Part I: Introduction Chapter 1: Marketing Channels: Structure and Functions

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Part I IntroductionChapter 1 Marketing
Channels Structure and Functions

• MKTG 406 Pimentel

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Marketing Channel Defined

• A set of interdependent organizations involved in
  the process of making a product or service
  available for use or consumption.

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Importance of Studying Marketing Channels

• Gatekeeper
• Important asset of marketing strategy
• Differentiator
• Difficult to replicate
• End-user satisfaction
• Overall brand image
• Awareness of channel importance is low
• Opportunity for competitive advantage
• Difficult to create and maintain channel
• Difficult and costly to change
• Right the first time

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Channel Development and Change

• Demand-side factors

• Supply-side factors

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Demand-Side Factors

• Facilitation of search
• Adjustment for assortment discrepancy
• Sorting
• Accumulation
• Allocation (breaking bulk)
• Assorting

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Supply-Side Factors

• Routinization of transactions
• Continuous replenishment programs (CRP)
• Reduction in number of contacts

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Marketing Flows

• Processes flow through the channel
• Done at different points in time by different
  channel members

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Marketing Flows

• The Eight Universal Marketing Channel Flows
• Physical possession
• Ownership
• Promotion
• Negotiation
• Financing
• Risking
• Ordering
• Payment
• Flow of information

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Channel Members

• Manufacturers
• Intermediaries
• Retailers
• Wholesalers
• End-users

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Channel Members

• Channel formatscombinations of channel members
• Specialization
• Third-party logistics (3PL)
• Channel captain
• Manufacturer brands
• Private brands

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Channel Analysis Framework

• CHANNEL DESIGN
• Segmentation
• Channel Structure
• Splitting the Workload
• Degree of Commitment
• Gap Analysis

• CHANNEL IMPLEMENTATION
• Channel Power Channel Conflict
• Manage/Defuse Conflict
• Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS
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Segmentation

• Splitting market into groups of end-users
• Similar within groups
• Different between groups
• Based on demands for the outputs of the marketing
  channel
• Added value
• Service outputs

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Segmentation

• Example Segments of book end-users
• Recreational readers
• University students
• Convenience-oriented
• Price-oriented

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Selecting Target Segments

• Those we can serve most profitably
• Restrictions
• Managerial bounds
• Environmental bounds
• Legal
• Competitive benchmarks

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Channel Structure

• Types of channel members
• Identities of specific channel members
• Channel intensity number of each type

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Splitting the Workload

• Assign channel flows to channel members
• Meet target segments service output demands
• Reliable
• Minimize total cost, while meeting service level

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Degree of Commitment

• Transactional relationships
• Pursue individual goals
• No guarantee of continued business
• Alliances
• Enduring connections throughout companies
• Pursue common goals
• Vertical integration
• Own channel members
• Reasons
• Channel members do not exist
• Company can handle flows as efficiently
• Channel member is not sufficiently committed
• Can be done in degrees

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Gap Analysis

• The difference between optimal and actual
  channels
• Demand side gaps
• Service output demands are not being met
• Undersupplied
• Oversupplied
• Supply side gaps
• At least one flow is costing too much
• Lack of expertise
• Waste
• Closing gaps is difficult and costly

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Channel Power

• Ability to control other channel members
• Necessary to implement channel design
• May be used to optimize channel to benefit of all
  channel members
• May be used to achieve own ends without regard to
  other channel members

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Channel Conflict

• Actions of channel members prevent channel from
  achieving its goals
• Goal conflict
• Domain conflict
• Perceptual conflict

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Manage/Diffuse Conflict

• Identify sources of conflict
• Poor channel design
• Poor performance
• Take action
• Exercise channel power

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Channel Coordination

• Result of
• Channel designed to meet service output demands
  of target end-user segments
• Application of channel power to ensure smooth
  implementation of the channel design
• Ongoing process

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Insights for Specific Channel Institutions

• Retailers
• Wholesalers
• Logistics firms
• Supply chain issues
• Franchises

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Key Terms

• marketing channel
• end-user
• sorting
• accumulation
• allocation
• breaking bulk
• assorting
• continuous replenishment programs (CRP)
• marketing flows
• channel members
• channel captain

• manufacturer
• intermediary
• merchant wholesaler
• manufacturers representatives
• agents
• brokers
• specialized intermediaries
• international specialists
• channel design
• segmentation

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Key Terms

• service outputs
• channel structure
• channel intensity
• transactional relationships
• alliances
• vertical integration
• gap analysis
• demand side gaps
• supply side gaps
• channel power
• channel conflict
• goal conflict

• domain conflict
• perceptual conflict
• retailers
• wholesalers
• logistics firms
• supply chain
• franchises