Chapter 15 Managing Marketing Channels and Wholesaling I Introduction Example Toys R Us a Founded by Charles Lazarus i Create the world s largest toy chain ii Founded in 1978 it average a growth rate of 30 b And as we might expect it then attracted i Of both Walmart and Target ii The result Toys R Us Market share fell from 25 to 17 c Wal Mart over took Toys R Us to become the largest volume seller of toys in the U S d Toys R Us reacted by renovating its stores increasing it toy assortment and changed its SUPPLY CHAIN arrangements to reduce inventory i For the toy manufacturers this meant ii To boost their profits they reacted in two ways 1 Some reduced the flow of hot toys to 2 Others gave Toys R Us exclusive II The Nature and Importance of Marketing Channels a Marketing Channel i Consists of Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users b Middlemen aka Intermediaries i Middlemen are business firms in a channel that render services directly related to the sale purchase of a product as it flows through from producer to consumer 1 Distribution s role within a marketing mix is getting the product to its target market ii Middlemen can promote the product store it ship it and assume some of the financial risk during the distribution process 1 Merchant Middlemen Agent Middlemen 154 a Middlemen are commonly classified on the basis of whether or not they take title to the products being distributed b Merchant middlemen take title to the products they help to market iii As a RULE you can eliminate middlemen but NOT the essential distribution activities they perform 1 well that s ALMOST always true the RADIOHEAD experiment iv Middlemen Activities 1 Transactional Functions 2 Logistical Functions 3 Facilitating Functions 4 Example A Sales specialist for producers can a Provide market information b Interpret consumers wants c Promote producers products d Create assortments e Store products f Negotiate with customers g Provide financing h Own the product i Share the risks a Anticipate wants b Subdivide large quantities c Store the product d Transport the product e Create assortment f Provide financing g Make products readily available h Guarantee the product 5 Example A Purchasing agent for buyers can 155 i Share the risks 6 Example The Kent Stage c Distribution Channels i Distribution Channels include people and firms involved in the transfer of title to a product as the product moves from a producer to the ultimate consumer or business user Producers Middlemen Final Consumer or Business User ii The channel for a product only extends to the last person that buys it without making any significant change in its form 1 When the firm is altered another product emerges and a new channel is started iii Example supply channel for Lumber and for Finished Furniture iv Other intermediaries include 1 Banks 2 Insurance companies 3 Transportation companies 156 d Consumer and Business Distribution Channels i All of the institutions in the channel are connected by several types of flows including the flow of 1 ownership 2 payment 3 information and 4 promotion ii Channels MUST contain at least a buyer AND a producer This would be a direct channel of distribution 1 Consumer Marketing Example 2 Business Marketing Example iii A channel of producer final customer and at least one intermediary is an indirect channel iv Customer Marketing Channels 1 Producer Consumer is a a Example a Example 2 Producer Retailer Consumer 157 3 Producer Wholesaler Retailer Consumer a Small retailers and manufacturers find this channel the only economically feasible choice v Business Marketing Channels 1 Producer Business Customer a This direct approach accounts for a greater dollar of business products than any other distribution structure i large installations such as jet engines helicopters and elevators are usually sold directly to users 2 Producer Business Distributor Business Customer a Producers of operating supplies and small accessory equipment e g building materials and air conditioning equipment frequently use industrial distributors to reach their markets 3 Producer Manufacturer s Representative Sales Branch Business Distributor Business Customer a Small manufacturers who cannot afford to call on customers directly may use this more indirect approach vi Multiple Distribution Channels 1 Used to reach two or more target markets or 2 avoid total dependence on a single arrangement e Conventional and Vertical Marketing Systems i Historically in conventional marketing channels there was 1 Stressed independence for the individual channel members 2 with a focus on their individual needs and objectives 158 ii Vertical Marketing Systems are tightly to improve operating and marketing efficiency of the members iii Examples of Vertical Marketing Systems VMS 1 Corporate Ownership Forward Integration A producer might own the intermediary at the next level down in the channel Example Goodyear Apple and Sherwin Williams Backward Integration A retailer owning a manufacturing operation Example Kroger stores making generic items 2 Contractual Vertical Marketing System production and distrubution firms integrate their effors on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone MOST POPULAR Independent b Retailer sponsored cooperatives a Wholesaler sponsored voluntary chains a wholesaler that develops a contractual relationship with small independent retailers to standardize and coordinate buying practices merchandising programs and inventory management efforts independent retailers form an organization that operates a while sale facility cooperatively contractual arrangement between a parent company franchiser and an individual or firm franchisee that allows the franchisee to operate a certain type of business under an established name and according to specific rules small c Franchising 3 Administered Vertical Marketing System coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership Example proctor and gamble Achieve 159 f Intensity of Distribution i How MANY do we want What is the optimal intensity for us 1 And the answer is just enough middleman the desires of market 2 Because anything else simply wastes resources ii While the decision is sometimes seen as a single one often we must decide intensity