Chapter 15 – Managing Marketing Channels and Supply Chains
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES …………………………………… 12-2
LEARNING OBJECTIVES (LO) ……………………………………………………………………………. 12-4
KEY TERMS ………………………………………………………………………………………………………….. 12-4
LECTURE NOTES
• Chapter Opener: Eddie Bauer: The “Brick, Click, and Flip” Pick ………………………… 12-5
• Nature and Importance of Marketing Channels (LO 12-1) ………………………………….. 12-5
APPLYING MARKETING KNOWLEDGE …………………………………………………………… 12-30
BUILDING YOUR MARKETING PLAN ………………………………………………………………. 12-32
VIDEO CASE (VC)
• VC-15: Amazon: Delivering the Goods…Millions of Times a Day! ……………………. 12-33
IN-CLASS ACTIVITIES (ICA)
• ICA 12-1: Marketing Channels for Apple ………………………………………………………… 12-36
• ICA 12-2: Marketing Channels for Fastenal ……………………………………………………… 12-39
CONNECT EXERCISES ………………………………………………………….………12-41
• Vertical Marketing Systems at Starbucks Case Analysis
• Marketing Channel Functions at Home Depot Click and Drag*
Chapter 15 – Managing Marketing Channels and Supply Chains
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 12-1 Terms used for marketing intermediaries in consumer and business markets ………….. 12-6
Figure 12-2 Marketing channel intermediaries perform three functions, each consisting of
different activities ………………………………………………………………………………………….. 12-7
Figure 12-8 The automotive supply chain includes thousands of firms that provide functional
components, software codes, and parts in a typical car ……………………………………….. 12-26
Figure 12-9 Supply chain managers balance total logistics cost factors against customer
service factors …………………………………………………………………………………………….. 12-31
Applying Marketing Metrics
Channel Sales and Profit at Charlesburg Furniture: Channel Sales, Profit and Annual
Percentage Change in Sales by Channel ……………………………………………………………………………… 12-21
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights
Marketing Matters—Customer Value: Nestlé and General Mills—Cereal Partners Worldwide ….. 12-15
Chapter 15 – Managing Marketing Channels and Supply Chains
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Slide
Videos
12-2: IBM Video ………………………………………………………………………………………………………………. 12-28
12-4: Amazon Video Case ……………………………………………………………………………………………….. 12-36
In-Class Activities (ICA)
ICA 12-2: Marketing Channels for Fastenal …………………………………………………………………………. 12-45
Chapter 15 – Managing Marketing Channels and Supply Chains
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 12-2: Distinguish among traditional marketing channels, electronic marketing channels, and
different types of vertical marketing systems.
LO 12-4: Explain what supply chain and logistics management are and how they relate to
marketing strategy.
KEY TERMS
channel conflict
multichannel marketing
customer service
reverse logistics
disintermediation
selective distribution
dual distribution
supply chain
exclusive distribution
total logistics cost
intensive distribution
vendor-managed inventory (VMI)
logistics
vertical marketing systems
marketing channel
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LECTURE NOTES
EDDIE BAUER: THE “BRICK, CLICK, AND FLIP” PICK FOR THE
ACTIVE OUTDOOR ENTHUSIAST
• Eddie Bauer:
a. An outdoor lifestyle apparel and gear company and brand.
b. Eddie Bauer creed: “To give you outstanding quality, value, and service and
guarantee you we may be worthy of your respect.”
c. Uses a multichannel marketing strategy.
• Supply Chain Dynamics:
a. Complex task due to different objectives and priorities of each channel.
• Supply chain for stores focus on efficiently keeping products that customers
b. Eddie Bauer has mastered the balance between effectiveness and efficiency in
managing multichannel supply chain.
I. NATURE AND IMPORTANCE OF
MARKETING CHANNELS [LO 12–1]
Directly or indirectly reaching prospective buyers is required for successful marketing.
A. What Is a Marketing Channel of Distribution?
• A marketing channel:
Chapter 15 – Managing Marketing Channels and Supply Chains
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a. Consists of individuals and firms involved in the process of making a product
or service available for use or consumption by consumers or industrial users.
• [Figure 12-1] Types of marketing intermediaries include the following:
a. Middleman. Any intermediary between the manufacturer and end-users.
b. Agent or broker. Any intermediary with legal authority to act on behalf of the
manufacturer.
f. Dealer. A more imprecise term than distributor that can mean the same as
distributor, retailer, wholesaler, and so forth.
B. How Customer Value is Created by Intermediaries
The importance of intermediaries is based on:
1. Important Functions Performed by Intermediaries.
a. [Figure 12-2] Intermediaries perform three basic functions:
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– Consists of the following activities:
* Buying. Purchasing products for resale or as an agent for supply of
a product.
• Logistical function.
– Involves the details of preparing and getting a product to buyers.
– Consists of the following activities:
* Assorting. Creating product assortments from several sources to
• Facilitating function.
