Ch.

1 Marketing Channels & Supply Chain Management

Instructor: Dr. Saif Maqbool
 Books to follow
2

Edition
Title of Book Marketing Channels: A Management View
8th
Author(s) Bert Rosenbloom
Publisher Thomson-Southwestern
Supply Chain Management: Strategy, Planning, and
Title of Book
1. Operation
Imprint details Sunil Chopra, Peter Meindl; (6th edition - 2015), Pearson
Title of Book Marketing Channels, (7th edition - 2013)
2. Coughlan, Anderson, Stern, El-Ansary; Pearson Education
Imprint details
Marketing Channels: Managing Supply Chain Relationships, 3
Title of Book
3. Ed.
Imprint details Pelton, David Strutton, James R Lumpkin, MS Martha Cooper
 Books to follow
3
 Course Description
4

 Marketing channel is one of the critical components of marketing and business

function.
 An effective marketing channel is a great source of competitive advantage for a
wide verity of businesses.
 Channel decisions are regarded as most complicated decisions in comparison with
all other marketing decisions and leave long-term implications for all elements of
the marketing mix.
 This course discusses the nature and importance of marketing channel and logistical
components of supply chain management.
 The course is designed to offer guidance regarding how to make decisions for
selling channels and the physical distribution of products to businesses and
consumers.
 Course Objectives
5

 To know why companies use distribution channels and understand the functions that
these channels perform.

 To learn how channel members interact and how they organize to perform the work
of the channel.

 To know the major channel alternatives that are open to a company.

 To comprehend how companies select, motivate, and evaluate channel members.

 To understand the nature and importance of marketing logistics and integrated

supply chain management.
 What is a Marketing Channel?
6

Marketing
Channels A set of interdependent
ORGANIZATIONS that ease the
transfer of ownership as
products move from producer to
business user or consumer.
 The Marketing Channel Defined
7

 External: the marketing channel exists outside the firm (not a part of a firm’s internal
organizational structure.)

 Contactual organization: firms or parties who are involved in negotiatory functions as

a product or service moves from the producer to its ultimate user

 Operates: suggests involvement by management in the affairs of the channel.

 Distribution objectives: management has certain distribution goals to achieve.

 What is a Supply Chain?
8

Supply Chain The connected chain of all the

business entities, both internal
and external to the company,
that perform or support the
LOGISTICS function.
 Supply Chains and the Value Delivery
9
Network
 Producing a product or service and making it available to buyers, requires building
relationships not just with customers, but also with key suppliers and resellers in the
companies supply chain.

SUPPLY CHAIN:
 A supply chain consists of upstream and downstream partners

 Upstream: from the company is the set of firms that supply the raw materials,
components, parts, information, and expertise needed to create a product or
services.
 Down stream: Marketing channels or Distribution channels. Such as wholesalers and
Retailers.
 The nature and importance of marketing
channels
10

 Few producers sell their goods directly to the final users.

 Most producers do not sell their goods directly to the final users; between them
stands a set of intermediaries performing a variety of functions.
How channel members add value:
 Producers use intermediaries because they create greater efficiency in making goods
available to target market. Through their contacts, experience, specialization and scale
of operation, intermediaries usually offer the firm more than it can achieve on its own.
 In making products and services available to consumers, channel members add
value by bridging the major time, place and possession (ownership) gaps that
separate goods and services from those who would use them.
 How Channel Members Add Value
12

Why do producers give some of the selling

job to channel partners?
Matching
Physical
distribution Promotion
From economic
Risk system’s point of Marketing channel members buy
view, the role of marketing large quantities from many
Negotiation Information
taking
intermediaries is to transform the producers and break them down
Financing
assortments of products made by into the smaller
Contactquantities and
producers into the assortments broader assortments desired by
wanted by consumers. consumers.
 Channel Intermediaries
12

Who are the channel intermediaries?

13

A channel intermediary that

Retailer
sells mainly to FINAL USERS.

An institution that BUYS goods from

Merchant
manufacturers, takes title to goods, stores
Wholesaler them, and RESELLS and ships them.

Wholesaling intermediaries who facilitate

Agents and
the sale of a product by REPRESESNTING
Brokers channel members.
14

Retailers Take Title to Goods

Merchant
Wholesalers Take Title to Goods

Agents
and Do NOT Take Title to Goods
Brokers
The remaining channels are
• This shows some common business
indirect marketing channels,
distribution channels.
Number of Channel Levels
containing one or more
intermediaries.
• The business marketer can use its own
sales force to sell directly to business
15

customers.
 Each layer of marketing intermediaries that
performs some work in bringing the product and its
owner ship closer to the final buyer is a channel
level.

Channel 1, called a direct marketing channel,

has no intermediary levels ─ the company sells
directly to consumers.
 Use of the Term Channel Manager
16

❑ Channel manager:
Anyone in a firm or organization who is involved in marketing channel
decision making.
❑ In practice, the job title involves in channel management may vary depends on
the firms such as ‘business development manager’, ‘director of channel
management’, trade marketing manager’ and etc.
 Marketing Channels and
17
Marketing Management Strategy
❑ Marketing management process: a strategic blending of 4 controllable marketing
variables (marketing mix) to meet the demands of customers to which the firm
wishes to appeal in the light of internal and external uncontrollable variables
(marketing environments).

