channels of distribution chapter twelve. copyright ©2011 pearson education, inc., publishing as...
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Channels of DistributionChannels of Distribution
Chapter TwelveChapter Twelve
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-2
Key Learning PointsKey Learning Points
The functions of channels of distributionThe functions of channels of distributionKey factors affecting the choice among Key factors affecting the choice among alternative channel structuresalternative channel structuresChannel optionsChannel optionsManaging channels of distribution and Managing channels of distribution and resolving channel member conflictresolving channel member conflictSpecial topics in channels of distributionSpecial topics in channels of distributionChannel decisions in high-tech and Channel decisions in high-tech and global contextsglobal contexts
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-3
- Russell S. Winer
““Customers must have access Customers must have access to your product or service to be to your product or service to be able to purchase it. The purpose able to purchase it. The purpose of a system of distribution of a system of distribution channels is to provide an channels is to provide an efficient means of getting your efficient means of getting your products to customers and products to customers and customers to your products.customers to your products.””
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-4
Importance of Channels of Importance of Channels of DistributionDistribution
Channels imply physical Channels imply physical distribution, also called logistics.distribution, also called logistics.
Distribution applies to services as Distribution applies to services as well as products.well as products.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-5
Figure 12.1Figure 12.1The Value-Added Chain of The Value-Added Chain of
Distribution ChannelsDistribution Channels
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-6
IllustrationIllustration
Purchased in 1993 for $1.7 billion Purchased in 1993 for $1.7 billion by Quaker Oats, Snapple was by Quaker Oats, Snapple was sold in 1997 to Triarc Beverages sold in 1997 to Triarc Beverages for $300 million.for $300 million.
In 2000, Triarc sold Snapple for In 2000, Triarc sold Snapple for $1 billion to Cadbury Schweppes.$1 billion to Cadbury Schweppes.
Distribution issues are at the Distribution issues are at the heart of Snapple’s widely heart of Snapple’s widely fluctuating value.fluctuating value.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-7
Importance of Channels of Importance of Channels of DistributionDistribution
Major Types of Marketing IntermediariesMajor Types of Marketing Intermediaries
MiddlemanMiddlemanMerchant Merchant middlemanmiddlemanAgentAgentWholesalerWholesalerRetailerRetailer
BrokerBrokerManufacturers’ Manufacturers’ agentagentDistributorDistributorJobberJobberFacilitating agentFacilitating agent
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-8
Figure 12.2, Part AFigure 12.2, Part AAlternate Channel System for Alternate Channel System for
Consumer ProductsConsumer Products
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-9
Figure 12.2, Part BFigure 12.2, Part BAlternate Channel System for Alternate Channel System for
Industrial ProductsIndustrial Products
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-10
Figure 12.3Figure 12.3Channel System for a Channel System for a
Manufacturer of Food Service Manufacturer of Food Service DisposablesDisposables
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-11
Channel DynamicsChannel Dynamics
Channel structures must adapt to Channel structures must adapt to changes in the environment.changes in the environment.
Structural changes can impact Structural changes can impact the entire industry.the entire industry.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-12
Functions and Services Functions and Services Performed by Channel Performed by Channel
MembersMembersMarketing researchMarketing research
CommunicationsCommunications
ContactContact
Matching/customizingMatching/customizing
NegotiationNegotiation
Physical distributionPhysical distribution
FinancingFinancing
Risk takingRisk taking
ServiceService
Relationship Relationship managementmanagement
Product assemblyProduct assembly
Channel FunctionsChannel Functions
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-13
Table 12.2Table 12.2Channel Function AnalysisChannel Function Analysis
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Table 12.3Table 12.3Customer Wants and Needs Customer Wants and Needs
Driving the Saturn Distribution Driving the Saturn Distribution SystemSystem
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-15
Customer behaviorCustomer behavior
CompetitorsCompetitors
Marketing strategyMarketing strategy
ResourcesResources
Changes in technologyChanges in technology
Factors Affecting the Factors Affecting the Channel SystemChannel System
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-16
Channel OptionsChannel Options
Direct and indirect channelsDirect and indirect channelsDirect channelsDirect channels
Indirect channelsIndirect channels
Strengths and weaknessesStrengths and weaknesses
Channel option considerationsChannel option considerations
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-17
Instances When Instances When Direct Channels Are Direct Channels Are
PreferablePreferableInformation needs are high.Information needs are high.
Customization is important.Customization is important.
Quality assurance matters.Quality assurance matters.
Purchase orders are large.Purchase orders are large.
Transportation and storage Transportation and storage are complex.are complex.
Channel OptionsChannel Options
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-18
Instances When Instances When Indirect Channels Are Indirect Channels Are
PreferablePreferableOne-stop shopping for One-stop shopping for many products is many products is important.important.
Availability is important.Availability is important.
After-sales service is After-sales service is important.important.
Channel OptionsChannel Options
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-19
Factors Influencing Choice of Factors Influencing Choice of Direct or Indirect ChannelsDirect or Indirect Channels
ProfitabilityProfitability
Level of Level of intermediary intermediary commitmentcommitment
Customer loyaltyCustomer loyalty
Likelihood that Likelihood that the channel the channel member member will compete with will compete with your productyour product
DisintermediationDisintermediation
Channel OptionsChannel Options
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-20
Discussion Discussion
Disintermediation is becoming Disintermediation is becoming more common in many industries. more common in many industries.
