Exam 3 Study Guide Chapters 12 13 11 19 4 Marketing with Terry Paul CHAPTER 12 MARKETING CHANNELS INTRODUCTION NETFLIX S CHANNEL INNOVATION Netflix ran blockbuster out of business with delivery of DVDs They started video streaming and although they weren t the first they were definitely the best Competitors are now entering this market with Google Play Hulu Plus and Amazon instant streaming movies Netflix started making their own shows due to licensing issues Objective One Explain why companies use marketing channels and discuss the functions these channels perform SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK consists of upstream partners raw materials finances product creation Supply chain and downward partners marketing and distribution channels wholesalers and retailers that look towards the customer Make and sell view that starts with raw materials and inputs at starting point company responds with a chain of resources to create value for the customer Too limited because its view is purchase production consumption a network composed of the company suppliers distributors and customers who partner with each other to improve the performance of the entire system in delivering customer value planning starts by identifying the needs of a target customer and the Value Delivery Network Demand Chain THE NATURE AND IMPORTANCE OF MARKETING CHANNELS Marketing or Distribution Channel set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user Producers use intermediaries because they created greater efficiency Distributors Target buys bulk product from the manufacturer and matches the supply to the demand of the customer Members of Marketing Channels perform these functions Information gathering and distributing information about consumers producers and forces needed for planning and aiding exchange Promotion developing and spreading persuasive comm about an offer Matching shaping offers to meet the buyer s needs including activities such as Contact finding and communicating with prospective buyers manufacturing grading assembling and packaging Negotiation reaching an agreement on price and other terms so that ownership or possession can be transferred Others perform these transactions Physical Distribution transportation and storing Risk Taking Assuming the risks of carrying out the channel work Financing Acquiring and using funds to cover the costs of the channel work The more of the above tasks listed about the manufacturer performs the more Direct Marketing Channel a marketing channel that has no intermediary levels so the a layer of intermediaries that perform some work in bringing the expensive the product intermediaries drive down prices Channel Level product and its ownership closer to the final buyer Producer and consumer are part of every level The number of levels indicate channel length producer sells directly to the consumer door to door selling Indirect Marketing Channels level A greater number of levels means less control and greater complexity Institutions are connected by flows i e information flow payment flow flow of ownership promotion flow marketing channel containing one or more intermediary Objective Two Discuss how channel members interact and how they organize to perform the work of the channel CHANNEL BEHAVIOR AND ORGANIZATION Most effective channels are when intermediaries specialize Samsung specialized in technology and production Best Buy does product placement Although channel members work together they also work in their best interest Disagreements among marketing channel members on goals roles Channel Conflict and rewards and who should do what and for what rewards Horizontal Conflict occurs among firms at the same level of the channel Vertical Conflict conflict between difference levels of the same channel o Even more common than horizontal conflict o KFC wanted to reposition brand around grilled chicken due to change in consumer tastes but franchise owners said it would confuse customers and hurt sales o Association of KFC Franchises 2 3 of all franchises sued KFC for Unthink KFC Campaign so they had to drop it o We should be shooting the competition but instead we are shooting each other Channel conflict is good in that it sparks innovation and competition but it can also disrupt effectiveness Conventional Distribution Channel producers wholesalers and retailers each a separate business seeking to maximize its own profits perhaps even at the expense of profits for the system as a whole Historically have lacked leadership and power Each separate entity seeks to maximize their individual gain at the expense of the channel consisting of one or more independent Vertical Marketing System VMS Producers wholesales and retailers act as a unified whole system Each channel owns the others so cooperation is necessary but it can be dominated Corporate VMS by the producer wholesaler or retailer single ownership Kroger has meat factories deli factories dairies o Zara is the fastest growing fashion retailer because integrated system allows combines successive stages of production and distribution under them to design manufacture and stock within two weeks o Continually updates marketing mix by delivery goods in small batches two to three times per week Contractual VMS distribution join together through contracts o Franchise Organization Independent firms at different levels of production and Franchisor links several stages in the production distribution process a Manufacturer sponsored franchise Ford and independent franchise dealers b Manufacturer sponsored wholesaler franchise system Coca Cola licenses bottlers wholesalers buy syrup to finish locally c Service firm sponsored retailer franchise system Burger King Administered VMS through the size and power of one of the parties o Big brands can obtain strong trade cooperation and support from resellers coordinates successive stages of production and distribution Horizontal Marketing Systems follow a new marketing opportunity beneficial McDonalds in Wal Mart McDonald s benefits from store traffic Wal Mart keeps two or more companies at one level join together to shoppers in stores Multichannel Distribution Systems a single firm sets up two or more marketing channels to reach one or more customer segments Sells in own dealerships in other retail stores and online Many advantages when dealing with complex markets Gains opportunities to expand
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