Chapter 1Chapter 1

Marketing Channel Concepts

Major PointsMajor Points for Ch. 1 for Ch. 1

1. Key Terms and Definitions

2. Why Marketing Channels and Intermediaries?**

3. Marketing Channels and other Marketing Concepts

4. The Flows in the Marketing Channels**

5. Basic Principles for Marketing Channels**

6. Evolution of Marketing Channel Concept

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Let’s Learn about:

Marketing Channels

Originally meant: Paths through which goods or materials can move from producers to users.

Cf) Distribution Channels vs. Marketing Channels

Middleman (Intermediaries)

create value by reducing the spatial separation* – the physical distance between the point of production and point of consumption

*A question

What is a marketing channel? What is a marketing channel? (Textbook version) (Textbook version)

Internal *& External contactual organization that management operates to achieve its distribution objectives

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Firm involved in negotiatory functions

What are the distribution objectives?**

Marketing Channels Act as Exchange Facilitators

We define a Marketing Channel as “exchange relationships that create customer value in the acquisition, consumption*, and disposition* of products and services”

Point 2: Why Marketing Channels and Intermediaries?**Create Higher Exchange Utility by Providing More Customer Value*

• Four Basic Components:

–Form Utility

–Place Utility

–Possession Utility

–Time Utility

• New Focus: Developing and Enhancing Customer Relationships

• Create utility by contributing to Contactual efficiency*

• Facilitating Routinization

• Simplifying Assortment

• Minimizing uncertainty within marketing channels

c r a M

Selling Directly (Without Intermediaries)

Manufacturers

Retailers

40 Contact Lines

FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT INTERMEDIARIES

Selling Through One Wholesaler

Manufacturers

Wholesaler

Retailers

14 Contact Lines

FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT INTERMEDIARIES

ex) one-stop shopping

Selling Through Two Wholesalers

Manufacturers

Wholesalers

Retailers

28 Contact Lines

FIGURE 1.6: CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT INTERMEDIARIES

WhyWhy the growing importance of the growing importance of marketing channels?marketing channels?

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1. The explosion of information technology and E-commerce

2. A greater difficulty in gaining a sustainable competitive advantage

3. The growing power of distributors, especially retailers in marketing channels

4. The need to reduce distribution costs

11.. 2. A greater difficulty in gaining a sustainable competitive

advantage 3. The growing power of distributors, especially retailers

in marketing channels 4. The need to reduce distribution costs

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Yahoo! eBay

Amazon.com

The prediction:Disintermediation — reduction/deletion of number of intermediaries

The reality:Reintermediation — evolution of a new type of intermediary

The explosion of information technology and E-commerceThe explosion of information technology and E-commerce

1. The explosion of information technology and E- commerce 2.2. 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

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A greater difficulty in gaining a A greater difficulty in gaining a sustainablesustainable competitive advantage competitive advantage

Place (distribution), or Marketing

Channel Strategy Sustainable competitive advantage

Potential for gaining competitive advantage because place is more difficult for competitors

to copy

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3.3. 4. The need to reduce distribution costs

The growing power of distributorsThe growing power of distributors

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Power retailers as of consumer marketsgatekeepers

Act as buying agents for customers rather than as selling agents for manufacturers

Ex) Recent Changes in IT industry

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors 4.4.

The need to reduce distribution costsThe need to reduce distribution costs

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Marketing channels are the most recent target for

reducing distribution costs.

The focus is on channel structure and management.

Point 3: 11

How does marketing channel strategy How does marketing channel strategy relate to the rest of the marketing mix?relate to the rest of the marketing mix?

Marketing Mixor

the four Ps

Challenges

Product Limited ability to gain and hold competitive advantage

Price Price wars erode profitability & provide unstable basis for sustaining competitive

advantage

Promotion Expensive and short-lived

Place (Distribution)

Marketing channels support & enhance other Ps to meet demands of target

markets

Marketing Channels

Originally defined as: Paths through which goods or materials can move from producers to users.

©McGraw-Hill Companies, Inc. 2002

Point 4: 11

Marketing Channel Flows**Marketing Channel Flows**

Product Flow*

Promotion Flow

Information Flow*

Ownership Flow

Negotiation Flow

* Unbundling Flows

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Product FlowProduct Flow

Manufacturer

Transportation Company

Wholesalers

Retailers

Consumers

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Manufacturer

Wholesalers

Retailers

Consumers

Negotiation FlowNegotiation Flow

Ownership FlowOwnership Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Information FlowInformation Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Transportation Company

Promotion FlowPromotion Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Advertising Agency

 

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

 Physical PossessionOwnership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

FIGURE : MARKETING FLOWS IN CHANNELS 

Producers Wholesalers Retailers

ConsumersIndustrial

and Household

Commercial Channel Subsystem

Marketing Channel and Logistics Channel and Logistics Management: Same or Different?Management: Same or Different?

Part of distribution variable

• Concerned with entire process of starting and operating contactual organization

• Formulated before logistics management

Focused specifically on providing product availability at appropriate time & place

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Foundations on Distribution through Foundations on Distribution through intermediaries (Basic Principles)intermediaries (Basic Principles)

point 5:

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Economic Specialization &Considerations Division of Labor.*

Contactual Efficiency

New Technology New channels

Social Considerations Relationships

Factors that determine/influence the role of intermediaries

The Evolution of Marketing Channel Concepts

1. The Production Era And Distributive Practices

2. The Institutional Period And Selling Orientation

3. The Marketing Concept

4. Relationship Marketing Era

1900s

1940s

1950s

1990s

Point 6

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The change of focus on channel strategyThe change of focus on channel strategy

• Creates competitive advantage with long-term viability

• Builds strong relationships between manufacturers and (selected) channel members

• Use of Multichannel Strategy

• IT-enabled, open channel systems