Marketing Channels and Marketing Channels and Supply Chain ManagementSupply Chain Management

10

10-2

Marketing or Distribution Channel

• A set of interdependent organizations A set of interdependent organizations involved in the process of making a involved in the process of making a product or service available for use product or service available for use or consumption by the consumer or or consumption by the consumer or business user.business user.

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ContactContact FinancingFinancing

InformationInformation

Risk TakingRisk Taking

PromotionPromotion

MatchingMatching

NegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

These functions should be assigned to the channel member who can add the most value for

the cost

Channel Functions

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Consumer and Business Channels

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Channel Behavior

• The channel will be most effective when:The channel will be most effective when:– each member is assigned tasks it can do best.each member is assigned tasks it can do best.– all members cooperate to attain overall channel all members cooperate to attain overall channel

goals.goals.

• If this does not happen, conflict occurs:If this does not happen, conflict occurs:– Horizontal ConflictHorizontal Conflict occurs among firms at the occurs among firms at the

same level of the channel (e.g., retailer to same level of the channel (e.g., retailer to retailer).retailer).

– Vertical ConflictVertical Conflict occurs between different levels occurs between different levels of the same channel (e.g., wholesaler to of the same channel (e.g., wholesaler to retailer).retailer).

• Some conflict can be healthy competition.Some conflict can be healthy competition.

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Channel Conflict

When it decided to sell its familiar containers at retail through Target stores, Tupperware avoided conflicts with its army of in-home sales consultants by inviting them into the stores to demonstrate the products.

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Conventional vs. Vertical Marketing System

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Corporate VMSCommon Ownership at Different

Levels of the Channel (e.g., Sears)

Contractual VMSContractual Agreements Among

Channel Members (e.g., ACE Hardware)

Administered VMSLeadership is Assumed by One or

a Few Dominant Members (e.g., Kraft)

Types of Vertical Marketing Systems

Control

High

Low

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Innovations in Marketing Systems

Two or more Two or more companies at one companies at one channel level join channel level join together to follow a together to follow a new marketing new marketing opportunity.opportunity.

Example: Banks in Example: Banks in grocery storesgrocery stores

Two or more Two or more companies at one companies at one channel level join channel level join together to follow a together to follow a new marketing new marketing opportunity.opportunity.

Example: Banks in Example: Banks in grocery storesgrocery stores

A single firm sets up A single firm sets up two or more two or more marketing channels marketing channels to reach one or to reach one or more customer more customer segments.segments.

Example: Retailers Example: Retailers and catalogsand catalogs

A single firm sets up A single firm sets up two or more two or more marketing channels marketing channels to reach one or to reach one or more customer more customer segments.segments.

Example: Retailers Example: Retailers and catalogsand catalogs

Horizontal Marketing System

Horizontal Marketing System

Hybrid Marketing Hybrid Marketing SystemSystem

Hybrid Marketing Hybrid Marketing SystemSystem

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Number of Intermediaries

• Intensive distributionIntensive distribution

• Exclusive distributionExclusive distribution

• Selective distributionSelective distribution