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MARKETING AN INTRODUCTION

10 Armstrong/Kotler

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Chapter Outline

A. Supply Chains and the Value Delivery Network


B. The Nature and Importance of Marketing
Channels
C. Channel Behavior and Organization
D. Channel Design Decisions
E. Marketing Logistics and Supply Chain
Management
F. Retailing and Wholesaling

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Copyright © 2015 Pearson Education, Inc. Publishing as Prentice Hall
A. Supply Chains and the Value
Delivery Network
A value delivery network is made up of the
company, suppliers, distributors and
ultimately customers who “partner” with
each other to improve the performance
of the entire system.

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Supply Chains
• Upstream partners supply the raw materials,
components, parts, information, finances, and
expertise needed to create a product or
service.
• Downstream partners serve as distribution
channels that link the firm and its customers.

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B. The Nature and Importance of
Marketing Channel
Marketing channel (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.
Channel decisions:
– Affect every other marketing decision
– Can lead to competitive advantage
– May involve long-term commitments to other firms

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How adding a Distributor reduces the
number of channel transactions

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Key Functions Performed by Channel
Members

Information Promotion Contact

Matching Negotiation Physical distribution

Financing Risk taking

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Number of Channel Levels

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Number of Channel Levels

‘Customer channels’ tend to exhibit more variety and be


longer. This is due in part to the fact that there are typically
more customers for retail products than for industrial
goods, and consumers purchase smaller quantities on a
more frequent basis.

The increased complexity and cost of industrial products, as


well as the information needs of customers, combine to
keep ‘industrial channels’ relatively short and direct. Its
especially appropriate if a product requires a great deal of
service support after the sale.

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Copyright © 2015 Pearson Education, Inc. Publishing as Prentice Hall
C. Channel Behavior and
Organization
Channel Behavior
• A marketing channel consists of firms that
have partnered for their common good.
• Each channel member plays a specialized role
in the channel.
• Channel conflict – Channel members often
disagree on who should do what and for what
rewards.

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Channel Behavior

• Horizontal conflict occurs among firms at the


same level of the channel.
• Vertical conflict occurs between different
levels of the same channel.

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Copyright © 2015 Pearson Education, Inc. Publishing as Prentice Hall
Conventional Marketing Channel

• A conventional marketing (distribution)


channel consists of one or more independent
producers, wholesalers and retailers. 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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Copyright © 2015 Pearson Education, Inc. Publishing as Prentice Hall
Vertical Marketing Systems

• A vertical marketing system (VMS) consists of


producers, wholesalers and retailers acting as
a unified system.
• There are three types of VMSs:
– Corporate
– Contractual
– Administered

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Vertical Marketing Systems

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Types of Franchises

The manufacturer‑sponsored retailer franchise


system—for example, Ford and its network
of independent franchised dealers.
The manufacturer‑sponsored wholesaler
franchise system—Coca‑Cola licenses
bottlers (wholesalers) in various markets
who buy Coca-Cola syrup concentrate and
then bottle and sell the finished product to
retailers in local markets.
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Types of Franchises

The service‑firm‑sponsored retailer franchise


system—examples are found in the auto-
rental business (Avis), the fast‑food service
business (McDonald’s), and the motel
business (Ramada Inn).

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Horizontal Marketing Systems

Horizontal marketing system is a channel


arrangement in which two or more companies
at one level join together to follow a new
marketing opportunity.

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Multichannel Distribution Systems

Multichannel distribution systems occurs when a


single firm sets up two or more marketing
channels to reach one or more customer
segments.

It allows the firms to expand sales and market


coverage, tailor their products and services to
the specific needs of diverse customer & larger
profits may occur.
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Multichannel Distribution Systems

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Changing Channel Organization

Disintermediation is the cutting out of marketing


channel intermediaries by product or service
producers and go directly to final buyers, or the
displacement of traditional resellers
by radical new types of intermediaries.

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D. Channel Design Decisions

Marketing channel design includes designing


effective marketing channels by analyzing
consumer needs, setting channel objectives,
identifying major channel alternatives evaluating
them.

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Number of Marketing Intermediaries

Exclusive
Distribution

Selective
Distribution

Intensive
Distribution

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Number of Marketing Intermediaries

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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Number of Marketing Intermediaries

Selective distribution - This is the use of more


than one but fewer than all of the
intermediaries or outlets who are willing to
carry a company’s products, suitable for
shopping products.

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Number of Marketing Intermediaries

Exclusive distribution - 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. For
products purchased infrequently, consumed
over a long period of time, or requiring service
and information like specialty product.

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Marketing Logistics

Marketing logistics (or physical distribution)


involves the planning, implementing and
controlling the physical flow of materials, final
goods and related information from points of
origin to points of consumption to meet
customer requirements at a profit.

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Supply Chain management

Marketing logistics involves outbound distribution (moving products from


the factory to resellers and ultimately to customers), inbound distribution
(moving products and materials from suppliers to the factory) and reverse
distribution (moving broken, unwanted, or excess products returned by
consumers or resellers).

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Major Logistics Functions

•Warehousing
•Inventory Management (Just in-time:
Producers and retailers carry small
inventories, often only enough for few days
operations).
•Transportation
•Logistics Information Management

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F. Retailing

Retailing includes all the activities involved in


selling products or services directly to final
consumers for their personal, non-business
use.

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Retailing Trends
• Omni-channel retailing - integrates in-store, online,
social media and mobile shopping
• Progressive retailers used advanced IT and software
systems to produce better forecasts, control
inventory costs, interact electronically with suppliers,
send information between stores, and others.

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F. Wholesaling

Wholesaling includes all activities involved in


selling goods and services to those buying for
resale or business use.

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Copyright © 2015 Pearson Education, Inc. Publishing as Prentice Hall
Looking Ahead to Chapter 12
Communicating
Customer Value:
Advertising and Public
Relations

11- 33

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