MRKT20052 Marketing Management and Digital Communications
Lecture 8: Marketing Channels; Value Networks; and Retailing,
Wholesaling and Logistics
• In today’s lecture we will discuss:
• Marketing channels and Value Networks;
• Channel member functions;
• Consumer and industrial marketing channels;
• Types of intermediaries;
• Retailing;
• Wholesaling; and
• Logistics.
Lecture 8 Overview
Marketing Channels and Value Networks
• Marketing channels are “sets of interdependent organizations involved in the
process of making a product or service available for use or consumption”.
• Intermediaries in this process include:
• Wholesalers
Merchants • Retailers
• Brokers
• Manufacturers’ representatives
• Sales agents
Agents
• Transportation companies
• Independent warehouses
• Banks
• Advertising agents
Facilitators
Marketing Channels and Value Networks Continued…
• A marketing channel system is “the particular set of marketing channels
employed by a firm”.
• The channels chosen affect all marketing decisions.
• There are two main strategies for managing intermediaries:
Understanding channel, networks and retailing systems
• Holistic marketers are increasingly taking a “Value Network View” of their
businesses.
• The “Value Network View” is where the whole supply chain that links raw
materials, components, and manufactured goods and shows how they
move toward the final consumers are examined.
The Role of Marketing Channels
• Why would a producer delegate some of the selling role to intermediaries?
• Through their contacts, experience, specialization, and scale of operation, intermediaries
make goods widely available and accessible to target markets, usually offering the firm
more effectiveness and efficiency than it can achieve on its own.
• Many producers lack the financial resources to carry out direct marketing.
M = Manufacturer
C = Customer
D = Distributor
M x C = 3 x 3 = 9 Contacts M + C = 3 + 3 = 6 Contacts
Channel Member Functions
• Channel members create time, place and possession utilities. They:
Multi-Channel Marketing
• Is when companies use two or more marketing channels to reach
customer segments.
• Each channel targets a different segment of buyers or different needs
states for one buyer and delivers the right products in the right places in
the right way at the least cost.
• When this does not occur there can be channel conflict, excessive cost or
insufficient demand.
Integrating Multi-Channel Marketing Systems Continued…
• An integrated marketing channel system is one in “which the strategies and
tactics of selling through one channel reflects the strategies and tactics of
selling through one or more channels”.
• Benefits include:
• Increased market coverage;
• Lower channel cost, selling online is cheaper than using personal selling to
reach small customers; and
• The ability to do more customized selling such as by adding a technical sales
force to sell complex equipment.
Value Networks
• Demand Chain Planning: markets are seen as destination points (linear
flow). Design of the supply chain works backwards from the customer.
• Benefits include:
• The company can estimate whether money is made upstream or downstream;
• The company is more aware of disturbances anywhere in the supply chain that
might cause costs, prices or supplies to change suddenly; and
• Companies can go online with their business partners to carry on faster and
more accurate communications, transactions and payments to reduce costs,
speed up information and increase accuracy.
Value Networks Continued…
• Value Networks: provide a broader view and sees the company at the
center.
• So its “a system of partnerships and alliances that a firm creates to source,
augment, and deliver its offerings”.
• This includes the firm’s:
• Suppliers and its suppliers;
• Its immediate customers; and
• Their end users.
Digital Channel Revolution
• Customers hold the key, where they expect seamless channel integration
so they can:
• Enjoy helpful customer support in a store, online or over the phone;
• Check online for product availability at local stores before making a trip;
• Find out in-store whether a product that is unavailable can be purchased and
shipped from another store to home;
• Order a product online and pick it up at a convenient retail location;
• Return a product purchased online to nearby store of the retailer; and
• Receive discounts and promotional offers based on total on and off line purchases.
Reverse Flow Channels
• Reverse-flow channels are important in the following cases:
• To reuse products or containers;
• To refurbish products for resale;
• To recycle products; and
• To dispose of products and packaging.
• Several intermediaries play a role in reverse-flow channels.
Channel Design Decisions
To design a marketing channel system, marketers need to:
1. Analyze customer needs → customer cost, convenience, product type and
service, lot size, faster service, experiential and social needs/goals;
2. Establish channel objectives → depends on product characteristics and
strengths and weaknesses of the channel members;
3. Identify major channel alternatives → who are available, how many are
required → exclusive, selective and intensive, and terms and
responsibilities → price, condition of sale, territorial rights, and mutual
services and responsibilities; and
4. Evaluate major channel alternatives → year in business, other lines
carried, growth and profit records, financial strength, cooperativeness,
service reputation.
Channel Integration Systems
• A Vertical Marketing System: “comprises the producer, wholesaler(s), and
retailer(s) acting as a unified system”. One channel member, the “channel
captain” owns the others or franchises them or has so much power that
they all cooperate.
• A Horizontal Marketing System is: “two or more unrelated companies put
together resources or programs to exploit an emerging marketing
opportunity”.
• E.g. supermarket chains and local banks to offer in-store banking.
Understanding Retailing, Wholesaling and Logistics
• Retailers,
wholesalers and
logistical
organizations
need to forge
their own
marketing
strategies.
Non-Store Retailing
Although the overwhelming bulk of goods and services
is sold through stores, non-store retailing has been
growing much faster than store retailing. Non-store
retailing falls into four major categories:
1) Direct selling (E.g. Avon, Tupperware);
2) Direct Marketing (which includes telemarketing and Internet
selling) (E.g. direct-mail and catalog, telemarketing, television
direct-response marketing, and electronic shopping);
3) Automatic vending (E.g. cigarettes, soft drinks, coffee, candy,
newspapers, and magazines, and other products like hosiery,
cosmetics, hot food, condoms, and paperbacks); and
4) Buying service (employees of large organizations—who are
entitled to buy from a list of retailers that have agreed to give
discounts in return for membership).
• Includes all the services involved in selling goods and services to those
who buy for resale or business use.
• Wholesaling excludes farmers, manufacturers and retailers.
• Major Wholesaler types:
• Merchant wholesalers;
• Full-service wholesalers;
• Limited-service wholesalers;
• Brokers and agents;
• Manufacturers’ and retailers’ branches and offices; and
• Specialized wholesalers.
Wholesaling
Logistics and Supply Chain
• Physical distribution starts at the factory.
• Physical distribution has now been expanded into the broader concept of
supply chain management.
• Supply chain management starts before the physical distribution:
• Procuring the right products;
• Converting them efficiently into finished products; and
• Dispatching them to their final destinations.
Market Logistics Costs
• Each possible market-logistics system will lead to the following costs:
M = T + FW + VW + S
Where M = total market-logistic cost of proposed system.
Where T = total freight cost of proposed system.
Where FW = total fixed warehouse cost of proposed system.
Where VW = total variable warehouse costs (including inventory).
Where S = total cost of lost sales due to average delivery delay under
proposed system.
To Sum Up
• Understanding the dynamics of channel members within a distribution
system is critical for businesses.
• Consumer and industrial marketing channels are unique.
• There are eight types of intermediaries that could be between the
producer and end user.
• Understanding the differences between retailers and wholesalers is
important.
• Logistics are key to getting your product to your end users and have
different costs depending on the channel of distribution.
End of Lecture 8.