Ch 14 - 1 Copyright 2011 Pearson Education

Principles of Marketing,
Arab World Edition
Philip Kotler, Gary Armstrong, Anwar Habib, Ahmed
Tolba
Presentation prepared by Annelie Moukaddem Baalbaki

CHAPTER FOURTEEN
Managing Marketing Channels

Lecturer: Insert your name here

Ch 14 -2 Copyright 2011 Pearson Education

Chapter Learning Outcomes
Topic Outline

12.1 Supply Chains and the Value Delivery Network

12.2 The Nature and Importance of Marketing Channels
12.3 Channel Behavior and Organization
12.4 Channel Design Decisions
12.5 Channel Management Decisions
12.6 Marketing Logistics and Supply Chain Management

Ch 14 - 3 Copyright 2011 Pearson Education

Chapter Learning Outcomes
Topic Outline

12.7 Retailing
12.8 Retailer Marketing Decisions
12.9 Wholesaling
12.10 Agents and Distributors

Ch 14 - 4 Copyright 2011 Pearson Education

Supply Chains and the Value Delivery Network
Supply Chain Partners

Upstream partners include raw material suppliers,

components, parts, information, finances, and expertise to
create a product or service.

Downstream partners include the marketing channels or

distribution channels that look toward the customer.

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Supply Chains and the Value Delivery Network
Supply Chain Views

Supply chain make and sell view includes the firms raw
materials, productive inputs, and factory capacity.

Demand chain sense and respond view suggests that

planning starts with the needs of the target customer, and the
firm responds to these needs by organizing a chain of
resources and activities with the goal of creating customer
value.

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Supply Chains and the Value Delivery Network
Value Delivery Network

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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The Nature and Importance of Marketing Channels
How Channel Members Add Value

Marketing Channels (distribution channels): A set of

interdependent organizations that help make a product or
service available for use or consumption by the consumer or
business user.

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The Nature and Importance of Marketing Channels
How Channel Members Add Value

Transform the assortment of products into assortments

wanted by consumers
Play a role in matching supply and demand
Add value by bridging the major time, place, and possession
gaps that separate goods and services from those who
would use them

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The Nature and Importance of Marketing Channels

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The Nature and Importance of Marketing Channels
How Channel Members Add Value

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The Nature and Importance of Marketing Channels

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The Nature and Importance of Marketing Channels
Number of Channel Levels

Connected by types of flows:

1. Physical flow of products
2. Flow of ownership
3. Payment flow
4. Information flow
5. Promotion flow

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Channel Behavior and Organization
Channel Behavior

Marketing channel consists of firms that have partnered for

their common good with each member playing a specialized
role.

Channel conflict refers to disagreement over goals, roles,

and rewards by channel members.
1. Horizontal conflict
2. Vertical conflict

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Channel Behavior and Organization
Conventional Distributions Systems

Conventional distribution channel consists of one or more

independent producers, wholesalers, and retailers. Each seeks
to maximize its own profits, and there is little control over the
other members and no formal means for assigning roles and
resolving conflict.

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Channel Behavior and Organization
Vertical Marketing Systems

Vertical marketing systems (VMSs) provide channel

leadership and consist of producers, wholesalers, and retailers
acting as a unified system.
We look at 3 types of VMSs:
1. Corporate marketing systems
2. Contractual marketing systems
3. Administered marketing systems

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Channel Behavior and Organization
Vertical Marketing Systems

Corporate vertical marketing system integrates successive

stages of production and distribution under single ownership.

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Channel Behavior and Organization
Vertical Marketing Systems

Contractual vertical marketing system consists of

independent firms at different levels of production and
distribution who join together through contracts to obtain more
economies or sales impact than each could achieve alone. The
most common form is the franchise organization.
1. Manufacturer-sponsored retailer franchise system
2. Manufacturer-sponsored wholesaler franchise system
3. Service firm-sponsored retailer franchise system

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Channel Behavior and Organization
Vertical Marketing Systems

Administered vertical marketing system has a few

dominant channel members without common ownership.
Leadership comes from size and power.

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Channel Behavior and Organization
Horizontal Marketing System

Horizontal marketing systems are when two or more

companies at one level join together to follow a new marketing
opportunity.

Companies combine financial, production, or marketing

resources to accomplish more than any one company could
alone.

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Channel Behavior and Organization
Multichannel Distribution Systems

Multichannel Distribution systems (Hybrid marketing

channels) are when a single firm sets up two or more
marketing channels to reach one or more customer segments.

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Channel Behavior and Organization

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Channel Behavior and Organization
Changing Channel Organization

Disintermediation occurs when product or service

producers cut out intermediaries and go directly to final
buyers, or when radically new types of channel intermediaries
displace traditional ones.

