Part Four Distribution Decisions 14 Marketing Channels and

Chapter Learning Objectives • To describe the nature and functions of marketing channels • To explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers • To identify the types of marketing channels • To examine the major levels of marketing coverage • To explore the concepts of leadership, cooperation, and conflict in channel relationships Copyright © Houghton Mifflin Company. All rights reserved. 2

Chapter Learning Objectives (cont’d) • To specify how channel integration can improve channel efficiency • To examine the legal issues affecting channel management Copyright © Houghton Mifflin Company. All rights reserved. 3

Chapter Outline • The Nature of Marketing Channels • Types of Marketing Channels • Intensity of Market Coverage • Supply Chain Management • Legal Issues in Channel Management Copyright © Houghton Mifflin Company. All rights reserved. 4

The Nature of Marketing Channels • Distribution – The activities that make products available to customers when and where they want to purchase them • Marketing Channel – A group of individuals and organizations directing products from producers to customers Copyright © Houghton Mifflin Company. All rights reserved. 5

Copyright © Houghton Mifflin Company. All rights reserved. 6

The Nature of Marketing Channels (cont’d) • Marketing Intermediary – A middleman linking producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products Copyright © Houghton Mifflin Company. All rights reserved. 7

The Nature of Marketing Channels (cont’d) • Marketing Channels Create Utility – Time utility: have products available when the customer wants them (newspaper delivery). – Place utility: making products available in locations where the customers wish to purchase them (convenience stores). – Possession utility: the customer has access to the product to use or to store for future use (raincoats). Copyright © Houghton Mifflin Company. All rights reserved. 8

The Nature of Marketing Channels (cont’d) • Marketing Channels Facilitate Exchange Efficiencies – Reduce the overall costs of market exchanges – Reduce search costs for customers – Maintain order in the marketplace Copyright © Houghton Mifflin Company. All rights reserved. 9

Efficiency in Exchanges Provided by an Intermediary FIGURE 14. 1 Copyright © Houghton Mifflin

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 Copyright © Houghton Mifflin Company. All rights reserved. 11

Typical Marketing Channels for Consumer Products FIGURE 14. 2 Copyright © Houghton Mifflin Company.

Typical Marketing Channels for Business Products FIGURE 14. 3 Copyright © Houghton Mifflin Company.

Distribution Intermediaries • Industrial Distributor – An independent business that takes title to business products and carries inventories – Advantages of using a distributor • Perform needed selling activities in local markets • Are aware of local needs and can pass market information on to producers • Reduce producers’ capital requirements by holding inventories for local markets. – Disadvantages of using a distributor • Difficult to control • Stocking of competing brands • Less likely to handle bulky and slow-selling items • Lack of technical knowledge Copyright © Houghton Mifflin Company. All rights reserved. 14

Distribution Intermediaries (cont’d) • Manufacturers’ Agent – An independent businessperson who sells, on commission, the complementary products of several producers; does not takes title to or hold inventories. – Advantages of using an agent • Possess technical and market information • Has an established set of customers • Serves as substitute for a sales force – Disadvantages of using an agent • Difficult to control • Concentration on only large accounts • Sales focus limited to commission-related activities Copyright © Houghton Mifflin Company. All rights reserved. 15

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 Copyright © Houghton Mifflin Company. All rights reserved. 16

Intensity of Market Coverage • Intensive Distribution – Using all available outlets to distribute a product. • Convenience products with high replacement rates – Provides availability and reduces search time – Availability is more important than outlet type Copyright © Houghton Mifflin Company. All rights reserved. 17

Intensity of Market Coverage (cont’d) • Selective Distribution – Using only some available outlets to distribute a product • Shopping products and durable goods with low replacement rates – High qualification requirements for intermediaries to distribute, sell, service, and support products Copyright © Houghton Mifflin Company. All rights reserved. Tuscaloosa’s Only Authorized Dealer 18

Intensity of Market Coverage (cont’d) • Exclusive Distribution – Using a single outlet in a fairly large geographic area to distribute a product • Expensive, high-quality products purchased infrequently – Exclusive outlets provide an incentive to sellers in limited markets. – Dealers carry complete inventory and have trained staff for sales and service. Copyright © Houghton Mifflin Company. All rights reserved. 19

Supply Chain Management: Channel Leadership • Channel Captain – The 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 Copyright © Houghton Mifflin Company. All rights reserved. 20

Supply Chain Management: Channel Cooperation • Benefits of Cooperation – Speeds up inventory replacement – Improves customer service – Reduces distribution costs • Improving Channel Cooperation – Unifying channel to maintain market order – Agreeing to direct efforts toward common objectives – Precisely defining each channel member’s tasks Copyright © Houghton Mifflin Company. All rights reserved. 21

