Chapter 20

Slide 20.1

Place

Managing marketing channels

Chapter 20

Slide 20.2

Managing the marketing channels

• Firms are increasingly paying greater attention to how they manage their marketing channels, so that products and services are delivered at the right time, right place and the right price.

• The marketing channel participants are vital partners in the value delivery network.

Slide 20.3

Supply chains and the value delivery network

• Upstream partners are the suppliers of raw materials, components, parts, information, finance and expertise to the organisation.

• Downstream partners are the wholesalers and retailers who connect the firm with the customer.

Slide 20.4

The nature and importance of marketing channels

• The marketing or distribution channel is comprised of a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or an industrial user.

• The new forms of marketing channels have evolved based on robust partnerships, with long-term commitment to each other and the customer.

Slide 20.5

How channel members add value

• Transactional value: – Risk moves to the intermediary, who also gets to know

the specialist market.

• Logistical value: – Intermediaries assemble an assortment that is

compatible with the needs of the ultimate customers.

• Facilitating value: – Intermediaries often offer credit to customers, may

offer training in the use of products, and collect and deliver marketing information.

Slide 20.6

Figure 20.1 How a marketing intermediary reduces the number of channel transactions and raises economy of effort

Channel interactions

Slide 20.7

Key value adding functions

• Information

• Promotion

• Contact with prospective buyers

• Matching the offer to meet the needs of the customer

• Negotiation

• Physical distribution

• Financing

• Risk taking

Slide 20.8

Figure 20.2 Consumer and business marketing channels

Slide 20.9

Channel behaviour

• All participants dependent upon each other.

• Each channel member has a specialised role

• Co-operation to achieve overall channel objectives may sometimes conflict with internal organisational goals and objectives, resulting in channel conflict.– Horizontal conflict

• Conflict with firms at the same level of the channel.

– Vertical conflict• Conflict at different levels e.g. between wholesaler and

retailer.

Slide 20.10

Channel organisation

– Historically channels have followed the conventional distribution channel format:

• comprised of independent producers, wholesalers and retailers, with separate businesses and seeking to maximise their own profit individually, even at the expense of the entire channel.

– Modern channel management has evolved to develop vertical marketing systems (VMS) that provide channel leadership.

Slide 20.11

Figure 20.3 A conventional marketing channel versus a vertical marketing system

Slide 20.12

Vertical marketing systems

• Vertical marketing systems (VMS) are structured, interdependent producers, wholesalers and retailers that act as a unified system.

• There are also different constructs of VMS for various types of industries.

Slide 20.13

Figure 20.4 Main types of vertical marketing system

Slide 20.14

Corporate VMS

–Combines successive stages of production and distribution under single ownership.

–Breweries and petrol stations are examples.

Slide 20.15

Contractual VMS

Independent firms at different levels join contractually to create efficiencies and economies of scale that could not be achieved alone. 3 types:

» Wholesaler-sponsored voluntary chains of independent retailers organised to help compete against large organisations.

» Retailer co-operatives » Franchise

Slide 20.16

Franchise VMS

» Reduced set-up costs» Contractual relationship» Proven system and established brand name» Centralised buying power» Expertise in operational, managerial, legal

matters» Forfeit some control» Performance against exacting standards» Aggressive targets

Slide 20.17

Administered VMS

VMS that co-ordinates successive stages of production and distribution through the size and power of one of the parties.

Slide 20.18

Other channel variations

• Horizontal marketing systems– Channel arrangement in which two or more companies at

one level join together to follow a new marketing opportunity.

• Hybrid marketing systems– Multi channel distribution targeting different market

segments.

• Changing channel organisation– Major trend to disintermediation through elimination of

intermediaries and traditional sellers and replacement by radically new types of intermediaries.

Slide 20.19

Channel retailing trends

• New retail forms and shortening of the retail life-cycles– ‘Wheel of retailing’, new types of retailer, usually begin

as low-margin, low-price, low-status operations but later evolve to higher priced, higher service operations and eventually become like the conventional retailers that they replaced

• Growth of non-store retailing– ‘click and brick’ retailers– Retail convergence– Rise of mega-retailers– Growing importance of retail technology– Global expansion of retailers

Slide 20.20

Channel wholesaling trends

• Face considerable challenges

• Formation of hybrid operators such as the cash and carry concepts.