Topic 6:

Marketing Channels

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Learning Objectives
• What is a marketing channel and what are the types of
channels
• How do channel interact and organize to do the work of the
channel?
• How do companies design their channels and strategies
• How do channels add value to a company

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Activity - How did this product arrive
in your hands?

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 What is a marketing channel/distribution
channel/Place?

 Supply chain

 Value delivery network

 The Nature and the Important of Marketing Channels

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Supply Chain Partners
The supply chain consists of Suppliers
two types of partners:

Upstream partners include raw

material suppliers,
components, parts, Company

information, finances, and

expertise to create a
product or service
Downstream partners include Distribution channel
the marketing channels or
distribution channels that
look toward the customer

Customers
 Supply Chains and the Value Delivery Network
• Value delivery network is the firm’s suppliers, distributors, and ultimately
customers who partner with each other to improve the performance of the entire
system in delivering customer value.
• This chapter focuses on marketing channels— on the downstream side of the
value delivery network.

COMPANY
Marketing Channels
• Marketing Channels (or
distribution channel is a set of
interdependent organizations
that help make a product or
service available for use or
consumption by the consumer
or business user.
• Intermediaries offer producers
greater efficiency in making
goods available to target
markets. Through their contacts,
experience, specialization, and
scale of operations,
intermediaries usually offer the
firm more than it can achieve on
its own.
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Marketing Channels
• A company’s channel decisions directly affect every other marketing
decision.
o Pricing depends on whether the company works with national
discount chains, uses high-quality specialty stores, or sells directly to
consumers via the Web.
o The firm’s sales force and communications decisions also depend
on how much persuasion, training, motivation, and support its
channel partners need.

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Marketing Channels
• Dislike other marketing mix elements, Distribution channel (or Place)
decisions often involve long-term commitments to other firms.
• For example:
o Companies such as Ford or McDonald’s can easily change their
advertising, pricing, or promotion programs. They can scrap old
products and introduce new ones as market tastes demand.
o But when they set up distribution channels through contracts with
franchisees, independent dealers, or large retailers, they cannot
quickly or easily replace these channels.

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Marketing Channels - How channel members add
values

• The role of marketing intermediaries is to transform the assortments of

products made by producers into the assortments wanted by
consumers.

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Marketing Channels - How channel members
add values
• Functions of marketing channel members:

• Information—gathering and distributing market­ing research and intelligence

information about actors and forces in the marketing environment needed for
planning and aiding exchange (Example: Mega Market with manufacturers such
as Unilever, P&G; retailers and customers like: Saigon Coop-mart & their loyal
customers/shoppers).

• Promotion—developing and spreading persuasive communications about an

offer (Saigon Coopmart supermarket helps Pond’s promote their new skin care
products in the supermarket or vice versa) .

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Marketing Channels - How channel members
add values
Functions of marketing channel members:
• Contact—finding and communicating with prospective buyers (retailers & their
customers & the manufacturers).
• Matching—shaping and fitting the offer to the buyer’s needs, including activities
such as manufacturing, grading, assembling, and packaging (Heinz ketchup
redesigned its packaging to match with customer’s demand and complaint. Read
more from the link below).
• Negotiation—reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred. For example, when working with
new retailers, the big manufacturers, such as Vinamilk, can support with free
freezer and do not force to pay the total bill immediately.
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Supply Chains and the Value Delivery
Network
• Functions of marketing channel members:
facilitating the completion of transactions
• Physical distribution—transporting and storing goods.
• Financing—acquiring and using funds to cover the
costs of the channel work.
• Risk taking—assuming the risks of carrying out the
channel work. For example, when the supermarket
accept to carry the new products from the
manufacturers, it means the supermarket share the
risk with the manufacturers.

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Behind the scenes of Amazon warehouse (Fox 13 News, 2015)

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Youtube Link: https://www.youtube.com/watch?v=Y-lBvI6u_hw
Types of Channels
• Channel level is a layer of intermediaries that performs some work in
bringing the product and its ownership to the final buyer. The number
of intermediary levels indicates the length of a channel.
Number of channel levels:
• A direct marketing channel has no intermediary levels; the company
sells directly to consumers.
• An indirect marketing channel contains one or more intermediaries.
• From the producer’s point of view, a greater number of levels mean less
control and greater channel complexity.

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Types of Channels
• Consumer Marketing Channels

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Channel Behavior and Organization

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Channel Behaviours
Channel conflict:
• A marketing channel consists of firms that have partnered for their
common good. Each channel member depends on the others.
• Each channel member plays a specialized role in the channel. The
channel will be most effective when each member assumes the tasks it
can do best.
• Disagreements over goals, roles, and rewards generate channel
conflict.
o Horizontal conflicts
o Vertical conflicts
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Channel Behaviours
Channel conflict:
• Horizontal conflict occurs among firms at the same level of the
channel.
o For instance, some Ford dealers in Chicago might complain that
other dealers in the city steal sales from them by pricing too low or
advertising outside their assigned territories.
• Vertical conflict occurs between different levels of the same channel.
o For example, Burger King has had a steady stream of conflicts with
its franchised dealers over everything from increased ad spending
and offensive ads to the prices it charges for cheeseburgers.
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Channel Organization

The channel will perform better if it includes a firm, agency, or mechanism that
provides leadership and has the power to assign roles and manage conflict.
 Conventional distribution

 Vertical marketing system

 Horizontal marketing system

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Conventional distribution Channel
• A conventional distribution channel consists of one or more independent
producers, wholesalers, and retailers.
• Historically, conventional distribution channels have lacked such
leadership and power, often resulting in damaging conflict and poor
performance.

