- MBA Boost - https://www.mbaboost.com -

Kotler Summary – Chapter 18: Selecting & Managing Marketing Channels

What are Marketing Channels?

Sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

Why are They Used?

Channel Functions & Flows

Info-Promotion-Negotiation-Ordering-Financing-Risk taking-Physical possession-Payment-Title

All of the functions have 3 things in common:

  1. They use up scarce resources.
  2. Can be performed better through specialization.
  3. They are shiftable among channel members.

Channel Levels

Each intermediary that performs work in bringing the product & its title closer is a channel level.

The longer the channel, the more difficult it is to exercise control.

Channel-Design Decisions

Designing a channel system calls for analyzing customer needs, establishing channel objectives, & identifying & evaluating the major channel alternatives.

Analyzing Customers’ Desired Service Output Levels

Channels produce 5 service output levels:

  1. Lot size: # of units that the marketing channel permits a typical customer to purchase on a purchase occasion
  2. Waiting time: Average time that customers of that channel wait for receipt of the goods.
  3. Spatial convenience: Degree to which the marketing channel makes it easy for customers to purchase the product.
  4. Product variety: assortment breadth.
  5. Service backup: add-on services provided by the channel (installation, repairs, credit).

Establishing the Channel Objectives & Constraints

Identifying the Major Channel Alternatives

A channel alternative is described by three elements:

  1. Types of intermediaries.
  2. Depends on the service outputs desired by the target market & the channel’s transactions costs. The company must search for the channel alternative that promises the most long-run profitability.

  3. Number of intermediaries.
  4. Exclusive distribution
    Selective distribution
    Intensive distribution

  5. Terms & responsibilities of channel members
    The producer must determine the rights & responsibilities of the participating channel members, making sure that each channel member is treated respectfully & given the opportunity to be profitable.

Evaluating the Major Channel Alternatives

Each alternative needs to be evaluated against three criteria.

  1. Economic Criteria
    • The first step is to determine whether a company sales force or a sales agency will produce more sales.
    • The next step is to estimate the costs of selling different volumes through each channel.
    • The final step is comparing sales & costs.

    Each channel will produce a different level of sales & costs.

  2. Control Criteria
    The agents may concentrate on other customers’ products or they may lack the skills to handle our products.
  3. Adaptive Criteria
    The channel members must make some degree of commitment to each other for a specified period of time.

Channel-Management Decisions

After a company has chosen a channel alternative, individual intermediaries must be selected, motivated & evaluated.

Selecting Channel Members

For some producers this is easy; for others it’s a pain in the ass.
Anyway, in order to select them, producers should determine what characteristics distinguish the better intermediaries (years in business, other lines carried, solvency, reputation, etc.)

Motivating Channel Members

Constant training, supervision & encouragement. Producers can draw on the following types of power to elicit cooperation:

Evaluating Channel Members

Underperformers need to be counseled, retrained or re-motivated. If they do no shape up, it might be best to terminate their services.

Modifying Channel Arrangements

Periodic modification to meet new conditions in the marketplace. Modification is necessary when:

3 levels of channel adaptation can be distinguished:

  1. Adding or dropping individual channel members.
  2. Adding or dropping particular market channels.
  3. Developing a totally new way to sell goods in all markets.

Channel Dynamics

Conventional marketing channel

Vertical Marketing Systems

  1. Producer, wholesaler(s) & retailer(s) act as a unified system.
  2. They all cooperate.
  3. Can be dominated by any of the three members of the system.
  4. It arose as a result of strong channel members’ attempts to control channel behavior & eliminate the conflict that results when independent channel members pursue their own objectives.
  5. Has become the dominant mode of distribution in the U.S. consumer marketplace.

3 types of VMS:

  1. Corporate VMS
    Combines successive stages of production & distribution under single ownership. (Sears).
  2. Administered VMS
    Coordinates successive stages of production & distribution through the size & power of one of members (Kodak, Gillete, P&G)
  3. Contractual VMS
    Independent firms at different levels of production & distribution integrating their programs on a contractual basis to obtain more economies &/or sales impact than they could achieve alone. 3 types:

    • Wholesaler-sponsored voluntary chains
    • Retailer cooperatives
    • Franchise organizations

Horizontal Marketing Systems

Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.

Multichannel Marketing Systems

A single firm uses two or more marketing channels to reach one or more customer segments. By adding more channels, companies can gain 3 important benefits: increased market coverage, lower channel cost, more customized selling.

Roles of Individual Firms in the Channel

Channel Cooperation, Conflict & Competition

Types of conflict & competition

Causes of Channel Conflict

Managing Channel Conflict

Legal & Ethical Issues in Channel Relations