Supply Chain Management: 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 Copyright © Houghton Mifflin Company. All rights reserved. 22

Supply Chain Management: 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 Copyright © Houghton Mifflin Company. All rights reserved. 23

Legal Issues in Channel Management • Dual Distribution – A producer can have two different channels into the same market unless it is using one channel to compete with independent distributors of its products. • Restricted Sales Territories – Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade. • Tying Arrangements – Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier Copyright © Houghton Mifflin Company. All rights reserved. 24

Legal Issues in Channel Management (cont’d) • Full-Line Forcing – Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products • Exclusive Dealing – Forbidding an intermediary to carry products of a competing manufacturer – Is anticompetitive if • blocking competitors from 10% of the market • sales revenues are sizable • the manufacturer is larger than the dealer Copyright © Houghton Mifflin Company. All rights reserved. 25

Legal Issues in Channel Management (cont’d) • Refusal to Deal – Suppliers can choose their distributors and refuse to deal with others so long as their decisions are not based on anticompetitive motives or part of an organized refusal-to-deal with certain channel members. Copyright © Houghton Mifflin Company. All rights reserved. 26

After reviewing this chapter you should: • Be able to describe the nature and functions of marketing channels. • Be able to explain how supply chain management can facilitate distribution for the benefit of all channel members, especially customers. • Be able to identify the types of marketing channels. • Be familiar with the major levels of marketing coverage. • Understand the concepts of leadership, cooperation, and conflict in channel relationships. • Able to specify how channel integration can improve channel efficiency. • Be cognizant of the legal issues affecting channel management. Copyright © Houghton Mifflin Company. All rights reserved. 27

Chapter 14 Supplemental Slides Copyright © Houghton Mifflin Company. All rights reserved. 14– 28

Key Terms and Concepts • The following slides (a listing of terms and concepts) are intended for use at the instructor’s discretion. • To rearrange the slide order or alter the content of the presentation – select “Slide Sorter” under View on the main menu. – left click on an individual slide to select it; hold and drag the slide to a new position in the slide show. – To delete an individual slide, click on the slide to select, and press the Delete key. – Select “Normal” under View on the main menu to return to normal view. Copyright © Houghton Mifflin Company. All rights reserved. 29

Important Terms • Distribution – The activities that make products available to customers when and where they want to purchase them • Marketing Channel – A group of individuals and organizations directing products from producers to customers • Marketing Intermediary – A middleman linking producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products Copyright © Houghton Mifflin Company. All rights reserved. 30

Important Terms • Time Utility – The availability of products when the customer wants them • Place Utility – The availability of products in locations where the customers wish to purchase them • Possession Utility – The accessibility of products that allows the customer to have the product to use or to store for future use Copyright © Houghton Mifflin Company. All rights reserved. 31

Important Terms • Supply Chain Management – Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers • 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. Copyright © Houghton Mifflin Company. All rights reserved. 32

Important Terms • 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 • Intensive Distribution – Using all available outlets to distribute a product. • Convenience products with high replacement rates – Provides availability and reduces search time – Availability is more important than outlet type Copyright © Houghton Mifflin Company. All rights reserved. 33

Important Terms • Selective Distribution – Using only some available outlets to distribute a product • Exclusive Distribution – Using a single outlet in a fairly large geographic area to distribute a product • Channel Captain – The dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain • Channel Power – The ability of one channel member to influence another member’s goal achievement Copyright © Houghton Mifflin Company. All rights reserved. 34

Important Terms • Vertical Channel Integration – Two or more stages of the marketing channel are under one management. • Vertical Marketing System (VMS) – A marketing channel managed by a single channel member to achieve efficient, low-cost distribution • Dual Distribution – A producer can have two different channels into the same market unless it is using one channel to compete with independent distributors of its products. Copyright © Houghton Mifflin Company. All rights reserved. 35

Important Terms • Dual Distribution – A producer can have two different channels into the same market unless it is using one channel to compete with independent distributors of its products. • Restricted Sales Territories – Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade. • Tying Arrangements – Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier Copyright © Houghton Mifflin Company. All rights reserved. 36

Important Terms • Full-Line Forcing – Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products • Exclusive Dealing – Forbidding an intermediary to carry products of a competing manufacturer • Refusal to Deal – Suppliers can choose their distributors and refuse to deal with others so long as their decisions are not based on anticompetitive motives or part of an organized refusal-to-deal with certain channel members. Copyright © Houghton Mifflin Company. All rights reserved. 37

Transparency Figure 14 E Legal Issues in Channel Management • Dual distribution • Restricted sales territories • Tying agreements • Exclusive dealing • Refusal to deal Copyright © Houghton Mifflin Company. All rights reserved. 38