CHAPTER 1: MARKETING CHANNEL CONCEPTS

External means that the marketing channel exists

outside the firm. In other words, it is notpart of a
THE MULTI-CHANNEL CHALLENGE firm’s internal organizational structure. Management
of the marketing channel therefore involves the use of
 Finding the optimal multi-channel mix interorganizational management (managing more that
 Creating multi-channel synergies one firm) rather than intraorganizational management
 Avoiding multi-channel conflicts (managing one firm).
 Gaining a sustainable competitive advantage Contactual organization refers to those firms or parties
via multichannel strategy. who are involved in negotiatory functions as a product
or service moves from the producer to its ultimate
user. Negotiatory functions consist of buying, selling,
and transferring title to products or services. Only
AN OPTIMAL MULTI-CHANNEL MIX those firms or parties that engage in these functions
are members of the marketing channel.
Internet-based online channels have become a Other firms (usually referred to as facilitating agencies)
mainstream channel in the channel mixes of a vast such as transportation companies, public warehouses,
number of firms that may also use several other banks, insurance companies, advertising agencies, and
channels such as: the like, that perform functions other than
negotiatory, are excluded.
• Retail channel stores Operates, suggests involvement by management in the
affairs of the channel. This involvement may range
• Mail order channels from the initial development of channel structure all
the way to day-to-day management of the channel.
• Wholesale distributor channels
• Sales representative channels
Distribution Objectives, the fourth key term in the
• Call center channels definition, means that management has certain
distribution goals in mind. The marketing channel
• Company sales force channels exists as a means for reaching these. Thestructure and
management of the marketing channel are thus in part
• Vending mahine channels a function of a firm’s distribution objectives.
• Company-owned retail store channels
THE USE OF THE TERM CHANNEL MANAGER
Channel manager refers to anyone in a firm or
MULTI-CHANNEL SYNERGIES organization who is involved in marketing channel
decision making.
In the context of multi-channel strategy, synergy In practice, relatively few firms or organizations
means using one channel to enhance the effectiveness actually have a single designated executive position
and efficiency of other channels in the mix. Using called channel manager. However, some major firms
online channels to obtain information about a product have executive positions where the duties aresimilar
before purchasing it in conventional “brick an mortar” to those of the channel manager as defined here.
channels is a common example of multi-channel
synergy.

