Description
As a strategic marketing tool, marketing channels had, for many years, taken something of a "back seat" to the other three strategic areas of the marketing mix: product, price, and promotion. Many firms viewed marketing channel strategy as somewhat of a "leftover" after the more "important" product, price, and promotional strategies had been considered.
par
t
1
Marketing Channel Systems
CHAPTER 1 / Marketing Channel Concepts
CHAPTER 2 / The Channel Participants
CHAPTER 3 / The Environment of Marketing Channels
CHAPTER 4 / Behavioral Processes in Marketing Channels
1
chapte
r
1
Marketing Channel Concepts
Learning Objectives: After reading this chater !"# sh"#$d:
• %e a&are "f the gr"&ing i'"rtance "f 'ar(eting channe$s in the $arger fie$d "f 'ar(eting)
• *nderstand the definiti"n "f the 'ar(eting channe$ fr"' a 'anageria$ ersective)
• +ee h"& 'ar(eting channe$s re$ate t" the "ther strategic variab$es in the 'ar(eting 'i,) •
-n"& the ?"&s in 'ar(eting channe$s and h"& the! re$ate t" channe$ 'anage'ent)
• *nderstand the rinci$es "f secia$i.ati"n and divisi"n "f $ab"r as &e$$ as c"ntact#a$ efficienc! in 'ar(eting channe$s) •
%e fa'i$iar &ith the c"ncets "f channe$ str#ct#re and anci$$ar! str#ct#re and rec"gni.e the difference bet&een the')
2
CHAPTER 1 / Marketing Channel Concepts 3
FOCUS ON CHANNELS
The Right Marketing Channels Turned a Mint into a Mint
How do you go from an obscure product wit a common strategy for penetrating mass mar!ets" annua#
sa#es under $1% mi##ion to an interna& was out of te 'uestion( )nstead *raft decided to
tiona##y recogni+ed brand wit mass appea# use a mass distribution strategy by ma!ing A#toids
and sa#es o,er $1%% mi##ion in #ess tan a decade- a,ai#ab#e in supermar!ets" drug cains" and mass A#toids
did it wit some smart mar!eting canne# mercandisers a## o,er te U(S( *raft reasoned tat
strategy( a,ing A#toids readi#y a,ai#ab#e were,er consumers
)t seems #i!e e,erybody now recogni+es te name sopped wou#d a,e great appea# because of te .A#toids.
as te ma!er of tose e/tra&strong ard con,enience factor" and te giant retai# cains wou#d candy
mints pac!aged in #itt#e tin bo/es tat seem to we#come te additiona# re,enue and ig margins be so#d
e,erywere at $0 or more a pop( 1ut it wasn2t pro,ided by a product tat cou#d be so#d as an too #ong
ago tat te .curious#y strong. taste of impu#se item at cec!out counters" wi#e ta!ing up
A#toids mints was !nown main#y to a sma## cu#t fo#& ,ery #itt#e se#f space(
#owing in Eng#and and to a few aficionados in te 3e tenfo#d growt in sa#es of A#toids during te U(S( wo
prow#ed gourmet sops( A## tis canged 144%s is testimony to ow effecti,e#y *raft2s mar!et& wen
te *raft Foods di,ision of 5i#ip 6orris Compa& ing canne# strategy wor!ed out( )ndeed" wi#e ma!& nies"
te producer of A#toids" be#ie,ed tat its mints ing tis curious mint con,enient#y a,ai#ab#e to mi##ions
cou#d en7oy a muc wider appea#( For tis to appen" of consumers by p#acing it in te mar!eting canne#s
A#toids wou#d a,e to be repositioned from an were tey sopped e,ery day" *raft and te retai#
obscure no,e#ty item to a mainstream mass&mar!et cains reaped a mint in sa#es and profits(
product( 8et A#toids2 cacet and premium price wou#d
sti## a,e to be maintained( So" a mar!eting strategy
Source: Based on Cathleen Egan, Altoids Mint Success !pens "oor #or Cand$
based on ea,y ad,ertising wit big price reductions" Market%s &iche Pla$ers, 9a## Street
urna# 'August (), ())1*: B+,
4 PART 1 / Marketing Channel S$ste-s
The Altoids example illustrates the essence of what marketing channels are all about;making
products and services conveniently available to customers when, where, and how they want
them. From Amazon.com, which sells books and other consumer products online,
1
to
oo!oo, a producer of fertilizer made of manure collected from zoo animals and sold to
organic gardeners, it is through marketing channels that the vast array of customer demand is
satisfied.