❑ Major tasks: to seek out potential target markets and develop appropriate and
coordinated 4Ps strategies to serve those markets in competitive and dynamic
environment.
 Marketing Channels and
18
Marketing Management Strategy
❑ Marketing channel strategy: one of the major strategic areas of marketing
management.
❑ Management must develop and operate its marketing channels in such
way as to support and enhance the other strategic variables of the
marketing mix in order to meet the demand of the firm’s target markets.
 Channel Strategy vs. Logistics Management
19

Marketing
mix

Product Pricing Promotion Distribution

strategy strategy strategy strategy

Channel Logistics
strategy management
component component
 Channel Strategy vs. Logistics Management
20

❑ Channel strategy is much broader and more basic component than logistics
management.

❑ Channel strategy is concerned with the entire process of setting up and

operating the contactual organization that is responsible for meeting the
firm’s distribution objectives.
Distribution
strategy

1st 2nd

Channel Logistics
strategy management
component component
 Channel Strategy vs. Logistics Management
21

❑ Logistics management is more narrowly focused on providing product

availability at the appropriate times and places in the marketing channel.

❑ Usually, channel strategy must already be formulated before logistics

management can even be considered.

Distribution
strategy

1st 2nd

Channel Logistics
strategy management
component component
 Flows in Marketing Channels
22

The actual physical movement of

the product from the
manufacturer through all of
the parties who take physical
possession of the product,
from its point of production to
final consumers.
1. Product flow
2. Negotiation flow
3. Ownership flow
4. Information flow
5. Promotion flow
 Flows in Marketing Channels
 Includes the performance of several marketing flows. E.g..:

Physical Physical Physical

Ownership Ownership Ownership
Promotion Promotion Promotion
Consumers:
Negotiation Negotiation Negotiation Industrial
Producers Wholesalers Retailers and
Financing Financing Financing
Household

Ordering Ordering Ordering

Payment Payment Payment
 Channel Strategy vs. Logistics Management
24

Distribution
strategy

1st 2nd

Channel Logistics
strategy management
component component
In the context of channel flows concept:
 Channel strategy and management involve planning for managing all of the flows

 Logistics is concerned almost exclusively with the management of the product flow
 Distribution through Intermediaries
25

Economic considerations are very important in

determining what form intermediaries will have in
their appearance in marketing channels:

❑ Specialization and Division of Labor

“Breaking down a complex task into smaller, less
complex ones and allocating them to parties who
are specialist at performing them, much greater
efficiency result.”

Distribution Tasks Production Tasks

Distributed Distributed
interorganizationally intraorganizationally
 Distribution through Intermediaries
26

Economic considerations in determining whether intermediaries will

appear in marketing channel:

❑ Contactual Efficiency
The level of negotiation effort between sellers and buyers relative to
achieving a distribution objective.
• Or it is the relationship between an input (negotiation effort) and an
output (distribution objective).
 Example of Contactual Efficiency for
27
Granada Guitar Company
*Retailers Negotiation Effort
(Inputs)
Estimated Dollar
Costs of Inputs
Distribution
Objective (Outputs)
Contactual
Efficiency
1,500 sales visits @ $50 = $75,000 Get 500 music stores Negotiation effort in
1,000 phone calls @ 3 = 3,000 to carry new guitar dollar terms relative to
line. achieving the
10 magazine ads @1,000 = 10,000 distribution objective =
Total $88,000 $88,000
*Wholesalers
Negotiation Effort Estimated Dollar Distribution Contactual Efficiency
(Inputs) Costs of Inputs Objective (Outputs)
100 sales visits @ $50 = $5,000 Get 500 music stores to Negotiation effort in
100 phone calls @ 3 = 300 carry new guitar line. dollar terms relative to
achieving the
20 magazine ads @1,000 = 20,000 distribution objective =
Total √ $25,300 $25,300
 Distribution through Intermediaries
28

❑ The use of additional intermediaries will often increase the level of contactual efficiency.
The use of wholesalers has eliminated the need for direct contact with retailers, thereby
greatly reducing the number of contacts needed.
 Channel Structure for Consumer Goods
29
Direct Retailer Wholesaler Agent/Broker
Channel Channel Channel Channel
❑ The group of channel members Two-level Three-level Four-level Five-level
to which a set of distribution
tasks has been allocated.

❑ M→C (2-level)
❑ M→R→C (3-level)
❑ M→W→R→C (4-level)
❑ M→A→W→R→C (5-level)
 Channel Structure
30

 Multi-channel strategy: the firm has chosen to reach its customers through
more than 1 channel.

 This will result in multi-channel structure because distribution tasks have

been allocated among more than 1 channel structure.
▪ Some firms also developed multi-channel structures that include online
channels.
31

Polo by Ralph
Manufacturer Lauren Web
site
http://www.ralphlauren.com/

Upscale
Specialty Company-owned
department
apparel retailers stores and outlets
stores

Consumers
 Ancillary Structure
32

❑ The group of institutions (facilitating agencies) that assists channel

members in performing distribution tasks.

❑ The role of facilitating agencies is one of providing services to the channel

members after the basic channel decisions have already been made.

❑ Examples of ancillary members include: banks, insurance agents, storage

agents, contractors, repair shops, etc.
33

 One of the world’s leading manufacturers of power tools. B&D farm out the
nonnegotiatory tasks to facilitating agencies (the ancillary structure) as the
following:
➢ It uses the common carriers to transport its power tools to industrial
distributors.
➢ It uses the commercial insurance companies to protect against risks
while the products are transit.
➢ It uses independent advertising agencies to promote its products.
 Overview of Discussion
34

1. The Marketing Channel Defined

2. The Supply Chain Defined
3. Nature and Importance of Marketing Channels
4. How Channel Members add value
5. Who are the Channel Intermediaries?
6. Use of the term Channel Manager
7. Marketing Channel & Marketing Management Strategy
8. Channel Strategy vs. Logistics Management
9. Flows in Marketing Channel
10. Distribution through intermediaries
11. Channel Structure