Marketing Chapter 1 Apple Stores Where Customers Are Given The

Chapter 1

MARKETING CHANNEL CONCEPTS

Teaching Notes

For students new to marketing, I would first spend time reviewing the 4 Ps of marketing

(product, price, promotion and place) and emphasize that this textbook is an in-depth

examination of the “place” as a source of competitive advantage.

Chapter Objectives

This chapter introduces marketing channels as a competitive advantage to firms as other

forms of traditional competitive differentiations such as price or promotion can be easily

channels are structured and how to recognize them and explains the ancillary function.

Learning objectives

1. Realize that new Internet-based technologies have created a metamorphosis in

marketing channels.

2. Recognize that today’s customers expect more choices as to how, when, and

where products and services are made available to them.

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Chapter Topics

1) The Multi-Channel Challenge

4) Contactual Efficiency

Chapter Outline

The Multi-Channel Challenge

To meet business-to-consumer (B2C) and business-to-business (B2B) expectations,

a variety of different channels, often both land based and Internet-based, is needed.

The pursuit of an effective multi-channel strategy raises four key challenges that include:

1. Finding the optimal multi-channel mix

A) An Optimal Multi-Channel Mix

Internet-based online channels have become mainstream channels in the channel mixes of

of both B2C and B2B organizations. A variety of examples are given that include Apple

Computer, Hensen Natural Corporation and Walmart.

B) Multi-Channel Synergies

Using online channels to obtain information about a product before purchasing it in

conventional “brick and mortar” channels is a common example of multi-channel

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C) Avoiding Multi-Channel Conflict

This passage introduces the concept of conflict between different channels used to reach

D) Sustainable Competitive Advantage and Multi-Channel Strategy

Companies struggle to find a sustainable competitive advantage that cannot be easily or

quickly copied by competitors. In recent years, the finding of such an advantage is far

The Marketing Channel Defined

The definition of “marketing channel” is based upon one’s perspective – that of a

consumer versus that of a manufacturer.

Key Terms and Definitions

▪ External: Marketing channel exists outside of the firm. Firms must use

interorganizational management rather than intraorganizational management.

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A) Use of the term Channel Manager

Here it is probably a good idea to spend a few minutes discussing Figure 1.3 and helping

the students understand the differences in the job titles illustrated. Students new to

Key Term and Definition

▪ Channel Manager: Refers to anyone in a firm or organization who is involved in

marketing channel decision making. This concept provides a sense of focus for

referring to the important role of channel decision-making within the firm.

B) Marketing Channels and Marketing Management Strategy

Spend some time going over Figure 1.4 at this point. It is important for the students to

realize that marketing management is a balancing act – balancing the “controllables”

and the “uncontrollables” in the business world. Students will begin to appreciate the

magnitude of the job and the level of “unknowns” that exist in the business world.

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C) Channel Strategy versus Logistics Management

Channel strategy and logistics management comprise the distribution variable of the

marketing mix. (Figure 1.6)

D) Flows in Marketing Channels

1. Product flow

Figure 1.7 illustrates these flows for MillerCoors. It would be appropriate at this point

to spend some time discussing Figure 1.7 as it illustrates to the student the various

components/parts necessary for a successful sale and distribution of products. Many

students are unaware of these components or have never given much thought as to how

complicated the process is to complete.

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Negotiation flow represents the interplay of the buying and selling functions associated

with the transfer of title or rights of ownership. Negotiation is a two-way process

involving mutual exchange between buyer and seller.

Promotion flow refers to the flow of persuasive communication in the form of

advertising, personal selling, sales promotion and publicity. This flow adds the

advertising agency as an element of promotion.

E) Distribution through Intermediaries

Economic considerations are very important in determining what form intermediaries will

have in their appearance in marketing channels. Two important concepts are introduced:

specialization and division of labor and contactual efficiency.

Specialization and Division of Labor

Contactual Efficiency

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From a channel manager’s viewpoint, contactual efficiency is the level of negotiation

effort between sellers and buyers relative to achieving a distribution objective.

