Chapter 15: Designing and Managing Integrated Marketing Channels

Wholesaling

"Hidden Middleman" Wholesaling includes all the activities involved in Selling Goods and Services to those Buying for Resale or Business use. Often better at preforming the following channel functions: financing, transportation, bulk breaking etc

Service outputs of channels: lot size, waiting and delivery time, spatial convenience, product variety, service backup.

1. Lot size is the number of units the channel permits a typical customer to purchase on one occasion. In buying cars for its fleet, Hertz prefers a channel from which it can buy a large lot size; a household wants a channel that permits a lot size of one. 2. Waiting and delivery time is the average time customers wait for receipt of goods. Customers are increasingly preferring faster delivery channels. 3. Spatial convenience is the degree to which the marketing channel makes it easy for customers to purchase the product. 4. Product variety is the assortment provided by the marketing channel. Normally, customers prefer a greater assortment because more choices increase the chance of finding what they need, although too many choices can sometimes create a negative effect. 5. Service backup is the add-on services (credit, delivery, installation, repairs) provided by the channel. The greater the service backup, the greater the work provided by the channel.

Vertical Marketing System

A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the other, has contracts with them, or has so much power that they all cooperate. Designed to improve distribution efficiency and improve distribution cost effectiveness.

Channel Power: coercive, reward, legitimate, expert, referent.

Coercive power means that the manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate. Reward power occurs when the manufacturer offers intermediaries an extra benefit for performing specific acts or functions. Legitimate power includes the manufacturer requesting a behavior that is warranted under the contract. Expert power means the manufacturer has special knowledge that intermediaries value. Once the intermediaries acquire this expertise, however, expert power weakens. Referent power means the manufacturer is so highly respected that intermediaries are proud to be associated with it.

Brokers and agents

Do not take title to goods Perform fewer functions Brokers bring buyers and sellers together Agents represent buyers on more permanent basis Manufacturers' agents are most common type of agent wholesaler. These functional middlemen do not take title to products and are compensated with commissions for negotiating exchanges between buyers and sellers

channel member functions

Gather information Develop and disseminate persuasive communications Reach agreements on price and terms Acquire funds to finance inventories Assume risks Provide for storage Provide for buyers' payment of their bills Oversee actual transfer of ownership

Distribution channel management

Getting the product to the consumer Product availability to the market Market coverage concept Channel of distribution Direct and indirect Marketing logistics A Competitive / Strategic Advantage (S.C.A.) A creator of customer satisfaction Multi-channel Marketing New channel options Power of the consumer Dictates the channel Channel players Intermediaries & their role(s) Competition & the channel of choice Factors to help decide the channel structure

Merchant wholesaler

Largest group of wholesalers Account for 50% of wholesaling Merchants take title, assume risk, and are usually involved in buying and reselling products to other wholesalers, industrial customers, or retailers

Length of channel depends on

Manufacturer's desire for control $$ Value of product Customer's service requirements Financial strength of manufacturer Perishabiltiy of the product # & geographical dispersion of the customers Product complexity

Types of wholesalers

Merchant wholesaler, manufactures sales branches and offices, agents and brokers.

Terms and Responsibilities of channel members

Price policy, Condition of sale, Distributors' territorial rights, Mutual services and responsibilities

marketing/distribution channels

Sets of interdependent organizations participating in the process of making a product or service available for use or consumption. They are the set of pathways a product or service follows after production, culminating in purchase and consumption by the final end user.

Designing a marketing channel system

To design a marketing channel system, marketers analyze customer needs and wants, establish channel objectives and constraints, and identify and evaluate major channel alternatives.

Major logistic functions

Warehousing Inventory management Transportation Logistics information management

zero-level channel

also called a direct marketing channel, consists of a manufacturer selling directly to the final customer. The major examples are door-to-door sales, home parties, mail order, telemarketing, TV selling, Internet selling, and manufacturer-owned stores. Needed when product customization and quality assurance are key, purchase orders are very large, transportation and storage functions are complex.

Price policy

calls for the producer to establish a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient.

Distributors' territorial rights

define the distributors' territories and the terms under which the producer will enfranchise other distributors. Distributors normally expect to receive full credit for all sales in their territory, whether or not they did the selling

Multichannel conflict

exists when the manufacturer has established two or more channels that sell to the same market. It's likely to be especially intense when the members of one channel get a lower price (based on larger-volume purchases) or work with a lower margin

Channel conflict

generated when one channel member's actions prevent another channel from achieving its goal Goal incompatibility Unclear roles and rights Differences in perception Intermediaries' dependence on manufacturer

number of marketing intermediaries

intensive distribution, selective distribution, exclusive distribution

Mutual services and responsibilities

must be carefully spelled out, especially in franchised and exclusive- agency channels.

Horizontal channel conflict

occurs between channel members at the same level.

Vertical channel conflict

occurs between different levels of the channel.

Channel coordination

occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals.

Conditions of sale

refers to payment terms and producer guarantees. Most producers grant cash discounts to distributors for early payment. They might also offer a guarantee against defective merchandise or price declines, creating an incentive to buy larger quantities.

Supply chain management

starts before physical distribution and means strategically procuring the right inputs (raw materials, components, and capital equipment); converting them efficiently into finished products; and dispatching them to the final destinations

pull strategy

the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it. Pull strategy is particularly appropriate when there is high brand loyalty and high involvement in the category, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store.

Goal of Logistics system

to provide a targeted level of customer service at the least cost

push strategy

uses the manufacturer's sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users. A push strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood.