Principles of Marketing: Marketing Channels: Delivering Customer Value

Principles of Marketing
Seventeenth Edition
Chapter 12
Marketing Channels:
Delivering Customer Value
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Keyword
sUpstream partners  Intensive distribution
 Downstream partners  Exclusive distribution
 Value delivery network  Selective distribution
 Marketing / Distribution  Marketing logistics
channel  Supply chain management
Vertical Marketing Systems  Integrated Logistics
(VMS) Management
Horizontal Marketing Systems
(HMS)
 Disintermediation
Learning Objectives
1 Explain why companies use marketing channels and discuss the functions
these channels perform.
2 Discuss how channel members interact and how they organize to perform
the work of the channel.
3 Identify the major channel alternatives open to a company.
4 Explain how companies select, motivate, and evaluate channel members.
5 Discuss the nature and importance of marketing logistics and integrated
supply chain management.
Learning Objective 1
Explain why companies use marketing channels and discuss the
functions these channels perform.
Supply Chains and Value Delivery Networks

Upstream partners are firms that supply raw materials,
components, parts, information, finances, and expertise needed
to create a product or service.
Downstream partners include the marketing channels or
distribution channels that look toward the customer, including
retailers and wholesalers.
Supply chain “make and sell” view includes the firm’s raw materials, productive
inputs, and factory capacity.
Demand chain “sense and respond” view suggests that planning starts with the
needs of the target customer.
Value delivery network is composed of
the company, suppliers, distributors, and,
ultimately, customers who partner with each
other to improve the performance of the
entire system.
The Nature and Importance of Marketing Channels
Marketing channel (distribution channel) is a set of interdependent
organizations that help make a product or service available for use or
consumption by the consumer or business user.
How Channel Members Add Value
• Transform the assortment of products into assortments wanted by consumers.
• Bridge the major time, place, and possession gaps that separate goods and
services from users.
How Channel Members Add Value
Information Promotion Contact
Physical
Matching Negotiation distribution
Financing Risk taking
Number of Channel Levels
Channel level is a layer of intermediaries that performs some
work in bringing the product and its ownership closer to the final
buyer.
Direct marketing channel is a marketing channel that has no
intermediary levels.
Indirect marketing channel is a marketing channel containing
one or more intermediary levels.
Number of Channel Levels
Channel members are connected by several types of flows:
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow
Discuss how channel members interact and how they organize to
perform the work of the channel.
Channel Behavior and Organization

Channel Behavior
Marketing channels consist of firms that have partnered for their common
good
with each member playing a specialized role.
Channel Behavior
Channel conflict refers to disagreement among channel members over goals,
roles, and rewards.
• Horizontal conflict
• Vertical conflict
Vertical Marketing Systems
Conventional distribution systems consist of one or more independent
producers, wholesalers, and retailers, each separate business seeking to
maximize its own profits, perhaps even at the expense of profits for the system
as a whole.
Vertical marketing systems (VMSs) provide channel leadership and
consist of producers, wholesalers, and retailers acting as a unified system.
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems
1. Corporate vertical marketing systems combine successive stages of
production and distribution under single ownership.
2. Contractual vertical marketing systems consist of independent firms at
different levels of production and distribution who join together through contracts.
Franchise organization is a contractual vertical
marketing system in which a channel member, called
a franchisor, links several stages in the production-
distribution process.
3. An administered vertical marketing system is a VMS that
coordinates successive stages of production and distribution through the
size and power of one of the parties.
Horizontal Marketing Systems
Horizontal marketing system is a channel

arrangement in which two or more
companies at one level join together to follow
a new marketing opportunity.
Multichannel Distribution Systems

Multichannel distribution systems are systems in which a single firm sets
up two or more marketing channels to reach one or more customer segments.
Changing Channel Organization

Disintermediation is the cutting out of
marketing channel intermediaries by
producers or the displacement of traditional
resellers by new intermediaries.
Identify the major channel alternatives open to a company.
Channel Design Decisions

Marketing channel design
Designing effective marketing channels by analyzing customer needs, setting
channel objectives, identifying major channel alternatives, and evaluating those
alternatives.
Analyzing Setting
channel
consumer objectives
needs
Identifying Evaluating
channel channel
alternatives alternatives
1. Analyzing Consumer Needs
• Find out what target consumers want from the channel
• Identify market segments
• Determine the best channels to use
• Minimize the cost of meeting customer service requirements
2. Setting Channel Objectives

• Determine targeted levels of customer service
• Balance consumer needs against costs and customer price preferences
Channel Design Decision
3. Identifying Major Alternatives

Types of intermediaries refers to channel members available to carry out
channel work. Most companies face many channel member choices.
Identifying Major Alternatives
Number of Marketing Intermediaries
Intensive distribution
Exclusive distribution
Selective distribution
Identifying Major Alternatives
Responsibilities of Channel Members

A producer and the intermediaries need to agree on
• Price policies
• Conditions of sale
• Territory rights
• Specific services
4. Evaluating Major Alternatives
• Economic criteria
• Control issues
• Adaptability criteria
Designing International Distribution Channels
• Channel systems can vary from country to country.
• Marketers must be able to adapt channel
strategies to structures within each country.
Explain how companies select, motivate, and evaluate channel members.
Channel Management Decision
Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members
Public Policy and Distribution Decisions
Exclusive distribution is when the producer gives only a limited number of
dealers the exclusive right to distribute its products in their territories.
Exclusive dealing is when the seller requires that the exclusive distribution
sellers not handle competitor’s products.
Exclusive territorial agreements are where producer or seller limit
territory.
Tying agreements are agreements where the dealer must take most or all of
the line.
Discuss the nature and importance of marketing logistics and integrated supply
chain management.
Marketing Logistics and Supply Chain Management

Nature and Importance of Marketing Logistics
Marketing logistics (physical distribution)
involves planning, implementing, and controlling
the physical flow of goods, services, and
related information from points of origin to
points of consumption to meet consumer
requirements at a profit.
Nature and Importance of Marketing Logistics
Supply chain management involves managing upstream and downstream
value-added flows of materials, final goods, and related information among
suppliers, the company, resellers, and final consumers.
Goal of marketing logistics should be to provide a targeted level of customer
service at the least cost.
Major Logistics Functions
Inventory
Warehousing
management
Logistics
Transportation information
management
Integrated Logistics Management
Integrated logistics management is the
recognition that providing customer service
and trimming distribution costs requires
teamwork internally and externally.

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Principles of Marketing

Supply Chains and Value Delivery Networks

Information Promotion Contact

Financing Risk taking

Channel Behavior and Organization

Horizontal Marketing Systems

Horizontal marketing system is a channel

Multichannel Distribution Systems

Changing Channel Organization

Channel Design Decisions

2. Setting Channel Objectives

3. Identifying Major Alternatives

Identifying Major Alternatives

Responsibilities of Channel Members

Channel Management Decision

Selecting Managing Motivating Evaluating

Marketing Logistics and Supply Chain Management

Major Logistics Functions

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