– Assists producers in making the transactions of goods and services
more attractive for buyers.
– Consists of the following activities:
* Financing. Extending credit to customers.
b. All three functions must be performed in a marketing channel, even though
each channel member may not participate in all three.
2. Consumer Benefits.
Marketing channels help create value for consumers through:
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d. Possession utility. Helping buyers take possession of a product or service.
LEARNING REVIEW
12-1. What is meant by a marketing channel?
12-2. What are the three basic functions performed by intermediaries?
Answer: Intermediaries perform three basic functions: (1) Transactional, which occurs
II. MARKETING CHANNEL STRUCTURE
AND ORGANIZATION [LO 12–2]
• A product can take many routes from a producer to buyers.
• There are marketing channels differences for consumer vs. business products.
A. Marketing Channels for Consumer Products and Services
• [Figure 12-3] Shows the:
a. Four common marketing channels for consumer products and services.
• As the number of intermediaries between a producer and buyer increases, the
length of the channel increases.
1. Direct Channel.
a. A direct channel is a marketing channel where a producer and ultimate
Chapter 15 – Managing Marketing Channels and Supply Chains
2. Indirect Channel.
a. Indirect channels are marketing channels where intermediaries:
b. The producer→retailer→consumer channel (Channel B) is the most common:
• If the retailer can buy large quantities from a producer.
• When the cost of inventory makes it too expensive to use a wholesaler.
c. Why is there no wholesaler?
• So many product variations may exist that it would be impossible for a
d. The producer→wholesaler→retailer→consumer channel (Channel C) is
common for low-cost, low-unit value items that consumers frequently
purchase.
e. The producer→agent→wholesaler→retailer→consumer channel (Channel D)
is used when:
[ICA 12-1: Marketing Channels for Apple]
B. Marketing Channels for Business Products and Services
• [Figure 12-4] Shows the:
a. Four most common marketing channels for business products and services.
• Business channels are shorter and rely on one intermediary or none at all because
business users:
a. Are fewer in number.
12–10
1. Direct Channel.
a. Channel A is a direct channel where a producer and industrial user deal
directly with each other (producer→industrial user).
b. Firms using this channel:
c. A direct channel is used when:
• Buyers are large and well defined.
2. Indirect Channel.
a. Channels B, C, and D are indirect channels where one or more intermediaries
are inserted between the producer and industrial users.
b. Channel B (producer→industrial distributor→industrial user):
• Industrial distributors perform a variety of marketing channel functions:
• Industrial distributors are like wholesalers in consumer channels.
c. Channel C (producer→agent→industrial user) introduces a second
intermediary, an agent, who:
d. Channel D (producer→agent→industrial distributor→industrial user):
[ICA 12-2: Marketing Channels for Fastenal]
C. Internet Marketing Channels
• Advances in electronic commerce offer new avenues for reaching buyers and
creating customer value.
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• [Figure 12-5] Internet marketing channels:
a. Employ the Internet to make products and services available for consumption
or use by consumers or organizational buyers.
• Electronic intermediaries:
a. Perform transactional and facilitating functions effectively…
• Electronic intermediaries are incapable of performing elements of the logistical
function, which remains with traditional intermediaries or with the producer.
D. Direct and Multichannel Marketing
• Direct marketing channels:
a. Allow consumers to buy products by interacting with various advertising
media without a face-to-face meeting with a salesperson.
b. Include:
• Mail order selling. • Telemarketing.
c. To reach more buyers, some firms:
• Multichannel marketing:
a. Is the blending of different communication and delivery channels that…
b. Are mutually reinforcing in attracting, retaining, and building relationships
with consumers who…
c. Shop and buy in traditional intermediaries and online.
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• Retail stores leverage their physical presence by allowing customers to:
• Catalogs serve as shopping tools for both online and in-store purchasing.
E. Dual Distribution and Strategic Channel Alliances
• Dual distribution is an arrangement whereby a firm reaches different buyers by
employing two or more different types of channels for the same basic product.
a. In some instances, firms pair multiple channels with a multibrand strategy to:
b. A firm also distributes modified products through different channels.
• Strategic channel alliances.
a. Involve a practice whereby one firm’s marketing channel is used to sell
MARKETING MATTERS
Customer Value: Nestlé and General Mills—Cereal Partners Worldwide
Cereal Partners Worldwide (CPW) is a strategic alliance designed from the start to be
a global business. CPW joined the cereal manufacturing and marketing capability of U.S.-
[Video 12-1: Honey Nut Cheerios Ad]
F. Vertical Marketing Systems
• Vertical marketing systems:
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a. Are professionally managed and centrally coordinated marketing channels.
1. Corporate Systems.
a. A corporate vertical marketing system is the combination of successive stages
of production and distribution under a single ownership.
b. Companies pursue forward and backward integration to reduce distribution
costs and gain greater control over supply sources or resale of their products.
• Forward integration.
