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marketing channel (channel of distribution)
a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumers.
A large channel or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer.
*Formally: is a business structure of interdependent organizations that reach from the point of product origin to the consumer with the purpose of moving products to their final consumption destination. Facilitate the physical movement of goods through the supply chain, representing "place" or "distribution" in the marketing mix (product, price, promotion, and place) and encompasing the processes involved in getting the right product to the right place at the right time.
AKA intermediaries, resellers, and middlemen) negotiate with one another, buy and sell products, and facilitate the change of ownership between the buyer and seller in course of moving the product from the manufacturer into the hands of the final consumer. As products move to the final consumer, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency.
the distribution part of the marketing mix. Brings the marketer to the customer. The marketer must find a channel to the customers.
sells direct to consumer/no intermediaries (responsible for theft). Ex Dell
- Can be combination of direct and indirect. Farmer sells direct to campbells but not to consumers... including telemarketing, mail-order and catalog shopping, and forms of electronic retailing such as online shopping and shop-at-home television networks
Typical in business and industrial markets. Governments too
Multiple channel approach
Direct and indirect
*reach a wider audience. Can be some problems..
- Dealer Ex H.P.
- A farmer would sell better through an indirect channel.
Exchanges, Worldwide Retail Exchange, Private exchange: a company creates a network that connects its business with those of its suppliers.
Marketing Channel function
- Specialization and division of labor: Divisional labor. Best of producing things. Providing serivces. Dealers and retailers provide an efficiant way for the marketer to operate. which is the difference between the amount of product produced and the amount an end user wants to buy
- Overcomming discrepancies: Diecrepancy of quanitiy or discrepancy of assortment. The dealer provides the service that the marketer can not provide. One stop shop.
- Temporal Discrepancy: A product produced by a consumer is not ready to buy it.
- Spactial Discrepency: The difference between the location of producer and location of scattered markets.
- Retailer: Sells mainly to customers (takes title) Producer-Retailer.
- Merchant Wholesaler: Institution that buys goods from manufacturers, takes title to goods, stores them and resells and ships them. (take title of goods).... are organizations that facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers.
- Producer -Wholesalers-retailers-consumers
- Agents and Brokers: Wholesaling who facilitate the sale of a product by representing channel members (does not take title). typically used in markets with many small manufacturers and many retailers that lack the resources to find each other.
- Producer-Agent or Broker-Wholesaler-Retailers-Consumers
what type of intermediary to use
- Product Characteristics:elite, commodity, low value
- Market Characteristics: How big, concentration
Channel Functions performed by Intermediaiaries
- Transactional functions: Contacting/Promotion (Safeway-dealer because of local market conditions), negotiation, risk taking
- Logistical Functions: Physically distribution, storing, sorting (walmart (their specialization) provides logistical support of merchandise on behalf of the marketers and manufacturers)
- Facilitation Functions: Researching, financing. Deciding what to put on sale. Auto dealers provide financing.
The internet has messed up the traditional intermediaries. Comparing of pricing. Parts and services. The intermediaries are no longer required.
Alternate Channel Arrangements (IT developments)
Kiosks: laptops, how it feels, dell (impossible to see in person) must show the consumers to compete. Mimicing. Starbucks in grocery stores. Redbox
Strategic Channel Alliances
Use other established sets ups like pepsi and starbucks.
Factors affecting channel choice
- Market factors: target customer considerations. Who, what, where, when, how, industrial,
- product factors: Sell better through a direct sales force. Is it perishable, fragile, which require short marketing channels unlike gum
- producer factors (dictate what channel customers follow) depends on if they are large and can produce their own sales force. Smail tends to lead to intermediaries. Desire for control of pricing, positioning, brand image, and customer support tends to influence channel selection.
Level of distribution intensity
- intensive distribution (how intense thru machines, grocery store). Aimed at having a product in every outlet.Mass market (many intermediaries)
- selective distribution: luxury watch not sold thru walmart for prestige. Screening dealers to eliminate all but a few in any single area. (shopping and some speciality goods-several intermediaries)
- exclusive distribution: carefully choose and select, automotive dealers use different dealers and who is qualified and who should be selling/long term contracts. A form of distribution that established one or a few dealers within a given area. (speciality goods and industrial equipment - one intermediary)
Market factors that affect channel choices
- Customer Profiles:
- Consumer or Industrial Customer:
- Size of Market:
- Geographic Location:
Product factors that addect channel choices
- Product Complexity:
- Product Price: (prestige sell direct, commodity sell indirect)
- Product Standardization:
- Product Life Cycle: control distribution, educated like apple. people are trained on product. Control marketing mix. Control during intro phase
- Product Delicacy: Perishable, careful handling, expertise to handle the product to sell to the customer.