These marketing channels and the people who participate in them comprise complex and
dynamic systems. "ut much of what they do is not visible to final customers. #ustomers see
only the end result of a host of strategies, plans, and actions that create new types of stores,
distribution centers, services, and technologies that determine the structure and operation of
marketing channels. $arketing channels in turn affect the lives of hundreds of millions of
customers who rely on them to make the myriad of products and services from around the
globe so conveniently available.
%n this text we go &behind the scenes& and take an in'depth look at marketing channels.
(e examine the nature of marketing channels, their importance in marketing, and how they
evolve, develop, and change. (e will focus especially on the role of strategy in marketing
channels, as well as how they are designed, managed, and evaluated. Although, as mentioned
earlier, much of the activity in marketing channels takes place behind the scenes, as we pro'
ceed through the text and peer into this background, a challenging and fascinating part of
marketing will emerge.
'Growing Importance of Marketing
Channels
As a strategic marketing tool, marketing channels had, for many years, taken something of a
&back seat& to the other three strategic areas of the marketing mix) product, price, and pro'
motion. $any firms viewed marketing channel strategy as somewhat of a &leftover& after the
more &important& product, price, and promotional strategies had been considered.
"ut this neglect of marketing channels has changed;in many cases to a keen interest in
the area.
*
(hy has this happened+ At least four developments underlie this shift in emphasis)
1. ,xplosion of information technology and ,'commerce
*. -reater difficulty of gaining a sustainable competitive advantage ..
-rowing power of distributors, especially retailers in marketing
channels /. The need to reduce distribution costs
Explosion of Information Technology and E-Commerce
"y the late 1011s, %nternet'based electronic commerce 2,'commerce3 had become the most
talked about business phenomenon of the twentieth century. 4othing short of a revolution
was predicted where &old economy,& &land'based,& &legacy,& or &bricks and mortar& busi' nesses
were supposed to succumb to the &new paradigm& of the pure'play dot'com start'ups that were
creating a &new economy& based on the technology of ,'commerce. %n fact, a new piece of
5argon called disintermediation was bandied about as a shorthand for the metamor' phosis
that was to occur. 6undreds of thousands of producers would be connected directly with
millions of consumers on a global scale without the help of middlemen, who would be
disintermediated from marketing channels.
1. 7obert !. 6of and 6eather -reen, &6ow Amazon #leared That 6urdle,& Business .eek 2February /, *11*3) 81'89.
*. -ary :. Frazier, &;rganizing and $anaging #hannels of !istribution,& /ournal o# the Acade-$ o# Marketing Science
2ones is appealing to a target market that seeks the kind of service
that is not available from the tech'oriented brokerages such as ,'trade or from giants such as
$errill :ynch. %n fact, $errill dropped personal service to small clients and instead directed
them to call centers. This has created a stampede of a thousand clients per month from $er'
rill to ,dward >ones.
%n spite of ,dward >onesCs high'cost office network, it has been more profitable than $er' rill,
#harles onesCs marketing channel for finan'
cial services obviously could not be Buickly or easily copied by competitors.
0
!ro$ing Po$er of Distri"tors
;ver the past two decades, economic clout has shifted from the producers of goods to the dis'
tributors of goods.