MARKETING CHANNELS AND MARKETING

MANAGEMENT STRATEGY
AVOIDING MULTI-CHANNEL CONFLICT The classic marketing mix strategy model provides the
A major obstacle to developing successful multi- framework for viewing the marketing channel from a
channel strategies is the emergence of conflict marketing management perspective.
between different channels used for reaching the same
customers. For example, if a manufacturer sells
directly via its online channel or field sales force to the
same customers served by independent distributors, CHANNEL STRATEGY VS. LOGISTICS MANAGEMENT
the distributors may very well view te online and field The marketing mix model portrays the marketing
sales force channels as taking business away from their management process as a strategic blending of four
channel. controllable marketing variables (the marketing mix)
to meet the demands of customers to which the firm
wishes to appeal (the target markets) in light of
internal and external uncontrollable variables.
SUSTAINABLE COMPETITIVE ADVANTAGE AND
MULTI-CHANNEL STRATEGY Channel strategy fits under the distribution variable of
the marketing mix. Logistics management also fits
A sustainable competitive advantage is a competitive under this variable—and the two components
edge that cannot be quickly or easily copied by (channel strategy and logistics management) together
competitors. In today's global competitive arena, comprise the distribution variable of the marketing
gaining a sustainable competitive advantage by mix.
emphasizing the first three Ps of marketing mix
(product, price, and promotion) has become more Channel strategy and logistics management are closely
difficult. related, but channel strategy is a much broader and
more basic component than is logistics management.
 Channel strategy is concerned with the entire
THE MARKETING CHANNEL DEFINED process of setting up and operating the
contactual organization that is responsible for
Marketing channel may be defined as “the external meeting the firm’s distribution objectives.
contactual organization that management operates to  Logistics management, on the other hand, is
achieve its distribution objectives.” more narrowly focused on providing product
availability at the appropriate times and places
Four terms in this definition should be especially in the marketing channel. Usually, channel
noted: strategy must already be formulated before
logistics management can even be considered.
 external
 contactual organization
 operates
 distribution objectives FLOWS IN THE MARKETING CHANNEL
When a marketing channel has been developed, a Channel structure is the group of channel members to
series of flows emerges. These flows provide the links which a set of distribution tasks has been allocated.
that tie channel members and other agencies together
in the distribution of goods and services. From the This definition suggests that in developing channel
standpoints of channel strategy and management, the structure, the channel manager is faced with an
most important of these flows are: allocation decision; that is, given a set of distribution
tasks that must be performed to accomplish a firm’s
distribution objectives, the manager must decide how
to allocate or structure the tasks. Thus, the structure
 Product flow refers to the actual physical of the channel will reflect the manner in which he or
movement of the product from the she has allocated these tasks among the members of
manufacturer through all of the parties who the channel.
take physical possession of the product, from
its point of production to final consumers.
 Negotiation flow represents the interplay of
the buying and selling functions associated CHAPTER 2: THE CHANNEL PARTICIPANTS
with the transfer of title (right of ownership) to
products.
 Ownership flow shows the movement of the
title to the product as it is passed along from 1. Producers and Manufacturers
the manufacturer to final consumers.
 Information flow refers to the two-directional The range of producing and manufacturing firms is
flow of information among parties in the enormous, both in terms of the diversity of goods and
distribution channel. All parties participate in services produced and the size of the firms. It includes
the exchange of information and the flow can firms that make everything from straight pins and that
be from the manufacturer to consumers and vary in size from one-person operations to giant
vice versa. multinational corporations with many thousands of
 Promotion flow refers to the flow of employees and multibillion-dollar sales volumes.
persuasive communication in the form of
advertising, personal selling, sales promotion,
and publicity. 2. Intermediaries
Intermediaries or middlemen are independent
businesses that assist producers and manufacturers
DISTRIBUTION THROUGH INTERMEDIARIES (and final users) in the performance of negotiatory
Why do intermediaries so often stand between functions and other distribution tasks.
producers and the ultimate users of products?
 Wholesale intermediaries – consist of
DISINTERMEDIATION – “eliminate the middlemen” businesses that are engaged in selling goods
for resale or business use to retail, industrial,
The thinking underlying disintermediation is based on commercial, institutional, professional or
the awesome technological capacity of the Internet to agricultural firms, as well as to other
connect everybody to everybody else, including all wholesalers.
producers with final consumers.
Types and Kinds of Wholesalers:
a. Merchant wholesalers – firms engaged primarily in
SPECIALIZATION/DIVISION OF LABOR buying, taking title to, usually storing and physically
handling products in relatively large quantities. They
Adam Smith, in his book “The Wealth of Nations”,cited then resell the products in smaller quantities too