Name some examples of products Name some examples of products or services that are now selling or services that are now selling directly to consumers and directly to consumers and bypassing traditional channel bypassing traditional channel members such as retailers.members such as retailers.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-21
Figure 12.4Figure 12.4Multiple ChannelsMultiple Channels
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-22
Figure 12.6Figure 12.6Hybrid Channel DesignHybrid Channel Design
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-23
Figure 12.7Figure 12.7Hybrid Channel DesignHybrid Channel Design
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Factors Influencing Channel Factors Influencing Channel Member PowerMember Power
Sales volume of Sales volume of channel channel membermember
Product Product differentiateddifferentiated
Channel Channel switching costsswitching costs
Channel may Channel may integrate backwards integrate backwards or become a or become a competitorcompetitor
Quality of channel Quality of channel information about information about market conditionsmarket conditions
Channel Power and Channel Power and ManagementManagement
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-25
Channel Power and Channel Power and ManagementManagement
Channel power:Channel power:Mega-retailers and category Mega-retailers and category killers:killers:
Use information-intensive Use information-intensive operations operations Cut out intermediariesCut out intermediaries
Channel power can lead to Channel power can lead to hardball tactics.hardball tactics.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-26
Figure 12.9Figure 12.9Levels of Conflict between Levels of Conflict between Manufacturers & Channel Manufacturers & Channel
MembersMembers
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-27
Channel Power and Channel Power and ManagementManagement
Sources of channel conflict:Sources of channel conflict:Goal divergenceGoal divergenceDomain dissensusDomain dissensusDiffering perceptions of realityDiffering perceptions of realityMisuse of powerMisuse of power
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-28
Conflict resolution methods:Conflict resolution methods:Demarcating product linesDemarcating product lines
Jointly developing solutionsJointly developing solutions
Increasing push and pull activitiesIncreasing push and pull activities
Developing financial arrangementsDeveloping financial arrangements
Charging higher prices in the direct Charging higher prices in the direct channelchannel
Using channel powerUsing channel power
Channel Power and Channel Power and ManagementManagement
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-29
Use of Channel Power in Use of Channel Power in Conflict ResolutionConflict Resolution
ThreatsThreats
Promises Promises
Legalistic Legalistic pleaspleas
RequestsRequests
RecommendatioRecommendationsns
Information Information exchangeexchange
Channel Power and Channel Power and ManagementManagement
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-30
Table 12.4Table 12.4OEM vs. Branded MarketingOEM vs. Branded Marketing
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-31
Channel Issues in Channel Issues in High-Tech MarketingHigh-Tech Marketing
High-tech marketing:High-tech marketing:Original equipment Original equipment manufacturersmanufacturers
Value-added resellers (VARs)Value-added resellers (VARs)
Differences between OEMs and Differences between OEMs and VARsVARs
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-32
Global Channel IssuesGlobal Channel Issues
Cultural, economic, and Cultural, economic, and regulatory issues impact global regulatory issues impact global channels.channels.
Western EuropeWestern Europe
Russia and former Soviet Bloc Russia and former Soviet Bloc countriescountries
JapanJapan
China and other Asian marketsChina and other Asian markets
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-33
- Russell S. Winer
““The The gray marketgray market is where is where trademarked goods are sold trademarked goods are sold through channels of distribution through channels of distribution that are not authorized by the that are not authorized by the holder of the trademark. It is holder of the trademark. It is common that gray markets common that gray markets develop across country lines. develop across country lines. This phenomenon is often This phenomenon is often called called parallel importingparallel importing..””
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-34
Discussion QuestionsDiscussion Questions
1.1. What are the repercussions of counterfeit What are the repercussions of counterfeit branding to customers, channel members, branding to customers, channel members, and the legitimate brand manufacturer?and the legitimate brand manufacturer?
2.2. Are people who purchase counterfeit brands Are people who purchase counterfeit brands realistically members of the true brandrealistically members of the true brand’’s s target market? Why or why not? target market? Why or why not?
Counterfeit products are not the same as gray Counterfeit products are not the same as gray market goods. Counterfeit products are low-quality market goods. Counterfeit products are low-quality trademark infringing trademark infringing ““knock-offknock-off”” versions of versions of branded products created by firms other than the branded products created by firms other than the brand manufacturer (typically in foreign markets).brand manufacturer (typically in foreign markets).
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-35
Special Topics in Special Topics in Channels of DistributionChannels of Distribution
Supermarket issuesSupermarket issuesRetailers have gained power.Retailers have gained power.Category management is Category management is important.important.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-36
““The need to be efficient has The need to be efficient has driven category management driven category management and created two concepts and created two concepts initially introduced in the United initially introduced in the United States in the early 1990’s: States in the early 1990’s: efficient consumer response efficient consumer response (ECR) and continuous (ECR) and continuous replenishment program (CRP).”replenishment program (CRP).”
- Russell S. Winer
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-37
Special Topics Special Topics
Strategies for intermediariesStrategies for intermediariesDisintermediation threatens Disintermediation threatens intermediaries.intermediaries.
Many intermediaries continue to Many intermediaries continue to survive and even thrive.survive and even thrive.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-38
Executive SummaryExecutive Summary
The distribution system is part of The distribution system is part of the value chain.the value chain.Many channel structures exist.Many channel structures exist.Channel structure is determined by Channel structure is determined by many factors.many factors.Channel members perform many Channel members perform many functions.functions.A common decision sequence is A common decision sequence is followed.followed.
Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 12-39
Executive SummaryExecutive Summary
Hybrid channel systems have Hybrid channel systems have different channel types.different channel types.
Channel power is important.Channel power is important.
Channel management involves two Channel management involves two key factors.key factors.
Conflict can be resolved in multiple Conflict can be resolved in multiple ways.ways.
New channel opportunities are New channel opportunities are arising.arising.
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