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Chapter 10

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Chapter 10

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  1. Chapter 10 CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT

  2. Role of distribution channels Methods used in organizing channels Management of underlying behavioral dimensions present in most channels Elements of a channel strategy Tasks assigned to various channel institutions Learning Objectives

  3. Primary purpose: creation of time and place utility Extremely complex process, often the only element of marketing where cost savings still possible Channel selection is a dynamic part of marketing planning Channel needs to be managed to work Composed of individuals and groups with unique traits that may conflict, may need to be motivated Channel of Distribution

  4. Exchange: sale of the product to various members of the distribution channel Physical distribution: moves products through the exchange channel, simultaneously with title and ownership Key role: satisfying customer’s and achieving profit for the firm Customer satisfaction: maximizing time and place utility to the organization’s suppliers, intermediate and final customers Dual Functions

  5. Barter to industrial specialization in goods products to service products Marketing channel: sets of interdependent organizations involved in the process of making a product/service available for use/consumption; providing a payment mechanism for the provider Institutions: some under producer’s control, some not; but all must be recognized, selected, integrated into efficient arrangement Process: continuous management, monitoring, reappraisal Objectives: make an acceptable profit Evolution

  6. Multiple linkages that tie channel members and other agencies together Product Negotiation Ownership Information Promotion Flows

  7. Movement of the physical product from the manufacturer through all the parties who take physical possession of the product until it reaches the ultimate consumer e.g., transportation company to public warehouse to supermarkets Product

  8. Institutions associated with the actual exchange process e.g., bottlers and beer distributors to supermarkets Negotiation

  9. Shows the movement of title through the channel e.g., from bottlers and beer distributors to supermarkets Ownership

  10. Identifies the individuals who participate in the flow of information either up or down the channel e.g., from transportation company to public warehouse to bottlers and distributors to supermarkets Information

  11. Flow of persuasive communication in the form of advertising, personal selling, sales promotion and public relations e.g., from advertising agency to bottlers and beer distributors to supermarkets Promotion

  12. Producer of the product – craftsman, manufacturer, farmer or other extractive industry producer User of the product – individual, household, business buyer, institution, government Certain middlemen at the wholesale or retail level Institutions

  13. Transactional: buying, selling, risk assumption Logistical: assembly, storage, sorting, transportation Facilitating: post-purchase service and maintenance, financing, information dissemination, channel coordination or leadership Channel Functions

  14. While channel institutions can be eliminated or substituted, the functions of those institutions cannot be eliminated All institutional members are part of many channel transactions at any given point in time Satisfaction of transactions is based on routinization benefits When available middlemen are incompetent, unavailable or the producer feels he can perform the task better, the best channel arrangement is direct, from the producer to the ultimate user Service marketers face the problem of delivering their product in the form, at the place and time their customer demands, solutions: banks- ATMs Characteristics

  15. Members and non-members Members perform negotiation functions, participate in negotiation and/or ownership; non-members do not Producer and manufacturer Retailing: department stores, chain stores, supermarkets, discount houses, warehouse retailing, franchises, planned shopping centers/malls Non-store Retailing: home-selling, automated vending, mail order, online marketing, catalog marketing, kiosks Wholesaling: independent, part of vertical marketing system Types

  16. Firms extract, grow or make products; vary in size from one-person operation to those that employ several thousands people, generate billions in sales Channel members can be useful in designing, packaging, pricing, promoting of the product through the most effective channels Producer & Manufacturer

  17. All activities needed to market consumer goods, services to the ultimate consumer who are motivated to buy for individual/family needs e.g., computer at Circuit City Sales also made through means other than stores Retailing

  18. Department stores: wide product mixes e.g., hardware, clothing, each product in different sections in the store e.g., Sears Chain stores: large size enable buying of a wide variety of items in large quantity discounts; prices lower than small competitors; convenient locations; increased market share e.g., Pizza Hut Departments and Chains

  19. Large, self-service stores with central checkout facilities; extensive line of food items, often nonfood products e.g., Safeway Mass-merchandising, low-cost distribution methods Availability of large assortments of a variety of goods like food, household cleaning, maintenance products at a minimal price Supermarkets

