copyright © houghton mifflin company. all rights reserved. 14–1 marketing channels and...

Copyright © Houghton Mifflin Company. All rights reserved. 14–1

Marketing Channels and Supply-Chain Management

• Marketing Channel

–A group of individuals and organizations directing products from producers to customers

• Supply Chain Management

–Long term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies in the marketing channel to satisfy customers


Marketing Channels Consist of Intermediaries

• Marketing Intermediary

–An intermediary linking producers to other intermediaries or to ultimate consumers through contractual arrangements or through the purchase and resale of products

Direct ChannelDirect ChannelProducerProducerProducer CustomerCustomerCustomerProducerProducerProducer CustomerCustomerCustomer

Indirect ChannelIndirect Channel

ProducerProducerProducer CustomerCustomerCustomerIntermediaryIntermediaryIntermediaryProducerProducerProducer CustomerCustomerCustomerIntermediaryIntermediaryIntermediary


Marketing Channels Form a Supply Chain

• Supply-Chain Management

– Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers

– Optimizes costs throughout the whole channel for efficiency and service

– Includes all entities that facilitate product distribution and benefit from cooperative efforts

– Arises from the need to achieve a more competitive position


Marketing Channels Create Utility

• Time Utility

– The product is available when the customer wants it (newspaper delivery).

• Place Utility

– The product is available in locations where customers wish to purchase it (convenience stores).

• Possession Utility

– The customer has access to the product to use or to store for future use (raincoats).

• Form Utility

– The product is assembled, prepared or otherwise refined to suit customer needs.


Marketing Channels Facilitate Exchange Efficiencies

• Reduce the overall costs of market exchanges

• Reduce search costs for customers

• Maintain order in the marketplace


Efficiency in Exchanges Provided by an Intermediary

FIGURE 14.1


Typical Marketing Channels forConsumer Products

FIGURE 14.2


Typical Marketing Channels forBusiness Products

FIGURE 14.3


Distribution Intermediaries

• Industrial Distributor

–An independent business that takes title to business products and carries inventories

• Manufacturers’ Agent

–An independent businessperson who sells, on commission, the complementary products of several producers; does not takes title to or hold inventories.


Multiple Marketing Channels and Channel Alliances

• Dual Distribution

–The use of two or more channels to distribute the same product to the same target market

• Strategic Channel Alliance

–An agreement whereby the products of one organization are distributed through the marketing channels of another


Channel Leadership, Cooperation, and Conflict

• Channel Captain

–A dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain• Establishes channel policies and coordinates

development of the marketing mix

• Channel Power

–The ability of one channel member to influence another member’s goal achievement


Channel Conflict

• Sources of Channel Conflict

– Disagreements arising among channel members

– Communication difficulties jeopardizing coordination

– Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers

– Intermediaries diversifying into and offering competing products

– Producers attempting to circumvent intermediaries and dealing directly with retailers


Channel Cooperation

• Improving Channel Cooperation

–Unifying channel to maintain market order

–Agreeing to direct efforts toward common objectives

–Precisely defining each channel member’s tasks


Channel Integration

• Vertical Channel Integration

– Two or more stages of the marketing channel are under one management.

– Channel members coordinate their efforts to reach a target market.

• Vertical Marketing System (VMS)

– A marketing channel managed by a single channel member to achieve efficient, low-cost distribution• Corporate VMS

• Administered VMS

• Contractual VMS


Channel Integration (cont’d)

• Horizontal Integration

–Organizations at the same level of operation are combined under one management.


Intensity of Market Coverage

• Intensive Distribution

–Uses all available outlets to distribute a product.• Appropriate for convenience products with high

replacement rates

• Provides availability and reduces search time


• Selective Distribution

–Uses only some available outlets to distribute a product• Appropriate for shopping products and

durable goods with low replacement rates

• Desirable when special effort—such as customer service—is important

Intensity of Market Coverage (cont’d)

Tuscaloosa’s Only Authorized

Dealer


Intensity of Market Coverage (cont’d)

• Exclusive Distribution

–Uses a single outlet in a fairly large geographic area to distribute a product• Appropriate for expensive, high-quality products

purchased infrequently

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