an example from a pin factory. He noted that when retailers, and other wholesalers.
the production operations necessary in the
manufacture of pins were allocated among a group of Distribution task performed by Merchant wholesalers
workers so that each worker specialized in performing are the following:
only one operation, a vast increase in output resulted
over what was possible when this same number of  Providing market coverage
workers individually performed all of the operations.  Making sales contacts
 Holding inventor
The only difference in the application of the  Processing orders
specialization and division of labor concept, as applied  Gathering market information
to production versus distribution, is that the  Offering customer support
production tasks have been allocated
intraorganizationally whereas the distribution tasks
have been allocated interorganizationally. b. Agents, brokers, and commission merchants – are
also independent middlemen who do not, for all or
CONTACTUAL EFFICIENCY most of their business, take title to the goods in which
they deal. But they are actively involved in
Contactual efficiency is the level of negotiation effort negotiatory functions of buying and selling while
between sellers and buyers relative to achieving a acting on behalf of their clients.
distribution objective. Thus, it is a relationship
between an input (negotiation effort) and an output
(the distribution objective). c. Manufacturers’ sales branches and offices - are
owned and operated by manufacturer but are
This example points to an important relationship physically separated from manufacturing plant.
between contactual efficiency and the use of
intermediaries. The use of additional intermediaries  Retail intermediaries – consist of business
will often increase the level of contactual efficiency. firms engaged primarily on selling merchandise
for personal or household consumption and
This does not mean that considerations of contactual rendering services incidental to the sale of
efficiency and specialization and division of labor are goods.
all that is needed to make a decision on intermediary
usage. Many other variables must also be evaluated. Kinds of Retailers
But contactual efficiency and specialization and
division of labor provide he channel manager with a  Specialty Store - Narrow product lines with
basic framework for incorporating these other deep assortment-apparel, furniture, books.
variables into decisions on the use of intermediaries.  Department Store - Several product lines in
different departments-Shoppers Stop, Big
Bazaar.
 Discount Store - Standard merchandise sold at
CHANNEL STRUCTURE lower prices for low margins.
  Supermarket - Large, low-cost, low-margin,  Recession – any period in which the GDP is
high volume, self service operation with a wide stagnant or increasing very slowly is often
offering referred to as “recessionary” or at least as an
 Convenience Store - Small store in residential “economic slowdown”.
areas, open long hours all days of the week-  Inflation - is a sustained increase in the general
limited variety of fast moving products like price level of goods and services in an
groceries, food economy over a period of time.
 Deflation – is a general decline in prices for
Alternative Bases for Classifying Retailers goods and services, typically associated with a
contraction in the supply of money and credit
 By Ownership of Establishment in the economy. During deflation, the
 By Kind of Business (Merchandise Handled) purchasing power of currency rises over time.
 By Size of Establishment
 By Degree of Vertical Integration
 By Type of Relationship with other Business 2. Competitive environment
Organizations
 By Method of Consumer Contact Competition is always a critical factor to consider for
 By Type of Location all members of the marketing channel. The terms
 By Type of Service Rendered global marketplace, global arena and global
 By Legal Form of Organization competition are not just international business jargon,
 By Management Organizations or Operational but realistic descriptions of the competitive
Technique environment as it exist today in an increasing number
 of industries.
Distribution Task Performed by Retailers
Types of Competition:
 Offering manpower and physical facilities that
enable producers, manufactures and  Horizontal competition – is a competition
wholesalers to have many points of contact between firms of the same type.
with consumer close to their places of  Intertype competition – is competition
residence. between different types of firms at the same
 Providing personal selling, advertising and channel level, such as off-price store versus the
display to aid in selling suppliers. department store or the merchant wholesaler
 Interpreting consumer demand and relaying versus agents and brokers.
this information back through the channel.  Vertical competition – refers to a competition
 Dividing large quantities into consumer sized between channel members at different levels
lots, thereby providing economies for supplies in the channel, such as retailer versus
and convenience for consumers. wholesaler, wholesaler versus manufacturer or
 Offering storage, so that suppliers can have manufacturer versus retailer.
widely dispersed inventories for their product  Channel system competition – refers to
at low cost and enabling consumer to have complete channels competing with other
close access to the products of producers, complete channels. In order for channels to
manufacturers, and wholesalers. compete as complete units, they must be
 Removing substantial risk from the producer organized, cohesive organizations. Such
and manufacturer (or wholesaler) by ordering channels have been referred to as vertical
and accepting delivery in advance of the marketing systems and are classified into
season. three types:

3. Facilitating Agencies
Are business firms that assist in the performance of 1.) corporate channel – where production and
distribution task other than buying, selling and marketing facilities are owned by the company;
transferring title. Here are some of the more common
type of facilitating agencies: 2.) contractual channel – independent channel
members (producers or manufacturers, wholesalers,
and retailers) are linked by a formal contractual
 Transportation agencies agreement;
 Storage agencies
 Order processing agencies 3) Administered channel system – results from strong
 Third party logistics providers domination by one of the channel members,
 Advertising agencies frequently a manufacturer over the other member.
 Financial agencies
 Insurance companies
 Marketing research firms 3. Sociocultural environment
It pervades virtually all aspects of a society. Marketing
CHAPTER 3: The Environment of Marketing Channels channels are therefore also influenced by the
sociocultural environment within which they exist.
THE MARKETING CHANNEL AND THE ENVIRONMENT
Other Sociocultural Forces:
The environment consists of myriad external,
uncontrollable factors within which marketing  Globalization
channels exist. To give some order to this huge array of  Consumer mobility and connectedness
variables, we will categories them in this chapter  Social networking
under the following five general headings:  The Green Movement

1. Economic environment 4. Technological environment

Technology is the most continuously and rapidly
In a channel management context, economic factors changing aspect of the environment. In the face of this
are a critical determinant of a channel member rapidly accelerating technology, the channel manager
behavior and performance. The channel manager must has to sort out those developments that arerelevant to
therefore be aware of the influence of economic his or her own firm as well as the participants in the
variables on the participants in the channels of marketing channel and then determine how these
distribution. In this section, we discuss several major changes might affect the channel participants.
economic phenomena in terms of their effects on
various parties in the marketing channel and their
implications for channel management: There are several indicative of the kinds of
advancement that should be watched carefully:
 Electronic Data Interchange
  Scanners, Computerized Inventory Causes of Channel Conflicts
Management, and Handheld Computers
 The Digital Revolution and Smartphone Role Incongruities
 Radio Frequency Identification (RFID)
This occurs when channel members have conflicting
perceptions or expectations about their respective
5. Legal environment roles and responsibilities within the distribution
It refers to the set of laws that impact marketing process. For example, a manufacturer might expect
channels. The legal structure resulting from these laws distributors to heavily promote their product, while
is not a static code. Rather, it is continually evolving the distributors believe their role is primarily logistics
structure affected by changing values, norms, politics and order fulfillment.
and precedents established through court cases.
Resource Scarcities
Legal Issues on Channel Management Conflict can arise when resources, such as funding,
shelf space, or promotional support, are limited.
Channel members may compete fiercely for these
 Dual Distribution – refers to the practice scarce resources, leading to friction and disagreement.
whereby a producer or manufacturer uses two
or more different channel structures for
distributing the same product to his target
market. Perceptual Differences
 Exclusive Dealing – it exist when a supplier
requires its channel members to sell only its Channel members may have differing views of the
products or to refrain from selling products market, consumer behavior, or even the effectiveness
from directly competitive suppliers. of marketing strategies. These differing perceptions
 Full-line Forcing – if a supplier requires can lead to disagreements about how the channel
channel members to carry a broad group of should be managed.
products (full line) in order to sell any
particular products in the supplier’s line.
 Price Discrimination – refers to the practice
whereby a supplier, either directly or indirectly Expecational Differences
sells at different prices to the same class of
channel members to the extent that such price Similar to role incongruities, this involves discrepancies
differentials tend to lessen competition. in what channel members expect from each other. For
 Price Maintenance – a supplier’s attempt to example, a retailer might expect a manufacturer to
control prices charged by its channel members provide quick shipping and generous return policies,
for the supplier’s products. while the manufacturer may have different
 Refusal to Deal – suppliers may select expectations.
whomever they want as channel members and
refuse to deal with whomever they want.
 Resale Restriction – when a manufacturer
attempts to stipulate to whom channel Decision Domain Disagreements
members may resell the manufacturer’s
products and in what specific geographical Conflict can arise when channel members disagree
market areas they may be sold he/she is about who has the authority to make specific
engaging in the practice of resale restriction. decisions. This could involve pricing, advertising,
 Tying Agreements – agreements whereby a product assortment, or other key aspects of channel
supplier sells a product to a channel member management.
on condition that the channel member also
purchase another product as well, or at least
agrees not to purchase that product from any
other supplier. Goal Incompatibilities
 Vertical Integration – it can occur as a result of
growth and evolution of the fir, whereby the This is perhaps the most fundamental source of
firm decides to expand its organization to conflict. Channel members may have different, even
include wholesale and retail facilities. conflicting, objectives. For example, a manufacturer
might prioritize high sales volume, while a retailer
CHAPTER 4: Behavioral Processes in Marketing might focus on maximizing profit margins, even if it
Channels means selling fewer units.

