Objectives

After reading this chapter you will able to know:

What a marketing channel is? Why manufacturers choose to use

intermediaries between themselves and end-users.

What marketing flows define the work of the channels.

Who the members of marketing channel.

The elements of a framework for marketing channel.

What is a Marketing Channel? Your thoughts?

Using your own words (take 5 minutes) to briefly write a definition of a what a marketing channel is to you.

What is a Marketing Channel? “A set of interdependent

organizations involved in the process of making a product or service available for use or consumption.”

(Coughlan, Anderson, Stern, El- ansary, P.3)

So what does that really mean?

What is a Marketing Channel?1. Set of interdependent organizations

2. A process (usually over time)

3. Process with purpose – “to satisfy end-users”

OFTEN VIEWED AS KEY STRATEGIC ASSET OF MANUFACTURER (p.3)

^^TRUE OR NOT TRUE^^

Importance of Channels

Gatekeeper Important asset Channel Experience Awareness of channels Optimize channels.

Intermediaries? Merchants: (Wholesalers and retailers buy, take title and resell

the merchandise) Agents: (Manufacturers, broker, sales agents they search

for customers and may negotiate on the producer behalf but do not take title of the goods)

Facilitators: (Transportation companies , independent

warehouses, banks, advertising agencies assist in the distribution process but neither take title to goods nor negotiate purchases or sales)

Channel Development

Channel development is like a firm convince the available intermediaries to handle the firm’s line , If the firm is successful , it might branch into new markets and use different channels in different markets.

Two forces for channel development: Demand side factors. Supply side factors.

Channel Development and Change Demand-side

factors Supply-side

factors

Impetus for Channel Change Demand Factors

Facilitation of SearchIntermediary Channels arise because buyers and sellers cannot find each other

Adjustment of Assortment DiscrepancyManufacturer= large quantity of limited variety (EofScale)Consumers= large variety in small quantities (customization & choice)1. Sorting out (packer: oranges size and grade)2. Accumulation (wholesaler: gather together supply)3. Allocation (wholesale distributor: breaking bulk)4. Assorting (complementary goods are built up together)

Bottom line: Meeting customer demands, driven by the consumer.

Impetus for Channel Change

Supply Factors Routinization of Transactions

Electronic Data Interchange, Continuous Replenishment…

Reduction of # of ContactsEmploying more and more intermediaries is subject to diminishing returns simply from the point of view of number and cost of contacts in the market (Coughlan, Anderson, Stern, El-Ansary, P. 7)

Bottom-line – mitigating risk, minimizing management cost, maximizing utility

Supply-Side FactorsReduction in number of contacts

Manufacturers

Wholesaler

Retailers

Manufacturers

Retailers

Discussion Should advertising agencies and

financial institutions be considered

channel members? Why? Why not? Is

it more useful from a managerial

perspective to think of consumers as

member of the channel or as end-

users consuming the services of the

channel?

Role of marketing Channel

Channel chosen affects all other marketing decision

Many producers lack the financial resources to carry out direct marketing.

Producers who do establish their own channels can often earn a greater return by increasing investment in the main business. (manufacturing)

In some cases direct marketing simply is not feasible.

What work do the channels perform?

Marketing channel overcomes the time, place and possession gaps that separate goods and services from those who need or want them .

Some functions (physical, title, promotion) constitute a Forward flow of activities from the (company to the customers)

Other functions (ordering and payment) constitute a backward flow from (customers to the company)

Still other (information and negotiation, finance and risk taking) occurs in both direction.

What work do the channels perform? Includes the performance of several

marketing flows. E.g..:

ProducersProducers RetailersRetailers

Consumers:Consumers:IndustrialIndustrial

andandHouseholdHousehold

WholesalersWholesalers

Physical

Ownership

Promotion

Negotiation

Financing

Payment

Ordering

Risking

Physical

Ownership

Promotion

Negotiation

Financing

Payment

Ordering

Physical

Ownership

Promotion

Negotiation

Financing

Payment

Ordering

Risking Risking

Who belong to a marketing Channel?

The key members of a marketing channel : Manufacturers. Intermediaries. (wholesaler, retailer,

specialized) End users.

Channel Levels

The producer and final customer are the part of every channel. We will use the number of intermediary levels to designate the length of channel.

Two levels of marketing channels:

Consumer marketing channel Industrial marketing channel

Industrial Marketing Channel

Manufacturer

Industrial Distributors

ManufacturerRepresentative

Manufacturer Manufacturer Manufacturer

Manufacturer's Sales

Branch

1- level0 -level 2- level 3- level

Consumer Marketing Channel

Manufacturer

Retailer

Wholesaler

Jobber

Consumer

Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer

Retailer Retailer

Wholesaler

1- level0 -level 2- level 3- level

Now!

We have understanding of: What is Marketing channel? How it can be organized. (Channel

functions ,flows and levels of marketing channel).

Who can be its members?

Channel Analysis FrameworkCHANNEL DESIGN

Segmentation

Channel StructureSplitting the WorkloadDegree of Commitment

Gap Analysis

CHANNEL IMPLEMENTATION

Channel Power Channel Conflict

Manage/Defuse Conflict

Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONSINSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS

Segmentation Splitting market into groups of end-

users Similar within groups Different between groups Based on demands for the outputs of the

marketing channel Added value Service outputs

Segmentation

Example: Segments of book end-users Recreational readers University students

Convenience-oriented Price-oriented

Selecting Target Segments

Those we can serve most profitably Restrictions

Managerial bounds Environmental bounds

Legal Competitive benchmarks

Channel Structure

1. Types of channel members2. Identities of specific channel

members3. Channel intensity: number of each

type

Splitting the Workload

Assign channel flows to channel members Meet target segment’s service output

demands Reliable Minimize total cost, while meeting

service level

Degree of Commitment Transactional relationships

Pursue individual goals No guarantee of continued business

Alliances Enduring connections throughout companies Pursue common goals

Vertical integration Own channel members Reasons

Channel members do not exist Company can handle flows as efficiently Channel member is not sufficiently committed

Can be done in degrees

Gap Analysis The difference between

optimal and actual channels

Demand side gaps Service output demands are

not being met (Table 1.1) Undersupplied Oversupplied

Supply side gaps At least one flow is costing

too much Lack of expertise Waste

Closing gaps is difficult and costly

Channel Power

Ability to control other channel members

Necessary to implement channel design May be used to optimize channel to

benefit of all channel members May be used to achieve own ends

without regard to other channel members

Channel Conflict

Actions of channel members prevent channel from achieving its goals

Goal conflict Domain conflict Perceptual conflict

Manage/Diffuse Conflict

Identify sources of conflict Poor channel design Poor performance

Take action Exercise channel power

Channel Coordination

Result of Channel designed to meet service

output demands of target end-user segments

Application of channel power to ensure smooth implementation of the channel design

Ongoing process

Insights for Specific Channel Institutions

Retailers Wholesalers Logistics firms Supply chain issues Franchises

Activity for week 1

Read Appendix 1A Read Article :

Prepare Both for class discussion.Discussion will be done individually