  20. Cut-rate retailers e.g., Walmart Emphasis on price as the main sales appeal Merchandise assortments are broad including hard and soft goods, but limited to most popular items, colors and sizes Large self-service operations with long hours, free parking, relatively simple fixtures Discount Houses

  21. Warehouse: Relatively new type Catalog showrooms largest type e.g., Costco Franchise: Response to competition from large chain stores Only sell the products of the franchiser Operate the business to some extent as the manufacturer wishes e.g., dealer of Chevrolet Warehouse & Franchise

  22. Wide assortment of products, many alternatives in one location Regional : larger centers that have one or more major department stores as major tenants Community: moderately sized with junior department stores Neighborhood: small with the key store a supermarket Local clusters: shopping districts grown over time around key intersections, courthouses String street locations: along major traffic routes Isolated locations: freestanding sites not necessarily in heavy traffic areas; use promotion to attract shoppers Shopping Centers/Malls

  23. In-home selling: pre-select prospects, cold calls e.g., Avon Demonstration party: one customer acts as host and invites friends e.g., Tupperware In-home, Demonstration party

  24. Mail order: product description through flyer, catalog convenience, larger geographic coverage, limited service e.g., CD Now Catalog: companies mail one or more product catalogs to select addresses that have a high likelihood of placing an order e.g., J.C. Penny’s Kiosks: “customer-order placing machines” located at airports, stores e.g., Florsheim Shoe Company Mail-order, Catalog, Kiosks

  25. Coin-operated, self-service machines, variety of products, services at convenient locations e.g., banking transactions Automated Vending

  26. Commercial online channels: both retailer and consumer need computer and modem; companies set up online information and marketing services that can be assessed by those who have signed up and paid a monthly fee Internet: global web that allows instantaneous and decentralized global communication; users can send e-mails, exchange views, shop for products, access real-time news; marketers can use e-mails, participate in forums, newsgroups, bulletin boards, place ads online, create electronic storefront Online

  27. All activities required to market goods, services to businesses, institutions, industrial users motivated to buy for resale or to produce and market other goods, services e.g., a bank buying computer for data processing Wholesaling

  28. Warehousing: receiving, storing, packaging Inventory control and order processing: track physical inventory, manage its composition and level, process transactions Transportation: arranging physical movement of goods Information: supplying information about markets to producers and about products and suppliers to buyers Selling: personal contact with buyers Planning, financing, developing marketing mix Wholesaling Functions

  29. Full-service merchandise: general, limited-line Limited service merchant: cash and carry, rack jobbers, drop shippers, mail orders Agents and brokers: agents – buying agents, selling agents, commission merchants, manufacturer’s agents; brokers – real estate, food, other products Manufacturer’s sales Facilitator: warehouses, finance companies, transportation companies, trade marts Types of Wholesaling

  30. Take title to the merchandise; assume the risk involved in an independent operation; buy and resell products; offer a complete range of services Same as full but offer a limited range of services Full vs. Limited

  31. Do not take title to the merchandise; bring buyers and sellers together; negotiate the terms of the transactions Agents merchants represent either the buyer or seller, usually on a permanent basis Brokers bring parties together on a temporary basis Agents and Brokers

  32. Owned directly by the manufacturers; performs wholesaling functions for the manufacturer Perform some specialized functions such as financing or warehousing; to facilitate the wholesale transactions; may be independent or owned by producer or buyer Manufacturer's sales, Facilitator

  33. Provide the bridge between production activities and markets that are spatially and temporally separated Process of strategically managing the movement and storage of materials, parts, finished inventory from suppliers, between enterprise facilities, and to customers Valuable marketing tool to stimulate consumer demand Physical Distribution

  34. Defining the physical distribution (P.D.) standards that channel members want Making sure the proposed P.D. program designed by an organization meets the standard of channel members Selling channel members on P.D. programs Monitoring the results of P.D. once it has been implemented Relationships

