1. J.K. Higginson:
Nolesfor Marketing
Channels
Management,
Winter2008
@James Higginson
K. 2001-08. rights
All reserved.Reproductioncopying thisdocument,
or of in
wholeor in part,by anymeans(graphic,
electronic, mechanical)exilressly
or prohibited.
is
PART1: OVERVIEW MARKETING
OF CHANNELS
INTRODUCTION MARKETING
TO CHANNELMANAGEMENT
lntroduction
Exampte1: What issuesin marketing channelmanagement illustrated the following
are in
example? j,.,.,,
r,, 1
., ..,quot;1othe early 1970s,Sara Lee Corporation's L'eggsbecame first,'niajor
the brandof
i,'quot; pantyhos-ebe.sold
to grocery drugstores.Prior that,virtually pantyhose
throug.h and to dll
wassoldthroughdiscountdepartment stores,
traditional
department stored, specialty
and
acceptance theirproducts retailers to betteienablil
stores. increase
To of by and
;,quot;?pp€ll€l
quot; consumers use self-service,
to L'eggsdeveloped special displayracksfor retailers
to
,1
L'eggs'
display uniquely
shapedcontainers.
SaraLee useda similar marketing with pantyhose
channel strategy its Underalls brand.
Und^eralls onlysold in traditional
were
Originally, department
storesand upscale retail
outlets.ln 1978,
SaraLeestarted selling
Underalls Kmart
to andotherdiscoirnt
retailers.
By 1985,il hgdstopped sellingUnderalls traditional
in department
stores,and in 1988,
transferred Underalls its L'eggsdivision. Throughthis division,
to Underalls were
distributed grocery
to stores,drugstores, massmerchandisers.
and
.., L'eggs Underalls soldto thesameretailers, Leecarefullv
and
Since are Sara distinquished
eachbrand.Eachbrand a unique package,
has separatedisplays use-d
are wheriastore
carriesboth brands,and differentpricingstrategies
are us-ed. The L'eggsbrand
designation not usedon the Underalls
is package in Underalls
oi advertising.quot;--
Source:
adapted
from B. Berman[1996],Marketing
Channels.
Distribution
quot;Distributionquot;
refers thefunctions activities
to involvedn getting product
and i a froma seller a
to
buyer.
Thereare eightgeneral
functions mustbe carried whendistributingproduct:
that out a
DistributionFunction Definition
Physicalflow the physical
movement a product
of fromthe
manufacturer through parties the final
all to
consumer
Ownership the transfer titleto a product
of fromthe
manufacturer through parties thefinalcustomer
all to
Negotiation the negotiation
required taketitleor transfer to
to tiile
goods, the providing direct
or of assistance a
to
buyer seller
or
-f*quot; . ,' ,v? -l ,rquot;9
'.'{
*?-l _*: **f e--
cll9t^*?.1 A.i or^9
> *!,
I lquot; rrr/ l/ c ctJl
tr
rra tel, ed 'prquot;o#,*^S 'tnJ 0L Q *4
t t^9l^' *1
'l
v,-a N 'a Y a&VVr
Ytquot;
, u
Y'(nl d4,relf
i,qd'vttA
I ct4,A'tl-{--,{ *,
q r}quot;}sl
a,fi*+* quot;
a .pa.'v.'ovr S 61 {A L
i5 S*u|
i^!quot;R
I

2. J.K. Higginson:
Nofesfor Marketing Management,
Winter2008
Channels
2
Function Definition
Distribution ,
theflowof persuasive (advertising;
Promotion communication
personal salespromotion, publicity)
selling, and
required sella product
to
(risk-sharing risk- the sharing transferring risksassociated
and
Risking or with
of
carrying selling product
taking) and a
associated the purchase
theflowof information with
Ordering
andsaleof a product
the arranging fundsor credit payfor a
Financing to
of
purchased product
Payment the disbursement cash,or receipt handling
of and of
cash,in payment a product
for bought sold
or
WhatAre Marketing
Channels?
ln the listof eightgeneral perform
functions,
distribution members the marketing
of channel the
function the negotiation
and function:
ownership
. taking andtransferring to goods
the ownership functioninvolves title title
. the negotiation functionincludes negotiating take,Utleo+transfer.title,togoods,
to or
assisting buying
in
directly and/or selling activifi-es. ' , ,, ! :, ,ii
lj
tit' ' ' ,1,' , '
Thus: r ,^.k - - 1 . i!', . .,r ,.1,r ',1{ ^' i,,/
l' l . i:.: * 'l ' quot;
ULk'i
i-!;r
^dquot;,-- i, .
