W4 Case Analysis and Questions
Principles of Marketing 4.0
Jeff Tanner and Mary Anne Raymond
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CHAPTER 8
Using Marketing Channels to Create Value for Customers
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LEARNING OBJECTIVES
Explain why marketing channel decisions can result in the success or failure of products.
Understand how supply chains differ from marketing channels.
Describe the different types of organizations that work together as channel partners and what each does.
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MARKETING CHANNELS AND CHANNEL PARTNERS
Today, consumers are used to getting
What they want,
When they want it,
Where they want to get it.
Otherwise, they buy a competing product.
Getting a product in a timely manner to the consumer requires distribution channels.
Channel partners are firms a company partners with to promote and sell a product.
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MARKETING CHANNELS
The simplest marketing channel consists of a producer and a consumer.
Most products involve other parties called intermediaries who are positioned between the producer and the consumer.
There are four forms of utility, or value, that channels offer.
Time
Form
Place
Ownership
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USING INTERMEDIARIES TO STREAMLINE THE NUMBER OF SALES TRANSACTIONS
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MARKETING CHANNELS VS. SUPPLY CHAINS
An offering’s supply chain consists of all organizations involved in any part of the production, promotion, and delivery of the offering to customers.
Supply chain management involves constantly monitoring supply chains and refining them to make them as efficient as possible.
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CHANNEL PARTNERS
Channel partners are essential for marketing to achieve its objectives of having:
The right product in
The right place at
The right time.
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TYPES OF CHANNEL PARTNERS
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TYPES OF WHOLESALERS
Merchant Wholesalers
Full-service: offer to stock inventories, operate warehouses, supply credit to buyers etc.
Limited-service: offer fewer services to their customers, but lower prices.
Examples: Cash-and-carry wholesalers, drop shippers
Mail-order wholesalers sell their products using catalogs and ship products to buyers.
Rack jobbers sell specialty products, such as books, hosiery, and magazines.
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BROKERS, AFFILIATES, AND DIRECT SALES
Brokers, or agents: don’t purchase or take title to the products they sell.
Their role is to negotiate sales contracts for producers.
The most common form of agents and brokers consumers encounter are in real estate.
Affiliates: people or organizations that drive online traffic to other websites in order to sell another company’s products and get paid for doing so.
They are usually paid on commission.
Can be found on blogs, search-engines, news websites, social media websites, etc.
Manufacturers’ sales offices or branches: selling units that work directly for manufacturers.
These are found in B2B settings.
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TYPES OF RETAILERS
Supermarkets or grocery stores: self-service retailers; provide a full range of food and household products.
Drugstores: stores specializing in over-the-counter medications, prescriptions, health and beauty products, and photo developing.
Convenience stores: stores in which consumers pay for the convenience in the form of higher markups on products.
Specialty stores: sell a certain type of product, but they usually carry a deep line of it.
Category killer: a firm that sells a large amount of a particular category of product, dominating the competition in that category.
Department stores: carry a wide variety of household products and merchandise.
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TYPES OF RETAILERS
Superstores: oversized department stores that carry a broad array of general merchandise as well as groceries.
Warehouse clubs: supercenters that sell products at a discount.
Off-price retailers: stores that sell a variety of discount merchandise.
Outlet stores: discount retailers operated under the brand name of a single manufacturer, selling products that couldn’t be sold through normal retail channels due to mistakes made in manufacturing.
Online retailers: sell products online.
Used retailers: sell used products.
Pop-up stores: small, temporary stores
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NONSTORE RETAILING
Not all retailing is conducted through stores.
There is a growing trend in direct marketing:
Door-to-door sales
Party selling
Selling via catalogs
Selling via TV
Telemarketing
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KEY TAKEAWAYS
Marketing channel decisions are as important as the decisions companies make about the features and prices of products.
Channel partners are firms that actively promote and sell a product as it travels through its channel to its user.
Companies try to choose the best channels and channel partners to help them sell products because doing so can give them a competitive advantage.
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LEARNING OBJECTIVES
Describe the basic types of channels in business-to-consumer (B2C) and business-to-business (B2B) markets.
Explain the advantages and challenges companies face when using multiple channels and alternate channels.
Explain the pros and cons of disintermediation.
List the channels firms can use to enter foreign markets.
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DIRECT VS. INDIRECT CHANNELS
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TYPICAL CHANNELS IN B2C MARKETS
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TYPICAL CHANNELS IN B2B MARKETS
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DISINTERMEDIATION
Some companies take on the middleman's role to reduce costs and improve profits.
The trend today is towards disintermediation.
The Internet is a facilitator of disintermediation.
Disintermediation is not always cost effective or efficient.
A SITUATION THAT OCCURS WHEN INTERMEDIARIES ARE CUT OUT OF MARKETING CHANNELS
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MULTIPLE AND ALTERNATE CHANNELS
Marketing channels can become complex.
Multiple channels can be effective, but they require:
Channel management.
Understanding different target markets.
Companies that work hard to try to integrate their selling channels so users get a consistent experience.
Some companies find ways to increase their sales by forming strategic channel alliances with one another.
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ALTERNATE CHANNEL ARRANGEMENTS
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INTERNATIONAL MARKETING CHANNELS
Company growth requires participation in international markets.
Developing nations may lack any good intermediary systems.
Some countries have extensive distribution avenues that must be navigated.