  35. Conventional channels Vertical Marketing systems Horizontal channel systems Organizing Channels

  36. Group of independent businesses, each motivated by profit, having little concern about any other member of the distribution sequence No all-inclusive goals Assignment of tasks and evaluation process are totally informal; can create deficiencies Conventional

  37. Solution to problems of conventional networks When a member (usually the manufacturer) assumes a leadership role and attempts to coordinate the efforts of the channel so that mutually beneficial goals like better profits, product exposure, can be attained Vertical Marketing Systems

  38. Administered: informally guided by goals and programs developed by one or a limited number of firms in the existing channel; channel captain: administrative skills and power of one individual may be the driving force of the channel e.g., Xerox; problems of polarization Contractual: members formalize relationship; provides additional control; spells out marketing functions Corporate: members on different levels are owned and operated by one organization; forward (own various intermediaries e.g., Dannon Yogurt) or backward (retailer who takes over wholesaling and manufacturing e.g., Sears) integration Types of VMS

  39. When two or more companies do not have the capital, technical or production know-how to effectively market their products alone Establish temporary or quasi-permanent relationship in order to work with each other to create the channel mechanism needed to reach their target markets Horizontal Channel Systems

  40. Analyze the customer Establish objectives Specify distribution tasks Evaluate and select channel alternatives Evaluating channel member performance Correct or modify Management Process

  41. Whom to sell the merchandise immediately? Who is the ultimate buyer and user? Discover buying specifications of the ultimate user e.g., comparison of prices, willingness to bear with inconvenience Helps to decide on the type of wholesaler or retailer through which a product should be sold Discover buying specifications of resellers Analysis

  42. Growth in sales: reach new markets, and/or increase sales in existing one Maintenance or improvement of market share: educate or assist members in their efforts to increase the amount of product they handle Achieve a pattern of distribution: structure to achieve certain time, place, form, information utilities Create an efficient channel: improve performance by modifying flow mechanisms Objectives

  43. Fully identify tasks, define how tasks can change with situation, assign costs Provide delivery within a specific period of time Offer adequate storage space Provide credit to other intermediaries Facilitate a product return network Provide readily available inventory (quantity, type) Provide for absorption of size and grade obsolescence Specify Distribution Tasks

  44. Bases: Number of levels: two to several Intensity of the levels: actual number of components Types of intermediaries at each level Application of selection criterion to channel alternatives Evaluate, Select Alternatives

  45. Exclusive: single/few outlets; high dealer loyalty, sales support; greater control; limits potential sales volume; success dependent on the ability of single intermediary e.g., Ethan Allen Intensive: maximum number of intermediaries; increased sales, recognition, impulse purchasing; low price, margin, small order sizes; difficult to stimulate and control large number of intermediaries e.g., Candies Selective: intermediary strategy, outlets number dependent on market potential, density of population, dispersion of sales, competitor’s policies; some strengths and weaknesses of the other two; difficult to determine optimal number of intermediaries e.g., Baskin Robbins Types of Intermediaries

  46. Passive to active; very negative, based on fear and punishment, to very positive, based on encouragement and reward Manufacturer: if control of the product (merchandising, repair) is critical and if the design and redesign of the channel is best done by the manufacturer Wholesaler: where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, are weak in finance, marketing expertise Retailer: when product development and demand stimulation are relatively unimportant, personal attention to the customer is important Leadership

  47. Sales popular criteria: current vs. historical; comparison with other members; comparison of member’s sales with predetermined quotas Maintenance of adequate inventory Selling capabilities Attitudes of intermediaries toward product Competition from other intermediary, from other product line carried by manufacturer’s own channel members Evaluate Performance

  48. Role: clearly defining role/tasks prescriptions of various participants and communicating them in order to achieve desired results Communication: sending and receiving information relevant to operation; detect behavioral problems that inhibit effective flow of information and resolve them Conflict: personal and direct; often confrontational; manage by establishing mechanisms to detect, appraise the effect of and resolve conflict Power: willingness to use force in a relationship; means of influencing/controlling behavior of the other party Human Aspects