who are involved the 'r , .quot;
, O- t
A ma$gtu4-clnnnelconsists quot;those firmsor parties
of in
,rb 'i'i
cquot; ..- -o.wtrershipand/ornegotiatoryfunctionsasaproductorservicemovesfromproduc
c'
.' t
.r i',
{ . ..--owfleishipand/ornegbtiatoryfunctionsasaproductorservicemovesfromproducer ,'r,-u.,'',
. .i o o
,, ^ u .l* 1 user. Onlyfirmsor parties
to ultimate whoenqaqe ownership
engage in and/or ne
negotiatory , Ulr}
neqotiatory . .quot;Ulrj , .)s''quot;quot;
-
r
oquot; . (, o; ,quot; 1. are members thb marketinq
rs of the marketing
functions
.. 1 channel.quot; Source:adaptedfrom B.ct
chainel.quot; Sourcb:adapted'from B.
- quot;
[2004],Marketing View,7th'ed.
ChannelslA Management
., *Rosenbloom
.quot;
^.r.r''r '-/
)' . '-.' r
*,0..'1 .'
LUquot;
l-),'ffacilitating organizationsquot; persons organizations makeit easier
are or that for
,1,t.--r*c '
'
', quot; members the marketing channel perform
, of to ownership negotiatory
or functions.
fvY quot;{
-, -
. ' Facilitatingorganizationsprovideassistancetomarketingchannelmembers,butd
-10 xbo
,i.. .quot;:.quot;F:, not performownership negotiatory and henceare not part of the
or functions
' marketing channel.
. o€$ ,,d'
/x
s' _Example Whichof the following organizations partof the marketing
2: are indicated?
channel
o]
I
-,-['v .n t -
' n t . r i 't-fquot;'iI u a r x e t i n g C h aChannel
't, Marketing n n e i Organization Part ,
ls This Organization of
, quot; ,, trt , 9-{ thisMarketingChannel?
is
f,ls)
ra
{
Electric
saleof General a salespersonemployed
o krit'{''
stoves appliance
by by an appliance
retailer
R4*' retailers thatsellsGeneralElectric
stoves
currency tlt;:,,
sale U.S.
of a bank
saleof Fordautomobiles a bank
$c,
by Fordautodealers

3. Winter2008 3
Managemenl
Nofesfor Marketing
Channels
J.K. Higginson:
Part
ls ThisOrganization of
thisMarketingChannel?
a railroad transPorts
that
saleof ironore bYa
company a steel theiron to thesteel
ore
to
mining
refinery
refinery
apples
saleof apples farmers a farmer selling
bY
stand
froma roadside
reserving renting
of
and
roomsin a hotel
saleof usedstereo
equipment consumers
by
FaciIitating Organzations
i
Organizations the
in
r
MarketingChannel .t
, t.,, lr.
c(''lquot;
, ntloio'*t'l M V y i x ,.o{b*Y , ?11'
Roleof particiPants kquot; 9a,r
b^,'. q ,quot;i,,'''1 b*Ltolo
I , , !!-0 o t { C b + U ,
j
(-v't'quot;r
I r(
Examples members
of
btquot;t)i,5osl''q:i *f,i-r'u'lee
iffili'1
'-*'li:;fTxffi;';''
vr
neil0 {r vI0Y> L
;rJvwor
Taketitleto Products?
^ov J* quot;YI
C*.^ =^t-
channel 9€r^r*,du*1
Stakein marketing
f,.,{}
rulIrtr#I,:^
decision-making
ChannelsDeveloP?
Why Do Marketing
ChannelDesignand Strategy#1:
Principle Marketing
of
Fundamental
can be shiftedamongmembersof the distribution
channel,
cannotbe eliminated.
channelfunctions
-t 'l ''u'sd oY.
quot;r ..'rquot;'{a
f,t i t o iuquot;'o^tlo ru fl'n,^t, &@
Sn*-*n*
'l '; tquot;tquot;5*quot;rtquot;T
w,cA*t
i ,e..,rquot;,:quot; [-t -!
,.i; quot;t,...^xA ' nl*
/:).

4. J.K. Higginson:
Nofesfor Marketing Managemenf,
Winter2008
Channels
doesnotwantto haveto deliver products sells.
Example Suppose a retailer
that the
3: she
Withwhich of theeightdistribution
functions theretailer
is
one trying avoid '';-,'-.1
to
a. bping
.(
(co.'( ) ',,,,
involved? .,1
)quot; ''
wishes buya product
lf a consumer frpmthisretailer,
whatmustthe consuimdr
to
b.
do?