– Occurs when a producer owns an intermediary at the next level down
in the channel.
• Backward integration.
• Companies pursuing forward or backward integration:
– Seek to reduce distribution costs.
• Many companies:
2. Contractual Systems.
a. A contractual vertical marketing system:
• Consists of:
– Independent production and distribution firms that…
• Is the most popular of the three types of vertical marketing systems.
b. Three variations of contractual systems exist:
• Wholesaler-sponsored voluntary chains.
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– Involve a wholesaler that develops a contractual relationship with
small, independent retailers.
• Retailer-sponsored cooperatives.
– Consist of small, independent retailers.
– Form an organization that:
– Plan collaborative promotional and pricing activities.
• Franchising.
– Is a contractual arrangement between:
– Allows the franchisee to operate a certain type of business:
c. Four types of franchise arrangements are:
• Manufacturer-sponsored retail franchise systems.
– Is where a manufacturer:
* Licenses dealers to sell its products…
– Example: Ford and its dealerships.
• Manufacturer-sponsored wholesale franchise systems.
– Is where a manufacturer:
– Example: PepsiCo and its bottlers.
• Service-sponsored retail franchise systems.
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* Wishes to profit by selling the franchise to others.
– Example: McDonalds.
• Service-sponsored franchise systems.
– Is where a franchiser:
3. Administered Systems.
a. Administered vertical market systems:
• Achieve coordination at successive stages of production and distribution…
b. Procter & Gamble (P&G):
c. Walmart:
• Given its position as the world’s largest retailer…
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LEARNING REVIEW
12-3. What is the difference between a direct and an indirect channel?
12-4. Why are channels for business products typically shorter than channels for
consumer products?
12-5. What is the principal distinction between a corporate vertical marketing system
and an administered vertical marketing system?
Answer: A corporate vertical marketing system combines successive stages of
production and distribution under a single ownership. In forward integration, a
III. MARKETING CHANNEL CHOICE AND MANAGEMENT [LO 12–3]
Marketing channels:
• Link a producer to its buyers.
• Provide the means through which a firm executes its marketing strategy.
A. Factors Affecting Channel Choice and Management
Marketers ask three questions when choosing a marketing channel and intermediaries:
• Which will provide the best coverage of the target market?
1. Target Market Coverage.
a. Achieving the best target market coverage requires attention to the:
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b. Three degrees of distribution density exist:
• Intensive distribution.
– Is when a firm places its offerings in as many outlets as possible.
– Is usually chosen for convenience products or services.
• Exclusive distribution.
– Is when only one retail outlet in a specific geographical area carries the
firm’s products.
– Is the extreme opposite of intensive distribution.
• Selective distribution.
– Is when a firm selects a few retail outlets in a specific geographical
area to carry its products.
– Lies between these two extremes:
2. Buyer Requirements.
a. A second consideration in channel choice:
• Is gaining access to channels and intermediaries that…
b. These interests fall into four categories:
• Information.
– Is an important requirement when buyers have limited knowledge
• Convenience.
– Has multiple meanings for buyers.
* May mean proximity of driving time to a retail outlet.
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– For those who shop on the Internet, convenience means that:
– Bottom line: Observe the “eight second rule:
• Variety.
– Reflects buyers’ interest in having numerous competing and
• Pre- or post-sale services.
– Are provided by intermediaries.
3. Profitability.
a. Is determined by the margins earned (revenue minus cost) for each channel
member and for the channel as a whole.
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APPLYING MARKETING METRICS
Channel Sales and Profit at Charlesburg Furniture
Charlesburg Furniture sells its furniture through furniture store chains, independent
Your Challenge.
Review the company’s sales and profit in its three channels and recommend a course
of action. The question: Should Charlesburg Furniture continue to allocate its marketing
funds on the basis of channel dollar sales or profit?
Your Findings.
Charlesburg Furniture tracks the sales and profit from each channel (and individual
customer) and sales trends on its marketing dashboard. Several findings stand out:
Your Actions.
• Charlesburg Furniture should consider abandoning the practice of allocating
marketing funds solely on the basis of channel sales volume.
Chapter 15 – Managing Marketing Channels and Supply Chains
B. Managing Channel Relationships: Conflict and Cooperation
• Because channels consist of independent individuals and firms, there is always
potential for disagreements concerning:
1. Sources of Conflict in Marketing Channels.
a. Channel conflict arises when one channel member believes another channel
member is engaged in behavior that prevents it from achieving its goals.
b. There are two types of conflict that occurs in marketing channels:
• Vertical conflict.
– Occurs between different levels in a marketing channel, such as a
manufacturer and a retailer.
– Three sources of vertical conflict are:
• Horizontal conflict.
– Occurs between intermediaries at the same level in a marketing
channel such as between…
– Two sources of horizontal conflict are:
2. Securing Cooperation in Marketing Channels.
a. Conflict can have destructive effects on the workings of a marketing channel.