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Conventional distribution Channel
• Each is a separate business seeking to maximize its own
profits, perhaps even at the expense of the system as a
whole.

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Perspective 22
Vertical Marketing
• One of the biggest channel developments over the years has been the
emergence of vertical marketing systems that provide channel
leadership.
Vertical Marketing
Vertical Marketing System (VMS)
• A vertical marketing system (VMS) consists of producers, wholesalers,
and retailers acting as a unified system. VMS has several types:
1. Corporate VMS
2. Contractual VMS
3. Administered marketing systems
• One channel member owns the others (number 1), has contracts
(number 2) with them, or wields so much power (number 3) that they
must all cooperate.

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Vertical Marketing System (1)

Corporate VMS

• A Corporate VMS integrates successive stages of

production and distribution under single ownership.

• TH True Milk and Vinamilk, are good examples.

• TH True Milk: http://www.thmilk.vn/information/process

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Perspective 25
Video: TH True Milk – Production & Distribution
process
Youtube link: https://www.youtube.com/watch?v=VbH_mjSok1Q

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Corporate VMS example - Dalat Hasfarm

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Vertical Marketing (2)
Contractual VMS
• A contractual VMS consists of independent firms at different
levels of production and distribution who join together
through contracts to obtain more economies or sales impact
than each could achieve alone.

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Perspective 28
Vertical Marketing (2)

• Contractual VMS

A contractual VMS consists of independent firms at different levels of production and

distribution who join together through contracts to obtain more economies or sales
impact than each could achieve alone. The most common form is the franchise
organization. Franchise organization links several stages in the production
distribution process
 Manufacturer-sponsored retailer franchise system. For example: Ford and its
network of independent franchised dealers
 Service-firm-sponsored retailer franchise system. For example: McDonald’s,
Burger King, KFC

© 2012 Principles of Marketing: An Asian

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Perspective
Vertical Marketing (2)
• Contractual VMS:
• The franchise organization is the most common type of
contractual relationship. A channel member called a
franchisor links several stages in the production‑distribution
process

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Perspective 30
Vertical Marketing (2)
o Administered vertical marketing system
has a few dominant channel members without
common ownership. Leadership comes from
size and power.
o Manufacturers of top brand such as Procter &
Gamble, Kraft, Unilever can command unusual
cooperation from resellers regarding displays,
shelf space, promotions and pricing.
o In turn, large retailers such as Walmart can exert
strong influence on the many manufacturers that
supply the products they sell.
o Large retailers like Wal-Mart; or in case of
Vietnam Saigon Co-opmart or Big C can have
strong influence on the manufacturers.
Horizontal Marketing
Horizontal System
• Happens when two or more companies at one level join together to follow a new
marketing opportunity. By working together, companies can combine their
financial, production, or marketing resources to accomplish more than any one
company could alone.
• Example: Bphone + Mobiphone (only 3,9 million VND per Bphone if customers
use Mobiphone service)

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Channel Systems: Multichannel Marketing
Multichannel Distribution Systems
• In the past, many companies used a single channel to sell to a single market or
market segment. Today, with the proliferation of customer segments and channel
possibilities, more and more companies have adopted multichannel
distribution systems
• This occurs when a single firm sets up two or more marketing channels to reach
one or more customer segments.

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Activity: Coca Cola Channels
How many channels can you identify for Coca Cola?

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Perspective 34
Channel Design Decisions and
strategies

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Channel Design Decisions
Setting Channel objectives
• Companies should state their marketing channel objectives in
terms of targeted levels of customer service.
• The company should decide which segments to serve and
the best channels to use in each case.
• The company’s channel objectives are influenced by the
nature of the company, its products, its marketing
intermediaries, its competitors, and the environment.
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Channel Design Decisions
• Environmental factors such as economic conditions and legal
constraints may affect channel objectives and design.

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Perspective 37
Channel Design Decisions
Identifying Major Alternatives
• Types of Intermediaries
o A firm should identify the types of channel members
available to carry out its channel work.
• Number of Marketing Intermediaries
o Companies must also determine the number of channel
members to use at each level.

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Perspective 38
Channel Design Strategies
Number of intermediaries
• Companies must also determine the number of channel
members to use at each level. Three strategies are
available:
Few Many
Number of
Outlets

EXCLUSIVE SELECTIVE INTENSIVE

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Channel Design Strategies
Intensive distribution
• Intensive distribution—ideal for producers of convenience products and
common raw materials. It is a strategy in which they stock their products
in as many outlets as possible.

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Channel Design Strategies
Exclusive distribution
• Exclusive distribution—is when producers purposely limit the number of
intermediaries handling their products. The producer gives only a limited
number of dealers the exclusive right to distribute its products in their
territories.

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Channel Design Strategies
• Exclusive distribution

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Perspective 42
Channel Design Strategies
Selective distribution
• Selective distribution—is the use of more than one, but fewer than all, of
the intermediaries who are willing to carry a company’s products.

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Review
• Question …

• Which distribution intensity would you recommend for the

following products?

© 2012 Principles of Marketing: An Asian

Perspective 44
Case study: Hair Care in Vietnam

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Hair Care in Vietnam - Questions
• What distribution channel system and strategy is used by
CLEAR shampoo in this case? Explain your answers with
evidences from the case.
• What are the pros and cons of this distribution strategy
decision?

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Thank you