Many producers do not sell their products directly to their customers but instead use one or more marketing channels – intermediaries performing a variety of functions. The most important functions performed by intermediaries are information, promotion, negotiation, ordering, financing, risk taking, physical possession, payment, and title. Manufacturers can sell direct or use multilevel channels, depending on customer needs, channel objectives and the type and number of intermediaries involved. When using marketing channels there is the potential for conflict and competition and there are also legal and ethical considerations. Companies can now also choose whether to add e-commerce and m-commerce through channel integration.
A. Marketing Channels and Value Networks
1. Sets of interdependent organizations participating in the process of making a product or service available for use or consumption. They are the set of pathways a product or service follows after production, culminating in purchase and consumption by the final end user.
2. A cosmetic producer doesn’t sell directly to the customer. Instead, they provide products to retail stores, who display the products to customers (who are attracted by the advertisements and promises of instant beauty), in the stores.
3. A marketing channel system is the set of marketing channels a company employs. Marketing channels serve and make markets and the channels chosen affect all other marketing decisions. A firm must also decide whether to use push or pull marketing strategy. Push strategy is when the firm uses its sales force or other means to induce intermediaries to carry, promote, and sell the product to the end users. Pull strategy is when the firm uses communications to persuade consumers to demand the product from intermediaries, inducing the intermediaries to order it. Hybrid or multichannel marketing occurs when a firm uses two or more marketing channels to reach customer segments. The supply chain is an important part of marketing a product. One strategy is to use demand chain planning – think of the target market first, and then design the supply chain backward from that point. The firm might also take a broader view with the company at the center of a value network, surrounded by a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings.
B. The Role of Marketing Channels
1. Marketing intermediaries make goods available and accessible to target markets, usually more effectively and efficiently than the firm can achieve on its own.
2. The producers of chewing gum, the William Wrigley, Jr. Company, would not find it practical or profitable to sell its gum without the aid of intermediaries.
3. A marketing channel has functions and flows that perform the work of moving goods from producers to consumers. A forward flow of activity such as storage and movement, title, and communications is activity from the company to the customer. A backward flow is functions such as ordering and payments from the customers to the company. Some functions such as information, negotiation, finance and risk taking occur in both directions. Marketing channels also have levels, some consisting of only the manufacturer and the final customer, called a zero level channel or direct marketing channel. Other channels have multiple levels of intermediaries between the producer and the customer. Service sector channels have changed tremendously with the internet. Customers can now go online to have such services as photo printing done. They can get advice and helpful information online and they can even keep up with their favorite entertainers.
C. Channel-Design Decisions
1. Marketing channels are sets of interdependent organizations participating in the process of making a product or service available for use or consumption; also called trade channel or distribution channels. To design a marketing channel system, marketers must identify major channel alternatives, based on the customer needs and wants.
2. CDW is an example of an intermediary in a marketing channel. CDW sells technology type merchandise such as computers, printers, routers, among a variety of other office needs.
3. Consumers choose the marketing channel they prefer based on what their needs are. It could be based on price, product, assortment, convenience and their own shopping goals. Channels produce five service outputs: 1) lot size – the number of units the channel permits a consumer to purchase, 2) waiting and delivery time – the average time customers wait on receipt of goods, 3) spatial convenience – how easy is it for the consumer to purchase the product, 4) product variety – assortment provided by the marketing channel, and 5) service backup – add-on services provided by the channel. Marketers should state their channel objectives, which vary with product characteristics. How does it need to be shipped or does it need to be installed? Are there legal restrictions or regulations that affect channel design? Marketers also need to identify major channel alternatives. These could be sales forces, agents, distributors, dealers, direct mail, telemarketing and the internet. Channel alternatives differ in three ways: 1) types of intermediaries – merchants, agents and facilitators, 2) number of intermediaries – determined by whether a firm uses exclusive distribution, selective distribution or intensive distribution, 3) terms and responsibilities of channel members – price policies, conditions of sale, territorial rights and specific services to be performed by each party. Each channel alternative needs to be evaluated against economic, control, and adaptive criteria.
D. Channel Management Decisions
1. After a firm has chosen a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel.
2. A Mercedes-Benz dealership would not represent the firm well if it appeared dirty or disorganized. The Toyota dealership I use is always spotless and very clean and their staff is very efficient and friendly.
