Marketing Channels

Part 1: Marketing Channel Systems

A Management View
8e
Rosenbloom

Part 1: Marketing Channel Systems

1
CHAPTER

Marketing Channel
Concepts
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 ① The growing importance of marketing channels
② The definition of marketing channels
Learning Objectives

③ How marketing channels relate to strategic

variables in the marketing mix

④ The flows in the marketing channels and their

relationship to channel management

⑤ The principles of specialization, division of labor,

and contactual efficiency

⑥ The difference between the concepts of channel

structure and of ancillary structure

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Objective
Why the growing importance of
1 marketing channels?
1 The explosion of information technology
and E-commerce
2 A greater difficulty in gaining a sustainable
competitive advantage
3 The growing power of distributors,
especially retailers in marketing channels
4 The need to reduce distribution costs

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 1 The explosion of information technology and E-
commerce
2 A greater difficulty in gaining a sustainable competitive advantage
3 The growing power of distributors, especially retailers in marketing
channels
4 The need to reduce distribution costs

The prediction:
Disintermediation – reduction
of number of intermediaries Yahoo!
eBay
The reality: Amazon.com
Reintermediation – evolution
of a new type of intermediary

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 1 The explosion of information technology and E-commerce
2 A greater difficulty in gaining a sustainable
competitive advantage
3 The growing power of distributors, especially retailers in marketing
channels
4 The need to reduce distribution costs

Place (distribution), or
Marketing Channel
Sustainable Strategy
competitive
advantage
Potential for gaining
competitive advantage
because place is more
difficult for competitors
to copy
5

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 1 The explosion of information technology and E-commerce
2 A greater difficulty in gaining a sustainable competitive advantage
3 The growing power of distributors, especially
retailers in marketing channels
4 The need to reduce distribution costs

Power retailers as Gatekeepers of consumer markets

Act as buying agents for customers rather than

as selling agents for manufacturers

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 1 The explosion of information technology and E-commerce
2 A greater difficulty in gaining a sustainable competitive advantage
3 The growing power of distributors, especially retailers in marketing
channels
4 The need to reduce distribution costs

Marketing channels are the most

recent target for
reducing distribution costs.

The focus is on
channel structure and
management.

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Objective

2 What is a marketing channel?

Outside
the firm Firm involved in
negotiatory Management’s
functions involvement
in the process

External contactual organization that management

operates to achieve its distribution objectives

Goals that change, causing variations in

contactual organization & the way in
which management operates it
8

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 What is a channel manager?

Anyone in a firm or
organization who is
involved in marketing
channel decision making

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Objective How does marketing channel strategy
3 relate to the
rest of the marketing mix?
Marketing
Mix
or Challenges
the four Ps
Product Limited ability to gain and hold competitive
advantage
Price Price wars erode profitability & provide unstable
basis for sustaining competitive advantage
Promotion Expensive and short-lived

Place Marketing channels support & enhance other Ps

(Distribution) to meet demands of target markets

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 The change of focus to
channel strategy

• Creates competitive advantage

with long-term viability
• Builds strong relationships
between manufacturers and
channel members
• Based on trust, confidence,
and people power

11

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 Channel Strategy and Logistics
Management

Part of distribution variable

• Concerned with entire

process of starting and
Focused specifically on
operating contactual
providing product
organization
availability at appropriate
• Formulated before time & place
logistics management
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Objective
Marketing Channel Flows
4

Product Flow

Negotiation Flow

Ownership Flow

Information Flow

Promotion Flow
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 Product Flow

Manufacturer

Transportation
Company

Wholesalers

Retailers

Consumer
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 Negotiation Flow

Manufacturer

Wholesalers

Retailers

Consumer
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 Ownership Flow

Manufacturer

Wholesalers

Retailers

Consumer
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 Information Flow

Manufacturer

Transportation
Company

Wholesalers

Retailers

Consumer
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 Promotion Flow

Manufacturer

Advertising
Agency

Wholesalers

Retailers

Consumer
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Objective

5 Distribution through intermediaries

Factors that determine

the role of intermediaries

Technology The Internet

Economic Specialization &

Considerations Division of Labor

Contactual Efficiency

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 Specialization & Division of Labor

Distribution Tasks Production Tasks

Distributed Distributed
Inter-organizationally intraorganizationally

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 Contactual Efficiency
Granada Guitar Co.
Negotiation Estimated Dollar Distribution Contactual
Effort Costs of Inputs Objective Efficiency
(Output)
100 sales visits @ $50 = $5,000 Get 500 Negotiation
100 phone calls @ 3 = 300 music effort in
20 magazine @1,000 = 20,000 stores to dollar terms
carry new relative to
ads $25,300 guitar line achieving
the
distribution
objective =
$25,300

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Objective
Channel Structure v. Ancillary
6 Structure

Channel Structure
Why are single-
channel
The group of channel members to
structures currently
which a
the exception?
set of distribution tasks has been
allocated

Ancillary Structure Why is managing

the ancillary
The group of institutions that structure most likely
assist channel members in performing to be less complex
distribution tasks than managing the
channel structure?

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 Discussion Question #1
ROCKAUTO.COM is a leading online auto parts store
that prides itself for offering a huge selection of auto
parts, everyday low prices, fast shipping, and an easy-to-
use Web site. Some ROCKAUTO.COM advertisements have
even claimed that this online auto parts store is “head and
shoulders” above any brick and mortar auto parts store.
The company’s slogan, “All The Parts Your Car Will Ever
Need,” suggests that customers have all the choice they
could possibly want from ROCKAUTO.COM and that they
need look no further than this online auto parts store to
satisfy all their needs.

Do you agree with ROCKAUTO.COM’s claim? Might

customers seeking auto parts need other channel options?
Explain.
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 Discussion Question #3
Growth in online retail sales has been outstripping
conventional sales in retail stores. This online sales growth
might be enhanced significantly by the latest online sales
phenomenon of mobile commerce—shopping via mobile
smart phones such as Apple’s iPhone, Research in Motion’s
Blackberry, or Google’s NexusOne. But so far, of the almost
50 million smart phone users that have access to the
Internet, only about 7 million (under 15%) have actually
bought something through their phones during the course
of a year.

Do you think mobile commerce via smart phone will

grow rapidly in the future? Why or why not?

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 Discussion Question #5
One of the major themes presented in this chapter is the need for
choice as to how products and services are made available to
customers. Thus, multi-channel strategies that provide a wide range of
channels including an Internet based online channel option have
become imperative. Yet there are very successful firms that take a
virtually opposite view by purposely limiting choice. A case in point is
Edward Jones, a financial services company with the largest network of
brokerage offices in the U.S.—more than 10,000 and still growing.
Edward Jones has a Web site that its customers can visit but it does not
offer its customers the option of trading online. Instead, all
transactions must take place
through an Edward Jones broker. Even with this single channel strategy,
the company is still growing and is very profitable.

Why do you think Edward Jones has been able to “buck the trend”
toward multi-channel strategy that would include an online channel as
a key option?

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