Conflict versus Competition

In the process of both competition and conflict
the goals of the various units are perceived to Effects of channel conflict
be incompatible, and the units are striving
respectively to attain these goals. In this 1. Negative Effect - Reduced Efficiency
context, competition occurs where, given
incompatible goals, there is no interference 2. No Effect - Efficiency Remains Constant
with one another's attainment. The essential
difference between competition and conflict is 3. Positive Effect - Efficiency Increased
in the realm of interference or blocking
activities.
-Schmidt & Kochan
Managing Channel Conflict
Detect conflict or potential conflict - Know your own
Conflict versus Competition triggers, or the factors that make you feel angry,
frustrated, defensive, or stressed
Conflict
Appraise the possible effect of the conflict - A growing
 Competition body of literature has been emerging to assist the
 Direct Personal channel manager in developing methods for measuring
 Opponent-centered conflict and its effect on channel efficiency.

Competition Resolve channel conflict - Understanding the types of

conflicts that can arise, implementing automated
 Indirect detection systems, and establishing clear policies are
 Impersonal essential steps in preventing and managing disputes.
 Object-centered

Behavioral Problems in Channel Communications

-Understanding key communication difficulties
between manufacturers and small independent
retailers 1.) Differences in goals between manufacturers and
their retailers.
- Based on Wittreich's framework
 Manufacturers focus on high sales and brand
growth
 Retailers prioritize profit and local customer
Two Basic Behavioral Problems demand
1.) Differences in goals between manufacturers and
their retailers
2.) Differences in the kinds of language they use to
 Manufacturers focus on high sales and brand convey information.
growth
 Retailers prioritize profit and local customer  Manufacturers use technical terms and
demand marketing jargon.
 Retailers use simple, customer-friendly
descriptions.
2.) Differences in the kinds of language they use to
convey information.
Other Behavioral Problems in Channel Communication
 Manufacturers use technical terms and
marketing jargon.
 Retailers use simple, customer-friendly
descriptions. 1.) Perceptual Differences Among Channel Members
 Different views on pricing, promotions, and
consumer preferences.
Other Behavioral Problems in Channel Communication
2.) Secretive Behavior
 Withholding information can create distrust.
1.) Perceptual Differences Among Channel Members
3.) Inadequate Frequency of Communication
 Different views on pricing, promotions, and
consumer preferences.  Lack of regular updates may lead to
misunderstandings.
2.) Secretive Behavior
 Withholding information can create distrust.
3.) Inadequate Frequency of Communication
 Lack of regular updates may lead to
misunderstandings.

USING POWER IN MARKETING CHANNEL

Identifying the available power bases

In marketing channel, power refers to the ability one
business to influence another, This power can come
from different sources. one business to influence
another. This power can come from different sources.
Selecting and using appropriate power
Once businesses know where power here powers
exists, they must they use must it wisely to maintain
good relationships. use it wisely to maintain good
relationships.

COMMUNICATION PROCESS IN THE MARKETING

CHANNEL
Communication has been described as "the glue that
holds together a channel of distribution".
Communication provides the basis for sending and
receiving information among the channel members
and between the channel and its environment.
Behavioral Problems in Channel Communications
Understanding key communication difficulties
between manufacturers and small independent
retailers
Based on Wittreich's framework
Two Basic Behavioral Problems