3. When selecting channel members a firm should remember that to the customer the channels are the company. Producers should determine what characteristics distinguish the better intermediaries and would represent the firm best to the customer. Firms should implement training and market research, and other capability-building programs to motivate and improve intermediaries’ performance. Marketers have channel power – the ability to alter channel members’ behavior so they take actions they wouldn’t have otherwise. Producers must also evaluate their intermediaries’ performance and modify channel design and arrangements as needed. International/global channels can bring opportunities and challenges as marketers must tailor their image to meet local needs.
E. Channel Integration and Systems
1. Channel integration is connecting all the independent distribution channels within your channel system and how they work together.
2. A franchise, such as a fast food restaurant, is an example of a channel integration.
3. A marketing channel normally consists of an independent producer, wholesaler(s) and retailer, each is separate and none have complete or substantial control over the other. However, there are three other systems, vertical, horizontal and multichannel. In the vertical marketing system (VMS) the producer, wholesaler(s) and retailer(s) act as a unified system. The channel captain owns or franchises the others or has so much power that the other cooperate. Three types of VMS are corporate, administered, and contractual. Horizontal marketing system is one in which two or more unrelated companies put together resources or programs to exploit emerging marketing opportunity. These companies might work together on a temporary or permanent basis. An integrated marketing system is one in which the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. Adding more channels can help increase market coverage, help lower channel costs and have more customized selling.
F. Conflict, Cooperation, and Competition
1. The interests of independent business entities don’t always coincide and conflict exists when one member’s actions prevent another member from achieving its goal. Channel coordination occurs when channel members are brought together to advance the channel’s goals as opposed to their own incompatible goals.
2. Wal-Mart is the principal buyer for many manufacturers and because of its size it can command lower prices than other buyers.
3. One type of channel conflict is horizontal conflict, which occurs between members on the same level. Vertical channel conflict occurs between different levels of the channel. Multichannel conflict exists when the manufacturer has two or more channels that sell to the same market. Channel conflict can be caused when channel members have goal incompatibility, unclear roles and rights, differences in perception or because of intermediaries’ dependence on the manufacturer. Some channel conflict can be good and lead to positive changes, but too much conflict is dysfunctional. Firms can manage conflict well through strategic justification, dual compensation, superordinate goals, employee exchange, joint memberships, co-optation, diplomacy, mediation, or arbitration, and legal recourse. Marketers, particularly high-end and luxury brands, must work hard not to dilute their brands through inappropriate channels. The law seeks to prevent companies from using exclusionary tactics that might keep competitors from using a channel. With exclusive distribution, only certain dealers are allowed to carry a seller’s products (exclusive dealing). Exclusive arrangements are legal as long as they are voluntary. U.S. law encourages fair and open competition.
G. E-Commerce and M-Commerce Marketing Practices
1. Many companies sell their goods and services online, some exclusively online. This saves the cost retail floor space, staff, and inventory and is particularly useful for producers who sell to niche markets.
2. J.C. Penny & Company is an example of a company that has been in existence for many decades and has added online shopping and features through their website. Amazon.com is an exclusively online company.
3. Online retailers may be pure-click companies – those who have launched a website without any previous existence as a firm, and brick-and-click companies – existing company that adds an online site for information or e-commerce. Several kinds of pure-click companies are search engines, Internet service providers, commerce sites, transaction sites, content sites, and enabler sites. Inhibitors of online shopping are the absence of pleasurable experiences, social interaction, and personal consultation with a company representative so online retailers are using blogs, social networking sites and mobile marketing to stay in touch with customers. B2B sites give customers access to: 1) supplier websites, 2) infomediaries, 3) market makers, and 4) customer communities. Many brick and mortar companies have added an e-commerce channel through online shopping and face the challenges of managing online and offline channels. M-commerce marketing is mobile marketing. Mobile channels and media can keep consumers connected and interacting with a brand throughout their day. Customers like the convenience of making purchases using their smartphones and in the United States mobile marketing is becoming more prevalent and taking all forms. Privacy issues are raised because companies can potentially pinpoint their customer’s location with GPS technology.