Marketing Channels
• After studying this chapter; the student will
be able to understand:
- Downstream/upstream partners
- Pull and push strategy
- Channel levels
- Direct and indirect distribution
- Channel member functions
- Value added services by intermediaries
- Vertical marketing system
- Horizontal and vertical conflict
• There can be no sales without marketing
channels. Marketing channels represent an
opportunity cost. One of the chief roles of
marketing channels is to convert potential
buyers into profitable customers. Marketing
channels must not just serve markets, they
must also make markets.
• Producing a product and making it available to
buyers requires building relationships not just
with customers but also with key suppliers in
the company’s supply chain (downstream
partners- raw materials, components,
information, finance), and (upstream partners-
• A value delivery network is made up of the
company, suppliers, distributors, and customers
who “partner” with each other to improve the
performance of the entire system.
• In managing its intermediaries, the firm must
decide how much effort to devote to push
versus pull marketing.
• A push strategy uses the manufacturer’s sales
force, trade promotion money, or other means
to induce intermediaries to carry, promote, and
sell the product to end users.
Push strategy is appropriate where there is low
brand loyalty, brand choice is made in the store,
and the product is an impulse item.
• In a pull strategy the manufacturer uses
advertising, promotion and other forms of
communication to persuade consumers to
demand the product from intermediaries,
indicating them to order it.
Pull strategy is appropriate when there is
high brand loyalty, when consumers are
able to perceive differences between
brands, and when they choose the brand
before they go to the store. (drug firms)
• Top marketing companies like Nike and
Coca Cola employ both strategies.
• Channel levels:- The producer and the
final customer are part of every channels.
We will use the number of intermediary
levels to designate the length of a channel.
• A zero-level channel (direct marketing
channel) consist of a manufacturer selling
directly to the final customer: TV selling,
telemarketing, door-to-door sales, mail
order, and internet selling. Avon, Apple.
• One-level channel
• Two-level channel
• Three-level channel
Electronic Marketing Channels
Book Publisher
(Amazon.com)
Auto Manufacturer
(Autobytel.com)
Book Distributor
Auto Dealer
Amazon.com
(virtual Retailer)
Auto-By-Tell
(Virtual Broker)
ULTIMATE
Commercial Airline
(Travelocity.com)
Travelocity
(Virtual Agent)
BUYERS
Dell Inc.
(Dell.com)
Multichannel distribution system
Catalogs, telephone, Internet
Retailers
Consumer
Segment 2
Dealers
Business
segment 1
Producer
Distributor
Consumer
Segment 1
Sales force
Business
segment 2
• Companies must decide on the number of
intermediaries to use at each channel level.
Three strategies are available:
Exclusive distribution means severely limiting
the number of intermediaries. Producer wants
to maintain control over service levels/outputs.
Selective distribution relies on more than a few
but less than all of the intermediaries willing to
carry a particular product.
In intensive distribution, the manufacturer
places the goods in as many outlets as
possible. Snack foods, soft drinks, newspapers,
candies and gum such as 7-Eleven stores.
Value-added services provided
by intermediaries
Value-added services
Facilitating value
-Financing
-Training
-Information
-After sales
-Risk bearing
Transactional Value
-Risk
-Marketing
-Administration
Logistical Value
-Assortment
-Storage
-Sorting
-Bulk breaking
-Transportation
-Handling
• Evaluating major alternatives. Each channel
alternative will produce a different sales and
costs. Next figure shows how six different
sales channels affects the value added per
sale and the cost per transaction.
• Firms try to align customers and channels to
maximize demand at the lowest overall cost.
• To develop a channel, members must make
some degree of commitment to each other
for a specified period of time. In rapidly
changing, volatile and uncertain product
markets, high adaptability is necessary.
The powerful partnership rests on a handful of
basic principles and practices:
•
•
•
•
•
Dealer profitability
Extraordinary dealer support
Communications
Dealer performance
Personal relationships
Thus, Caterpillar’s superb distribution system
serves as a major source of competitive
advantage. The system is built on a firm base of
mutual trust and shared dreams.
A conventional marketing vs a
vertical marketing system
CONVENTIONAL MARKETING
CHANNEL
VERTICAL MARKETING SYSTEM
Manufacturer
manufacturer
wholesaler
wholesaler
retailer
retailer
consumer
consumer
• Horizontal conflict occurs among firms at the same
level of the channel. For example, some Ford dealers
in Chicago might complain the other dealers in the city
steal sales from them by pricing too low or by selling
outside their assigned territories.. Or Holiday Inn
franchisees might complain about other Holiday Inn
operators overcharging guests or giving poor service,
hurting the overall Holiday Inn image
• Vertical conflict, conflicts between different levels of
the same channel. Is even more common. For ex,
H&R Block franchisees complained when the parent
company began using the internet to deal directly with
customers. Similarly, McDonald’s created conflict with
some of its California dealers when it placed new
stores in areas that took business from existing
locations.