Whatmight retailer to avoid involved thisdistribution
with
the do being f unction
c. while
goodrelations customers?
attempting maintain with
to
(andmarketing
in
The basicdecision the designof distribution
channels channels) should
is:
(or
intermediaries' usedinthedistribution
be channel marketing
channel), if so,which
and I
should allocated whichintermediaries?
be
functions to
(andmarketing
The decision useintermediariesa distribution
to in channel channel) basedon
is
twofundamentalconcepts:
efficiency: amountof contactand negotiation .,
contactual the required
a. between
{r,,r;
and buyers orderto achieve distributign
sellers in a objective. ,^._r.. f,nq,'{,,'q., rEquot;T,'quot;t
n
J1'o''i
ar'i'uh'o
q-quot;;i.l; *dquot;1 io ,..liquot;to
:),:quot;:i,1,;.i 'quot;',
speciatization division tabour.
and of
b. '
qDv{er*'-rrnLt, [r'i^quot;
bert at
c.trt
Example4: A certaintype of productis manufactured ten different
by manufacturbrs,and
purchased approximately
by 2,000 consumers. DesCribe conceptof contactual
the
efficiency it applies thisproduct a channel
as to intermediarynotusedandif a channel
is
if
is
intermediary used.
Why is Managing ChannelsDifficultBut lmportant?
Marketing
Costsin Distribution
Channels
retailer.One product
you sell is Maytag
Example You are an appliance
5: washingmachines,
youpurchase
which fromMaytag, manufacturer. Whataresomecosts
the thatyoumust
incuras a result yourdecision sellMaytag
of washingmachines?
to
Whyls Managing
Marketing lmportant Difficult?
But
Channels
offersa greater
potential gaining competitive
strategy management
and
Marketing
channel lor a
than the otherthreecomponents the marketing because
advantage of mix marketing
is
channelstrategy moredifficult competitors copyin the shortrun.
for to
Whyis marketing
channelstrqtegy
is-more
difficult competitors copyintheshortrun?
for to
'}' LrtsIo 5errrrc,liafi -':ii (rri.i.f' *an
^nquot;1,'ri
-^*T,ir)
to&p
l;:]ji,l;';+t.'-.[:i;;7,*l',: quot;'*'-i
vn*^{l
, .f,_cdsN*
-:!.;fr'Til;Jquot;|;'':ili',u,y!
(,ydquot;
-'v*quot;
: -ilt'J:;quot;;:;quot;-*lq;:;,it::-j,{{u
,quot;'fu ,
ltnf{erm quot;interrpdiqtry'l,refers channel
to any memberotherthanthe manufacturer the end-user
or
(consTmerYibtrcih6.ss-6{pr). The most commontypes of intermediaries marketing
in channels
are
wholesalers retailers. commonly-used quot;digtribulorquot;
and The term typic4fly
refers
top.wholesaler.
'
odrS'eYt€tu,1 7'*'**{io'n
MYIfi
fi
- irxen*iva} r . i*.!r I ye^1z.Lr se.fl

5. Winter2008 5
Management,
Channels
Nofesfor Marketing
J.K. Higginson:
complicate management:
their
channels
characteristics marketing
of
Several
I
fu'*ry1
6fr$rquot;& {quot;n t*a-rye-$i'iCIr$
*T
MC 3troa'egyL!
quot;ri'af
^ '
{-
c-r-t'quot;rl f'o^
i rte
Iquot; 1<-v'-'
st-nae{Y Tl '.'t-t
Vl L ^ r il
''^Vl U dquot;rm^$e'quot;-*Jl h?L
th{ rNs4 t{- ,tao-il
s 'loaced
br d t*?t, t*,quot;^ f*?le r u
+ru,*fi iq
, s{*r4 #.,Iquot;-{er#* *:f do *{ vd}L
b,trC
hoqf.*:'to et{,-u,{^ *t d '
fEatr;$ti'o &xquot;*
.,.Ly w1c
*A^-*'u'
^ ct^^-a ,^ten -['a,'et'' t
,
-+'L
,L k$fi3;% ?W:tr..iuni-&*S
,
e4lo9''
s I naquot;t
rt 3quot; J s a tJ
+t^.ai l:v
'
YA+t1*ctrrron$cu'ar'r'o)r^i-.'Ioe'quot;,Eor0'*1V*v*o^
ce''*S*4*i,**f,,^?.}*^*pJo.rra1]uquot;*&'isiquot;quot;.lL.