A) Channel Structure

The concept of channel structure as shown in other marketing books (Figure 1.10) fails to

suggest the relationship between channel structure and channel management.

Key Term and Definition

▪ Channel structure: The group of channel members to which a set of distribution tasks

has been allocated.

B) Ancillary Structure

While so far we have included in the channel management only those participants who

perform the negotiatory functions of channel management (buying, selling, transferring

title, distribution, etc.). There are others that are not members of the channel structure

that assist in the process. These other members will be defined as ancillary structure.

Key Term and Definition

▪ Ancillary structure: The group of institutions (facilitating agents) that assist channel

members in performing distribution tasks.

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Answers to Review Questions

1. As the text aptly point out, customers now expect far more and better channel

choices for gaining access to the vast array of products and services from all over the

planet—how, where, and when they want them. For a variety of reasons, customers

have come to expect more from their distributors even though they are often unaware

2. The proliferation often introduces both horizontal and vertical channel conflict.

Frequently the addition of a new channel, for example the introduction of online

3. The management perspective views the channel from the standpoint of a decision

maker (channel manager) concerned with developing and managing marketing

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This emphasis on the managerial aspects of marketing channels differs from several

other views that may be taken in the study of marketing channels. Three other views

are as follows:

a. Macro view – Under this approach, channels are examined as they operate in the

1) Paul W. Steward and J. Frederich Dewhurst, Does Distribution Cost Too

c. Behavioral Systems view – This is a quite recent approach to the study of

4. “Inter” means between or among. “Intra” means within. Thus, interorganizational

management involves managing between or among more than one firm or agency.

6. Often, total or even substantial control of a marketing channel is not even possible.

This is increasingly true for manufacturers as retailers grow in size and, as a result, in

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7. The relationship between channel management and the other elements of the

marketing mix can be summarized as complementary and coordinated. Channel

management, along with logistics, fits under the distribution/place function of the

marketing mix. In developing its marketing strategy, a firm must allocate its resources

among the marketing mix elements, using product, price, promotion and

distribution/place to meet the needs of the target market, within the constraints posed

by the external environment.

9. The five flows in the marketing channel discussed in the chapter are: (1) product

flow, (2) negotiation flow, (3) ownership flow, (4) information flow, and (5)

promotion flow. The direction of the product flow is “down the channel” from

manufacturer to final user. The direction of the negotiation flow is both “up the

channel” (from final user to manufacturer) and “down the channel.” The ownership

flow is down the channel, while the information flow goes both up and down. Finally,

the promotion flow moves down the channel.

11. The work performed by the marketing channels can be thought of as a series of

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13. Contactual efficiency is the level of negotiation effort between sellers and buyers

relative to achieving a distribution objective. The contactual efficiency relationship

can be expressed as a ratio. The negotiation effort is the input and the distribution

14. The key distinction here is that the channel structure is composed of those parties who

are involved in negotiatory tasks while those in the ancillary structure (facilitating

agencies) are not. Only those parties involved in negotiatory tasks make the decisions

Commentaries on Issues for Discussion

1. The purpose of this question is to get the students to begin to understand how a multi-

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2. This hypothetical yet very typical portrayal of the intermediary as a “parasite” that

does nothing but “rob” producers and increase costs to consumers should set the stage

for a spirited but hopefully (after having read the chapter) informed discussion of this

3. It is clear from the information provided that online retailing is an established

distribution channel. The question then is whether mobile commerce is unique or

merely an extension of the existing online channel. To many consumers, the use of

4. This question seems designed to elicit some interesting comments in a class

discussion, as most of the students will be very aware of the process of downloading

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5. Edward Jones places a high priority on personal, responsive service to its clients. By

bypassing the Internet as means for customers to trade, Edward Jones is inherently

placing a high priority on customer service. While the Internet is an efficient vehicle

6. The idea behind this issue is to focus students’ attention on the key concept of

marketing channels from a management perspective and the key challenge of

managing the marketing channel–how to get intermediaries (channel members) who

are independent businesses to do the kinds of things the manufacturer would like