Chapter 14 Marketing Channels and Retailing 14 1 Marketing Channels Marketing channel channel of distribution a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer Channel members all parties in the marketing channel who negotiate with one another buy and sell products and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer intermediaries resellers middlemen Specialization and division of labor Form utility the elements of the composition and appearance of a product that make it desirable transform oat into cheerios Time utility the increase in customer satisfaction gained by making a good or service available at the appropriate time Place utility the usefulness of a good or service as a function of the location Exchange utility the increased value of a product that is created as its at which it is made available ownership is transferred Retailers a channel intermediary that sells mainly to consumers o Provide contact efficiency for consumers o Simplify distribution by cutting the number of transactions required The most prominent difference separating intermediaries is whether they by consumers take title to the product Merchant wholesalers an institution that buyers goods from manufacturers and resells them to businesses government agencies and other wholesalers or retailers and that receives and takes title to goods store them in its own warehouses and later ships them o Do not typically alter the form of the good o Their value hinges on providing time and place utility and contact efficiency to retailers Retailers take title to goods Agents and brokers wholesaling intermediaries who do not take title to a product but facilitate its sale from producer to end user by representing retailers wholesalers or manufacturers o Get a fee commission based on sales volume o Real estate agent Product characteristics buyer considerations and market conditions determine the types and number of intermediaries the manufacturer should use o Customized complex product agent broker o Standardized merchant wholesaler retailer o No time pressure order online direct distribution from wholesaler o Time restraint retailer o Buyer and seller located in one area agent broker o Mass manufactured goods many intermediaries Transactional functions intermediaries contact and communicate with prospective buyers to make them aware of exisiting products and to explain their features advantages and benefits Logistical functions include transportation and storage of assets as well as their sorting accumulation consolidation and allocation for the purpose of conforming to customer requirements Facilitating functions includes research and financing 14 2 Channel Structures A product can take many routes to reach its final consumer Marketing channels for consumer products o Direct channel a distribution channel in which producers sell directly to consumers Telemarketing mail order catalog shopping forms of electronic retailing producer owned stores and outlets o Agent broker channel producer agents brokers wholesalers retailers consumer o Wholesaler channel producer wholesalers retailers consumers Used for low cost items that are frequently purchased candy o Retailer channel producer retailers consumers Common when retailer is large and can buy in large quantities directly from the manufacturer Channels for business and industrial products o Direct channel producer industrial users o Direct channel producer government buyers o Industrial distributor channel producer industrial distributor o Agent broker channel producer agents brokers industrial industrial users users o Agent broker industrial distributor channel producer agents brokers industrial distributor industrial user o Companies selling standardized items of moderate low value often rely on industrial distributor o Manufacturers that require suppliers to meet detailed technical specifications often prefer direct channels o Industrial distributor is like a supermarket for organizations o Industrial distributors are wholesalers and channel members that buy and take title to products keep inventories and sell service them Dual distribution multiple distribution the use of 2 or more channels to distribute the same product to target markets Nontraditional channels non physical often electronic channels that facilitate the unique market access of products and services Strategic channel alliance a cooperative agreement between business firms to use the other s already established distribution channel Which distribution channel should we use Depends on market factors product factors and producer factors Market factors o Target customer considerations o Whether the producer is selling to consumers or to industrial consumers o Geographic location o Size of market Product factors o Complex customized expensive products tend to benefit from shorter and more direct marketing channels o Life cycle fragile products require short channels less delicate products have more channel flexibility Producer factors o Producers with large financial managerial and marketing resources are better able to use more direct channels o A producer s desire to control pricing positioning brand image and customer support Intensive distribution is a form of distribution aimed at maximum market coverage aimed at having a product available in every outlet where target customers might want to buy it Selective distribution a form of distribution achieved by screening dealers to eliminate all buy a few in any single area only a few are chosen so the consumer must seek out the product Exclusive distribution a form of distribution that establishes one or a few dealers within a given area consumer specialty goods major industrial equipment 14 3 Types of Channel Relationships Social relationships play an important role in building unity among channel members Relationship type carries with it different levels of time financial and resource investment Types of relationships o Arms length relationship a relationship between companies that is loose characterized by low relational investment and trust and usually taking the form of a series of discrete transactions with no or low expectation of future interaction or service temporary or one time only arise from a sudden unique need o Cooperative relationships a relationship
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