Producer Factors that affect channel choices
- Producer Resources: walmart setting up a store
- Number of product lines: protector and gamble more efficient to sell thru retailer.
- Desire for channel control: selling thru retailer losses a lot of control because of price and what other products they are competing against. The kind of customer service. Total control would be to have your own store (control lighting, people hired). More important for a prestige kind of product.
Tupes of Channel Relationships
- Arms length relationship: Benefits: fulfils a one time or unique need; low involvement and risk. Hazards: Parties unable to develop relationships and low trust levels.
- Cooperative relationship: Benefits: Formal contract without capital investment/long term commitment: Happy medium Hazards: Some parties may need more relationship definition
- Intergrated Relationship: Benefits: Closely bonded relationship; explicitly defined relationships. Hazards: High capital investment; any failure could affect every channel member
A marketer sells at different prices to grocery store than to costco at a lower price. Different package sizes. Marketers sell different things to keep everyone happy. Safeway will reduce the price of breakfast cereals to sell other items at a premium. Kellogs gets mad because it is destroying the product reputation intern causing conflict.
Social demensions of channels:
- Channel Power (protector and gamble has power), Members capacity to control or influence the behavior of the other channel members
- Channel Control (grey market sold to mexico and reimported back to US) they can control the grocery stores they market to. A situation that occurs when one marketing channel member intentionally addects another members behavior.
- Channel leadership: (captain) A member of a marketing channel that exercises authority/power over the activities of other members. control of retail price APPLE
- Channel Conflict: Having conflicting goals, fail to fulfill expectations of other channel members, have ideological differences, have different perceptions of reality
- Channel Partnering: Joint effor of all channel members to create a channel that serves customers and creates a competitive advantage. By cooperating, channel members can speed up inventory replenishment, improve customer service, and reduce the total costs of the marketing channel
- Horizontal conflict: Occurs with channel members on the same level. Two wholesalers as an example. (healthy competition)
- Vertical Conflict: occurs between different levels in a marketing channel.Typically between a manufacturer and wholesaler.
Global marketing channels
- Some countries also enact economic policies that directly or indirectly regulate channel choices.
- Marketers must also be aware that many countries have “gray” marketing channels in which products are distributed through unauthorized channel intermediaries. It is estimated that sales of counterfeit luxury items like Prada handbags and Big Bertha golf clubs have reached almost $2 billion a year. The Internet has also proved to be a way for pirates to circumvent authorized distribution channels, especially in the case of popular prescription drugs.
Fastest growing in the economy
- -minimizing wait times
- -managing service capacity
- -improving service delivery
- -Establishing channel=wide network coherence
All the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use.
FOR FINAL CONSUMPTION
- US retailers employ 25 mill people
- 11.6 % of US employment
- 13% of US businesses
- Ring up almost 4 Trillion in sales
- 40% GDP
- Industry is dominated by a few giant orgs such as Walmart
Classification of retail operations
- Interdependent Retailers - owned by a single person or partnership and not part of larger retail institution
- Chain Stores - Owned and operated as a group by a single org
- Franchises - the right to operate a business or to sell a product (mcdonalds)
- Level of Service: Pay a higher price expect a higher level of service
- Product Assortment:Choices bassed on what store you go to. Classification based on BREADTH and DEPTH of product lines. Why limit the (assortment) offering to maintain lower prices walmart can turn over that shelf space many times over. Increase the volume and turnover the inventory at a much faster rate.
- Price: Traditional department stores and speciality stores sell full price. Walmart, Macys
- Gross Margin: How much the retailer makes as a percentage of sales after the cost of goods sold is subtracted.
- Service level: Mod hi - high
- Assortment: Preset
- Price: mod-high
- Gross Margin: Mod High
A store housing several departments under one roof. Each dept is headed by a buyer, or a department head who selects the merchandise. EX Sears
- Service level: high
- Assortment: Narrow
- Price: mod-high
- Gross Margin: High
A retail store specializing in a given type of merchandise. Best Buy, Lowes focusing in a special type of merchandise.