11
This shift in economic power has been especially noticeable at the retail
level of marketing channels, where giant mass merchandisers such as (al'$art and so'
called category killers such as 6ome !epot, ;ffice $ax, Toys &7& As, #ompAames ,. #oleman, &The . (alker, &The #hannels $anager) $arketingCs 4ewest Aide+& Cali#ornia Man3
age-ent Re0ie1 2(inter 10GG3) 9*'9G= and "ruce >. (alker, >anet ,. Keith, and !onald (. >ackson, >r., &The #hannels
$anager) 4ow, oint Action in "uyer'
As a strategic marketing tool, marketing channels had, for many years, taken something of a "back seat" to the other three strategic areas of the marketing mix: product, price, and promotion. Many firms viewed marketing channel strategy as somewhat of a "leftover" after the more "important" product, price, and promotional strategies had been considered.
par
t
1
Marketing Channel Systems
CHAPTER 1 / Marketing Channel Concepts
CHAPTER 2 / The Channel Participants
CHAPTER 3 / The Environment of Marketing Channels
CHAPTER 4 / Behavioral Processes in Marketing Channels
1
chapte
r
1
Marketing Channel Concepts
Learning Objectives: After reading this chater !"# sh"#$d:
• %e a&are "f the gr"&ing i'"rtance "f 'ar(eting channe$s in the $arger fie$d "f 'ar(eting)
• *nderstand the definiti"n "f the 'ar(eting channe$ fr"' a 'anageria$ ersective)
• +ee h"& 'ar(eting channe$s re$ate t" the "ther strategic variab$es in the 'ar(eting 'i,) •
-n"& the ?"&s in 'ar(eting channe$s and h"& the! re$ate t" channe$ 'anage'ent)
• *nderstand the rinci$es "f secia$i.ati"n and divisi"n "f $ab"r as &e$$ as c"ntact#a$ efficienc! in 'ar(eting channe$s) •
%e fa'i$iar &ith the c"ncets "f channe$ str#ct#re and anci$$ar! str#ct#re and rec"gni.e the difference bet&een the')
2
CHAPTER 1 / Marketing Channel Concepts 3
FOCUS ON CHANNELS
The Right Marketing Channels Turned a Mint into a Mint
How do you go from an obscure product wit a common strategy for penetrating mass mar!ets" annua#
sa#es under $1% mi##ion to an interna& was out of te 'uestion( )nstead *raft decided to
tiona##y recogni+ed brand wit mass appea# use a mass distribution strategy by ma!ing A#toids
and sa#es o,er $1%% mi##ion in #ess tan a decade- a,ai#ab#e in supermar!ets" drug cains" and mass A#toids
did it wit some smart mar!eting canne# mercandisers a## o,er te U(S( *raft reasoned tat
strategy( a,ing A#toids readi#y a,ai#ab#e were,er consumers
)t seems #i!e e,erybody now recogni+es te name sopped wou#d a,e great appea# because of te .A#toids.
as te ma!er of tose e/tra&strong ard con,enience factor" and te giant retai# cains wou#d candy
mints pac!aged in #itt#e tin bo/es tat seem to we#come te additiona# re,enue and ig margins be so#d
e,erywere at $0 or more a pop( 1ut it wasn2t pro,ided by a product tat cou#d be so#d as an too #ong
ago tat te .curious#y strong. taste of impu#se item at cec!out counters" wi#e ta!ing up
A#toids mints was !nown main#y to a sma## cu#t fo#& ,ery #itt#e se#f space(
#owing in Eng#and and to a few aficionados in te 3e tenfo#d growt in sa#es of A#toids during te U(S( wo
prow#ed gourmet sops( A## tis canged 144%s is testimony to ow effecti,e#y *raft2s mar!et& wen
te *raft Foods di,ision of 5i#ip 6orris Compa& ing canne# strategy wor!ed out( )ndeed" wi#e ma!& nies"
te producer of A#toids" be#ie,ed tat its mints ing tis curious mint con,enient#y a,ai#ab#e to mi##ions
cou#d en7oy a muc wider appea#( For tis to appen" of consumers by p#acing it in te mar!eting canne#s
A#toids wou#d a,e to be repositioned from an were tey sopped e,ery day" *raft and te retai#
obscure no,e#ty item to a mainstream mass&mar!et cains reaped a mint in sa#es and profits(
product( 8et A#toids2 cacet and premium price wou#d
sti## a,e to be maintained( So" a mar!eting strategy
Source: Based on Cathleen Egan, Altoids Mint Success !pens "oor #or Cand$
based on ea,y ad,ertising wit big price reductions" Market%s &iche Pla$ers, 9a## Street
urna# 'August (), ())1*: B+,4 PART 1 / Marketing Channel S$ste-s
The Altoids example illustrates the essence of what marketing channels are all about;making
products and services conveniently available to customers when, where, and how they want
them. From Amazon.com, which sells books and other consumer products online,
1
to
oo!oo, a producer of fertilizer made of manure collected from zoo animals and sold to
organic gardeners, it is through marketing channels that the vast array of customer demand is
satisfied.
