Channel power is the ability to alter channel members behavior so they take actions they would not have taken otherwise. Manufacturers can draw on the following types of power to elicit cooperation:Coercive power means that the manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate. Reward power includes when the manufacturer offers intermediaries an extra benefit for performing specific acts or functions. Legitimate power includes the manufacturer requesting a behavior that is warranted under the contract. Expert power means the manufacturer has special knowledge the intermediaries value. Once the intermediaries acquire this expertise, however, expert power weakens. Referent power means the manufacturer is so highly respected that intermediaries are proud to be associated with it.*There are a number of mechanisms for effective conflict management.In some cases, a convincing strategic justification that they serve distinctive segments and do not compete as much as they might think can reduce potential for conflict among channel members. Dual compensation pays existing channels for sales made through new channels. Channel members can come to an agreement on the fundamental or superordinate goal they are jointly seeking, whether it is survival, market share, high quality, or customer satisfaction. They usually do this when the channel faces an outside threat, such as a more efficient competing channel, an adverse piece of legislation, or a shift in consumer desires. A useful step is to exchange persons between two or more channel levels. Similarly, marketers can encourage joint memberships in trade associations. Co-optation is an effort by one organization to win the support of the leaders of another by including them in advisory councils, boards of directors, and the like. When conflict is chronic or acute, the parties may resort to diplomacy, mediation, or arbitration. Diplomacy takes place when each side sends a person or group to meet with its counterpart to resolve the conflict. Mediation relies on a neutral third party skilled in conciliating the two parties interests. In arbitration two parties agree to present their arguments to one or more arbitrators and accept their decision. If nothing else proves effective, a channel partner may choose to file a lawsuit.


*Notes:The fastest-growing part of our economy is the service sector. Service distribution focuses on Four major areas: Minimizing wait times Managing service capacity. Improving service deliveryEstablishing channel-wide network coherence

Discussion/Team Activity:Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?

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