Direct foreign investment, joint ventures, exporting products, franchising are ways to enter foreign markets.
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KEY TAKEAWAYS
A direct marketing channel consists of just two parties—a producer and a consumer.
By contrast, a channel that includes one or more intermediaries (wholesaler, distributor, or broker or agent) is an indirect channel.
Firms often utilize multiple channels to reach more customers and increase their effectiveness.
Some companies find ways to increase their sales by forming strategic channel alliances with one another.
Other companies look for ways to cut out the middlemen from the channel, a process known as disintermediation.
Direct foreign investment, joint ventures, exporting, franchising, and licensing are some of the channels by which firms attempt to enter foreign markets.
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LEARNING OBJECTIVES
Describe the activities performed in channels.
Explain which organizations perform which functions.
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PUSH-PULL STRATEGIES
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A PUSH VERSUS A PULL STRATEGY
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CHANNEL FUNCTIONS
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Sort and regroup products.
Store and manage inventory.
Distribute products.
Assume ownership (take title) and take risk.
Extend credit and aid in possession.
Share marketing and other information.
Assure availability to end users.
KEY TAKEAWAYS
Different organizations in a marketing channel are responsible for different value-adding activities.
These activities include:
Disseminating marketing communications
Promoting brands
Sorting and regrouping products
Storing and managing inventory
Distributing products
Assuming the risks of products
Sharing information
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LEARNING OBJECTIVES
Describe the factors that affect a firm’s channel decisions.
Explain how intensive, exclusive, and selective distribution differ from one another.
Explain why some products are better suited to some distribution strategies than others.
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CHANNEL SELECTION FACTORS
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Type of consumer
Consumer or business.
Type of product
Perishable.
Channel partners capabilities
Channel vs. company abilities.
Customer preferences.
Valuable and fragile.
Target market reach.
CHANNEL SELECTION FACTORS
The business environment and technology:
The state of the economy.
Foreign exchange rates.
The enabling abilities of the Internet.
Competing products’ marketing channels:
How do competitors sell their product?
Sometimes a unique channel offers competitive advantages.
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FACTORS OF A PRODUCT’S INTENSITY OF DISTRIBUTION
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Intensive distribution
Firms that choose an intensive distribution strategy to try to sell their products in as many outlets as possible.
Selective distribution
Selective distribution involves selling product at select outlets in specific locations.
Exclusive distribution
Exclusive distribution involves selling products through one or very few outlets.
KEY TAKEAWAYS
Selecting the best marketing channel is critical because it can mean the success or failure of your product.
The type of customer you’re selling to will have an impact on the channel you select. In fact, this should be your prime consideration.
The type of product, your organization’s capabilities versus those of other channel members, the way competing products are marketed, and changes in the business environment and technology can also affect your marketing channel decisions.
Various factors affect a company’s decisions about the intensity of a product’s distribution.
An intensive distribution strategy involves selling a product in as many outlets as possible.
Selective distribution involves selling a product at select outlets in specific locations.
Exclusive distribution involves selling a product through one or very few outlets.
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LEARNING OBJECTIVES
Explain what channel power is and the types of firms that wield it.
Describe the types of conflicts that can occur in marketing channels.
Describe the ways in which channel members achieve cooperation with one another.
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CHANNEL POWER
Strong channel partners become leaders.
Leaders can call the shots, getting what they want.
Category killers have channel power.
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CHANNEL CONFLICT
Disputes can occur among channel members.
Channel members have their own goals, which may not be shared.
Channel conflict can arise when producers compete with channel members.
Channel conflicts can also occur when manufacturers sell their products online.
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VERTICAL VS. HORIZONTAL CONFLICT
A vertical conflict occurs between two different types of members in a channel.
A horizontal conflict occurs between organizations of the same type.
One type of horizontal conflict that is much more difficult to manage is dumping:
Practice of selling a large quantity of goods at a price too low to be economically justifiable in another country.
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ACHIEVING CHANNEL COOPERATION ETHICALLY
Emphasize the benefits of working together.
Assure channel members of product genuineness.
Provide channel members with promotional material.
Educating channel members on the products and selling techniques.
Offer channel partners monetary incentives.
Avoid channel stuffing, i.e., moving product into the channel to record sales.
Handle pricing issues in an ethical and legal manner.
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CHANNEL INTEGRATION
A vertical marketing system is another way to foster cooperation in a channel:
Channel members formally agree to closely cooperate with one another.
A vertical marketing system can also be created by one channel member taking over the functions of another member.
This is a form of disintermediation known as vertical integration:
Vertical integration can be forward or downstream.
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CHANNEL INTEGRATION
Backward integration occurs when a company moves upstream in the supply chain:
That is, toward the beginning.
In a conventional marketing system, the channel members have no affiliation with one another. All the members operate independently.
A horizontal marketing system is one in which two companies at the same channel level agree to cooperate with one another to sell their products or to make the most of their marketing opportunities.
This is sometimes called horizontal integration.
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KEY TAKEAWAYS
Channel partners that wield channel power are referred to as channel leaders.
A dispute among channel members is called a channel conflict.
A vertical conflict is one that occurs between two different types of members in a channel.
A horizontal conflict is one that occurs between organizations of the same type.
Channel leaders are often in the best position to resolve channel conflicts.
Vertical and horizontal marketing systems can help foster channel cooperation, as can creating marketing programs to help a channel’s members all generate greater revenues and profits.
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