Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 10

CHANNEL CON CEPTS: DISTRIBUTING THE PRODUCT

SUMMARY

The complex mechanism of connecting the producer with the consumer is referred to as the channel of chapter has looked at the evolution of the channel, as well as theoretical explanations

for the

channel phenomenon. Five "flows" are suggested that reflect the ties of channel mem-

bers with other agencies in the di stribution of goods and serv ices. A channel performs three important functions: (I) transactional functions, (2) logistical functions, and (3) facilitating functions. Channel strategies are evident for service products as well as for physical products. Options available for organizing the channel structure include: (1) conventional channels, (2) vertical marketing systems, (3) horizontal channel systems, and (4) multiple channel networks. Designing the optimal distribution channel depends on the objectives of the firm and the characteristics of available channel options .

The primary members of di stribution channels are manufacturers, Wholesalers, and retailers,

Retailin g is all activities required to market goods and services to the ultimate consumer. This makes retailers who perform such activities an important link in the channel of distribution for many consumer products.

Wholesaling involves all activities required to market goods and services to businesses, insti -

tutions,

industrial users who are motivated to buy for resale or to produce and

other prod-

ucts and services. Wholesalers provide a linkage between producers and

or

users.

Physical distribution management invol ves the movement and storage of materials, parts, and

finished inventory from suppliers, between middlemen, and to customers.

activ-

ities are undertaken to facilitate exchange between marketers and cuslomers, The

objective of

physical distribution is to provide an acceptable level of customer serv ice at the lowest possible cost.

This is done using the total cost concept, which requires that all the costs of each alternative distribution system be considered when a firm is attempting to provide

level

selvice.

Channels exhibit behavi or, as people do, and

behavior

to be coordinated and man-

aged in order to reach desired objectives. The four dimensions of behavior examined are role, communication, conflict, and power. Strategies for effective channel management include: (I ) analyze the consumer, (2) establish channel objectives, (3) specify the channel tasks, (4) select the appropriate channel from available alternatives. and (5 ) evaluate the results. The chapter concludes with a discussion of the

impact on channt:ls.

MARKETER'S VOCABULARY

Exchange function

Sales of the product to the various members of the channel of distribution.

Physical distribution function

Moves the product through the

change channel, along with

title and ownership.

Marketing channel

Sets of independent organizations involved in the process of making a prod-

uct or service available for use or consumption as well as providing a payment mechanism for the provider.

Routinization

The right products are most always fou nd in places where the consumer expects

to find them, comparisons are possible, prices are marked, and methods of payment are

Retailing

Involves all activities required to market consumer goods

services to

consumers.

Nonstore retailing

Sales made to ultimate consumers outside a traditional retail store selting.

Wholesaling

Incl udes all activities required to market goods and services to businesses,

tions, or industrial users.

Conventional channel

A group of independent businesses, each motivated by profit, and having

little concern about any other member of the distl' ibuti.on sequence.

CASE APPLICATION

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Vertical marketing system

about when a member of the distribution channel assumes a

leadership

and attempts to coordinate the efforts of the channel.

Channel role

Defines what the behavior of the channel member should be.

Channel conflict

Personal and direct friction; often

a potential confrontation.

Channel power

A willingness to usc force in a relationship.

DISCUSSION QUESTIONS

1. Discuss the difference

the theories of the sorting concept and the postponement concept.

2. What are the

important

that lin k channel members and other agencies together in

distribution? Explain each type.

3. Define the following three channel functions: (1) transactional, (2) logistical, and (3) facilitating . What would happen to these functions if the middlemen were eliminated from the chain-

linking manufacturer to consumer"

4. Why are channels of distribution important for service products?

S. Compare the characteristics of the three forms of vertical marketing systems: administered, contractual, and corporate.

6. What are the advantages to

of contractual

forming cooperatives with

retailers? What

the advantages to retailers"

7. What is an ancillary structure? What is its function in the distribution

8. How do economic condjtions of inflation, recession, and shortages impact upon the channel environment?

9. Discuss situations in which channel conflict may be desirable. How should conflict that produces negative effects be managed?

PROJECT

Starting with a well-known manufacturer. trace the

channel intermediaries employed. Draw

a channel diagram.

CASE APPLICATION

CONNECTING CHANNEL MEMBERS

Brokels are in the midst of an identity crisis.

represent more than 3.000

comprising nearly

of all commodity volume in package goods alJ.d 80% of U.S. grocery

warehouse withurawals.

brokers rank among the top 10 vendors of their major retail customers.

Much to their continuing frustration. huwever, many manufacturers are experimenting with some combination of broker and direct resources in an attempt to deal with the new marketplace. Some of these models are working, but managers are not.

"While each manufacturer must

a host of different strategies to match thai of indi-

vidual customers, the broker

the luxury to organize his total

around hi s individual cus-

tomers," says National Food Brokers Association

president and

Robert Schwarze. Brokers

have always been regarded for their local market expertise, but the rapid shift to micromarketing is

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