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Channel Design Decisions

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Channel Design Decisions
Setting Channel Objectives

Targeted levels of customer service

What segments to serve
Best channels to use
Minimizing the cost of meeting customer service
requirements

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Channel Design Decisions
Identifying Major Alternatives

1. Types of intermediaries
Sales force, manufacturer's agency, industrial
distributors
2. Number of marketing intermediaries
Intensive, exclusive, selective
3. Responsibilities of channel members
Price policies, conditions of sale, territorial rights

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Channel Design Decisions
Identifying Major Alternatives

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Channel Design Decisions
Evaluating the Major Alternatives

Each alternative should be evaluated against:

Economic criteria
Control
Adaptive criteria

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Channel Design Decisions
Designing International Distribution Channels

Channel systems can vary from country to country

Must be able to adapt channel strategies to the existing
structures within each country

Copyright 2011 Pearson Education

Channel Management Decisions

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Public Policy and Distribution Decisions
Public Policy

Exclusive distribution is when the seller allows only certain

outlets to carry its products.
Exclusive dealing is when the seller requires that the sellers
not handle competitors products.
Exclusive territorial agreements are where the producer or
seller limit territory.
Tying agreements are agreements where the dealer must
take most or all of the line.

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Marketing Logistics and Supply Chain
Management
Nature and Importance of Marketing Logistics

Marketing logistics (physical distribution) involves planning,

implementing, and controlling the physical flow of goods,
services, and related information from points of origin to
points of consumption to meet consumer requirements at a
profit.
1. Outbound distribution
2. Inbound distribution
3. Reverse distribution

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Marketing Logistics and Supply Chain
Management

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Marketing Logistics and Supply Chain
Management
Nature and Importance of Marketing Logistics

Supply chain management is the process of managing

upstream and downstream value-added flows of materials,
final goods, and related information among suppliers, the
company, resellers, and final consumers.

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Marketing Logistics and Supply Chain
Management
Goals of the Logistics Functions

The goal of marketing logistics should be to provide a targeted

level of customer service at the least cost.

A company must first research the importance of various

distribution services to customers and then set desired service
levels for each segment.

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Marketing Logistics and Supply Chain
Management
Major Logistics Functions

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Marketing Logistics and Supply Chain
Management
Integrated Logistics Management

Integrated logistics management: The logistics concept

that emphasizes teamwork, both inside the company and
among all the marketing channel organizations, to maximize
the performance of the entire distribution system.
1. Cross-functional teamwork inside the company
2. Building logistics partnerships
3. Third party logistics

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Retailing

Retailing includes all the activities involved in selling products

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

Retailers are businesses whose sales come primarily from

retailing.

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Major Store Retailer Types

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Retailing
Types of Retailers

Amount of service
1. Self-service
2. Limited service
3. Full service

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Retailing
Types of Retailers

Product Line
1. Specialty stores
2. Department stores
3. Supermarkets
4. Convenience stores
5. Hypermarkets
6. Service retailers

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Retailing
Types of Retailers

Relative Prices
1. Discount stores
2. Independent Off-price retailers
3. Factory outlets

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Retailing
Types of Retailers

Organizational Approach
1. Chain stores
Corporate chains
Voluntary chains
Retailer cooperative
2. Franchise organizations
3. Merchandizing conglomerates

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Retailer Marketing Decisions

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Retailer Marketing Decisions
Segmentation targeting, differentiation, and positioning

Retailers must first segment and define their target markets

and then decide how they will differentiate and position
themselves in these markets.

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Retailer Marketing Decisions
Product Assortment and Service

Product assortment and services decisions include:

1. Product assortment
2. Services mix
3. Store atmosphere

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Retailer Marketing Decisions
Price Decision

Price policy must fit the target market and positioning,

product and service assortment, and competition.

High markup on lower volume

Low markup on higher volume
High-low pricing
Everyday low price - EDLP

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Retailer Marketing Decisions
Promotion Decision

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Retailer Marketing Decisions
Place Decision

A shopping center is a group of retail businesses planned,

developed, owned, and managed as a unit.
Regional shopping centers
Community shopping centers
Neighborhood shopping centers

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Wholesaling

Wholesaling includes all activities involved in selling goods and services to those buying for
resale or business use.

Selling and promoting Financing

Buying and assortment Risk bearing
building
Market information
Bulk breaking
Management services and
Warehousing advice
Transportation

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Wholesaling

Selling and promoting involves the wholesalers sales force

helping the manufacturer reach many smaller customers at a
lower cost.

Buying and assortment building involves the selection of

items, and building of assortments needed by their customers,
saving the customers work.

Bulk breaking involves the wholesaler buying in larger

quantity and breaking into smaller lots for its customers.

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Wholesaling

Warehousing involves the wholesaler holding inventory,

reducing its customers inventory cost and risk.

Transportation involves the wholesaler providing quick

delivery due to its proximity to the buyer.

Financing involves the wholesaler providing credit and

financing suppliers by ordering earlier and paying on time.

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Wholesaling

Risk bearing involves the wholesaler absorbing risk by taking

title and bearing the cost of theft, damage, spoilage, and
obsolescence.

Market information involves the wholesaler providing

information to suppliers and customers about competitors, new
products, and price developments.

Management services and advice involves wholesalers

helping retailers train their sales clerks, improve store layouts,
and set up accounting and inventory control systems.

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Agents And Distributors

Local Agent: An agent who acts as a broker between a

local buyer and a foreign company.

Exclusive distributor: A representative who buys, stocks,

and sells the products of a foreign company to a retailer and
wholesaler in his or her territory.

Ch 14 - 54 Copyright 2011 Pearson Education

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Ch 14 - 55 Copyright 2011 Pearson Education