Chapter 9 - Managing Marketing Channels

Managing the marketing channels• Firms are increasingly paying greater attention to how they manage their marketing channels, so that products and services are delivered at the right t

Managing marketing channels

Chapter 9

Managing the marketing channels

• Firms are increasingly paying greater attention

to how they manage their marketing channels,

so that products and services are delivered at the right time, right place and the right price.

• The marketing channel participants are vital

partners in the value delivery network

Supply chains and the value delivery network

• Upstream partners are the suppliers of raw

materials, components, parts, information,

finance and expertise to the organisation.

• Downstream partners are the wholesalers and

retailers who connect the firm with the

customer.

The nature and importance of marketing channels

• The marketing or distribution channel is comprised of

a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or an industrial user.

• The new forms of marketing channels have evolved based on robust partnerships, with long-term

commitment to each other and the customer.

How channel members add value

• Transactional value:

– Risk moves to the intermediary, who also gets to know the specialist market

• Logistical value:

– Intermediaries assemble an assortment that is

compatible with the needs of the ultimate customers

• Facilitating value:

– Intermediaries often offer credit to customers, may

offer training in the use of products, and collect and

deliver marketing information

Key value adding functions

• Information

• Promotion

• Contact with prospective buyers

• Matching the offer to meet the needs of the customer

• Negotiation

• Physical distribution

• Financing

• Risk taking

Channel behaviour

• All participants dependent upon each other.

• Each channel member has a specialised role

• Co-operation to achieve overall channel objectives may sometimes conflict with internal organisational

goals and objectives, resulting in channel conflict.

Channel organisation

– Historically channels have followed the

conventional distribution channel format:

• comprised of independent producers, wholesalers and retailers, with separate businesses and seeking

to maximise their own profit individually, even at the expense of the entire channel

– Modern channel management has evolved to

develop vertical marketing systems (VMS)

that provide channel leadership.

Figure 9.3 A conventional marketing channel versus a vertical marketing system

Vertical marketing systems

• Vertical marketing systems (VMS) are

structured, interdependent producers,

wholesalers and retailers that act as a unified system

• There are also different constructs of VMS for

various types of industries.

Figure 9.4 Main types of vertical marketing system

Corporate VMS

–Combines successive stages of production and distribution under single ownership.

–Breweries and petrol stations are examples.

Independent firms at different levels join contractually to create efficiencies and economies of scale that could not be achieved alone 3 types:

» Wholesaler-sponsored voluntary chains of

independent retailers organised to help compete against large organisations

» Retailer co-operatives

» Franchise

Franchise VMS

» Reduced set-up costs

» Contractual relationship

» Proven system and established brand name

» Centralised buying power

» Expertise in operational, managerial, legal matters

» Forfeit some control

» Performance against exacting standards

» Aggressive targets

VMS that co-ordinates successive stages of production and distribution through the size and power of one of the parties.

Other channel variations

• Horizontal marketing systems

– Channel arrangement in which two or more companies at one level join together to follow a new marketing

opportunity.

• Hybrid marketing systems

– Multi channel distribution targeting different market segments.

• Changing channel organisation

– Major trend to disintermediation through elimination of intermediaries and traditional sellers and replacement by radically new types of intermediaries.

Table 9.1 Major types of wholesalers

Table 9.1 Major types of wholesalers (continued)

Designing international distribution channels

• Additional complexities due to regional

dynamics and demands

• Multiple intermediaries

• Need greater logistical management

• “The process of strategically managing the

movement and storage of materials, parts and finished inventory from suppliers, through the firm and on to the customers.”

Bowersox, D (1978), Logistics Management, Macmillan

Logistics versus distribution management

• Logistics differs from physical distribution

management because it is concerned with treating the problem of the movement and storage of materials as a whole, where

physical distribution is only concerned with movement and storage of materials from

producer to customer.

Major logistics considerations

Integrated logistics management

• Efficient and effective management of the logistics is based upon the following:

• Manage through information

• Electronic data interchange

• Cross-functional teamwork

• Build logistics partnerships

• Third party logistics: Outsourcing

»Order processing and administration

»Inventory control

»Transportation

»Warehousing

»Materials handling

• New retail forms and shortening of the retail

life-cycles

– ‘Wheel of retailing’, new types of retailer, usually begin

as low-margin, low-price, low-status operations but

later evolve to higher priced, higher service operations and eventually become like the conventional retailers that they replaced

• Growth of non-store retailing

– ‘click and brick’ retailers

– Retail convergence

– Rise of mega-retailers

– Growing importance of retail technology

– Global expansion of retailers

Channel wholesaling trends

• Face considerable challenges

• Formation of hybrid operators such as the cash and carry concepts.