These marketing channels and the people who participate in them comprise complex and
dynamic systems. "ut much of what they do is not visible to final customers. #ustomers see
only the end result of a host of strategies, plans, and actions that create new types of stores,
distribution centers, services, and technologies that determine the structure and operation of
marketing channels. $arketing channels in turn affect the lives of hundreds of millions of
customers who rely on them to make the myriad of products and services from around the
globe so conveniently available.
%n this text we go &behind the scenes& and take an in'depth look at marketing channels.
(e examine the nature of marketing channels, their importance in marketing, and how they
evolve, develop, and change. (e will focus especially on the role of strategy in marketing
channels, as well as how they are designed, managed, and evaluated. Although, as mentioned
earlier, much of the activity in marketing channels takes place behind the scenes, as we pro'
ceed through the text and peer into this background, a challenging and fascinating part of
marketing will emerge.
'Growing Importance of Marketing
Channels
As a strategic marketing tool, marketing channels had, for many years, taken something of a
&back seat& to the other three strategic areas of the marketing mix) product, price, and pro'
motion. $any firms viewed marketing channel strategy as somewhat of a &leftover& after the
more &important& product, price, and promotional strategies had been considered.
"ut this neglect of marketing channels has changed;in many cases to a keen interest in
the area.
*
(hy has this happened+ At least four developments underlie this shift in emphasis)
1. ,xplosion of information technology and ,'commerce
*. -reater difficulty of gaining a sustainable competitive advantage ..
-rowing power of distributors, especially retailers in marketing
channels /. The need to reduce distribution costs
Explosion of Information Technology and E-Commerce
"y the late 1011s, %nternet'based electronic commerce 2,'commerce3 had become the most
talked about business phenomenon of the twentieth century. 4othing short of a revolution
was predicted where &old economy,& &land'based,& &legacy,& or &bricks and mortar& busi' nesses
were supposed to succumb to the &new paradigm& of the pure'play dot'com start'ups that were
creating a &new economy& based on the technology of ,'commerce. %n fact, a new piece of
5argon called disintermediation was bandied about as a shorthand for the metamor' phosis
that was to occur. 6undreds of thousands of producers would be connected directly with
millions of consumers on a global scale without the help of middlemen, who would be
disintermediated from marketing channels.
1. 7obert !. 6of and 6eather -reen, &6ow Amazon #leared That 6urdle,& Business .eek 2February /, *11*3) 81'89.
*. -ary :. Frazier, &;rganizing and $anaging #hannels of !istribution,& /ournal o# the Acade-$ o# Marketing Science
2ones is appealing to a target market that seeks the kind of service
that is not available from the tech'oriented brokerages such as ,'trade or from giants such as
$errill :ynch. %n fact, $errill dropped personal service to small clients and instead directed
them to call centers. This has created a stampede of a thousand clients per month from $er'
rill to ,dward >ones.
%n spite of ,dward >onesCs high'cost office network, it has been more profitable than $er' rill,
#harles onesCs marketing channel for finan'
cial services obviously could not be Buickly or easily copied by competitors.
0
!ro$ing Po$er of Distri"tors
;ver the past two decades, economic clout has shifted from the producers of goods to the dis'
tributors of goods.
11
This shift in economic power has been especially noticeable at the retail
level of marketing channels, where giant mass merchandisers such as (al'$art and so'
called category killers such as 6ome !epot, ;ffice $ax, Toys &7& As, #ompAames ,. #oleman, &The . (alker, &The #hannels $anager) $arketingCs 4ewest Aide+& Cali#ornia Man3
age-ent Re0ie1 2(inter 10GG3) 9*'9G= and "ruce >. (alker, >anet ,. Keith, and !onald (. >ackson, >r., &The #hannels
$anager) 4ow, oint Action in "uyer'