Lowes, sepora, Dollar stores
- Service level:low Migrating to self service
- Assortment: broad
- Price: moderate
- Gross Margin: low
Large, departmentalized, self=service retailer. Specidalizes in food. Some use scrambled merchandise.
Limited assortment supermarkets can offer merchandize up to 40% lower than conventional supermarkets.. tradermarkets
- Service level: :pw
- Assortment: Mod-Narrow
- Price: mod-high
- Gross Margin: mod - High
A miniature supermarket, carrying only a limited line of high-turnover convenience goods.
- Service level: Low Med
- Assortment: Med
- Price: moderate
- Gross Margin: Low
A retail store that stocks pharmacy-related products and services as its main draw.
Full time discounters
- Service level: Mid low
- Assortment: Mod
- Price: mod low
- Gross Margin: Mod Low
A retailer that offers consumers very limited service and carries a broad assortment of well known, nationally branded "hard goods"
- Mass Merchandising: a retailing strategy using moderate to low prices on large quantities of merchandise and lower levels of service to stimulate high turnover of products.
- Supercenter: Retail store that combines groceries and general merchandise goods with a wide range of services.
- Service level: Mod Low
- Assortment: Mod Broad
- Price: Mod to low
- Gross Margin: mod low
- A retial store that offers a nearly complete selection of single line merchandise and uses self service, discount prices, high volume, and high turnover.
- A Category Killer: a specialty discount store that heavily dominate their merchandise segment. Home Improvement stores offering one single line.
- Service level: low
- Assortment: broad
- Price: low to very low
- Gross Margin: low
Limited service merchant wholesalers that sell a limited selection of brand name appliances, household items, and groceries on a cash and carry basis to members. Bulk, good return policies. membership fee, merchandise changes.
Costco, Sams Club
Off Price Retailer
- Service level: Low
- Assortment: Mod to narrow
- Price: Low
- Gross Margin: Low
TJ Max, Marshalls, HomeGoods, Factory Outlets (picks up leftovers)
A retailer that sells at prices 25% or more below traditional department store prices because it pays cash for its store andusually doesn't ask for return priviledges.
Dollar Tree, limited service
- Service level: low-high
- Assortment: Narrow
- Price: Low to high
- Gross Margin: Low to high
Straddle the line beween retail and service establishments. Sell tangible products, (food, drink) but also services (food prep, food service). Many could be considered speciality retailers
Non Store retailing, direct retailing, direct marketing, and electronic retailing
- Automatic Vending: the use of machines to offer goods for sale. Vending is the most pervasive retail business in the US. with 11.5 million vending machines selling billions of dollars worth of goods annually. Selling conveniences.
- Direct Retailing: Door to Door, Office to office, home sales parties. Tupperware. Amway
- Direct marketing: Telemarketing, direct mail, catalogs and mail order, electronic retailing, shop at home networks
- Electronic Retailing: E-tailers Amazon, staples, apple, dell, walmart, sears, liberty media QVC, office max, CDW
2 basic forms:
- Product and Trade Name Franchising: Dealers agrees to sell in products provided by a manufacturer or wholesaler. AM PM, Hampton In H&R block, McDonalds Subway
- Business format franchising: An ongoing business relationship between a franchiser and a franchisee.
Retail Marketing Strategy
4 Ps of the marketing mix
- 1. Define & Select a Target Market
- Step 1: Demographics, geographics, psychographics
- 2. Develop a Retailing Mix (The retailing mix consists of six Ps: the four Ps of the marketing mix (product, place, promotion, and price) plus presentation and personnel)
- Step 2. Product, place, promotion, price, personnel, presentation.
- Product offering: The mix of products offered to the consumer by the retailer: also called the product assortment or
- merchandise mix.
- Promotion: coupons changing (facebook)
- Proper location: choosing a community, economic growth potential, competition, geography
- Retail Prices: Low vs. High prices, good value, quality image
- Presentation of store: Atmosphere, the overall impression, sound, employee type and density, visual factors.
- Personal and Customer Service: (selling techniques: trading up, suggestion selling)
- Customer service for Online: Easy returs, easy to use websites, product availabilty
New developments in retailing
- Interactivity: Consumers are involved in the retail experience (build a bear)
- M-Commerece: Purchasing goods through mobile devices.