Chapter 13 ♦ Marketing Channels 13-1
CHAPTER 13 Marketing Channels
CHAPTER FEATURES
Chapter Features
Key Points
✓ Marketing & You
Students are given a survey to determine their leadership ability and
“level of vanity.”
✓ Application Exercise
From a list of products around the home, students will determine the
distribution channels used.
✓ Case Study
keep its shelves stocked and its customers happy.
Viacom announces that Time Warner is taking Dora the Explorer off
the air along with 19 popular channels.
USING THIS MANUAL
Chapter thirteen includes eight learning outcomes that help students become more familiar with marketing channels. The
chapter outline provides detailed analysis of these learning outcomes, listing PowerPoint slides and review questions as
have a product that is purely sourced from one country. This has led
to customer concern over labels, and even some legislation in Italy.
13-2 Chapter 13 ♦ Marketing Channels
LEARNING OUTCOMES
1 Explain what a marketing channel is and why intermediaries are needed
A marketing channel is a business structure of interdependent organizations that reaches from the point of product origin
2 Define the types of channel intermediaries and describe their functions and activities
The most prominent difference separating intermediaries is whether they take title to the product. Retailers and merchant
wholesalers take title, but agents and brokers do not. Retailers are firms that sell mainly to consumers. Merchant
3 Describe the channel structures for consumer and business–to-business products and
discuss alternative channel arrangements
Marketing channels for consumer and business products vary in degree of complexity. The simplest consumer-product
channel involves direct selling from producers to consumers. Businesses may sell directly to business or government
4 Discuss the issues that influence channel strategy
When determining marketing channel strategy, the marketing manager must determine what market, product, and
5 Describe the different channel leadership types and their unique costs and benefits
Channel relationships can be plotted on a continuum ranging from Arm’s Length to integrated, with cooperative
relationships somewhere in between. Arm’s Length relationships generally consist of unique transactions that are
Chapter 13 ♦ Marketing Channels 13-3
6 Explain channel leadership, conflict, power, and partnering
Power, control, leadership, conflict, and partnering are the main social dimensions of marketing channel relationships.
Channel power refers to the capacity of one channel member to control or influence other channel members. Channel
7 Discuss channels and distribution decisions in global markets
Global marketing channels are becoming more important to U.S. companies seeking growth abroad. Manufacturers
8 Identify the special problems and opportunities associated with distribution in service
organizations
Managers in service industries use the same skills, techniques, and strategies to manage logistics functions as managers
CHAPTER OUTLINE
1 Explain what a marketing channel is and why intermediaries
are needed
PowerPoint 13-5:
Marketing Channels
Review Question 1.1
Functions
PowerPoint 13-7:
Specialization and
I. Marketing Channels
The term channel is derived from the Latin word canalis, which means canal. A
marketing channel can be viewed as a canal or pipeline for products.
A. Providing Specialization and Division of Labor
Specialization and division of labor involves breaking down a complex task
into smaller, simpler ones and allocating them to specialists to increase
13-4 Chapter 13 ♦ Marketing Channels
PowerPoint 13-8, 13-9:
Overcoming
Discrepancies
PowerPoint 13-10:
Providing Contact
Efficiency
B. Overcoming Discrepancies
1. A discrepancy of quantity is the difference between the amount of
product produced and the amount an end user wants to buy.
2. A discrepancy of assortment is the lack of all the items necessary to
producer and the location of widely scattered markets.
Customer Experience
Capturing a Bigger Slice of the Pie
Papa John’s tries to capture more market share of the pizza industry by making
ordering and delivery easier and more appealing to the technologically savvy members
of the younger segment. In 2008, Papa John’s introduced a new service so customers
could order pizza from a cell phone or PDA via text message. The results of this new
marketing and delivery channel have been impressive, with Papa John’s share rising
to 6.9 percent of the marketplace.
C. Providing Contact Efficiency
1. Marketing channels simplify distribution by reducing the amount of
transactions required to get products from manufacturers to consumers.
2 Define the types of channel intermediaries and describe their
functions and activities
Review Question 2.1
PowerPoint 13-13, 13-14:
Channel Intermediaries
II. Channel Intermediaries and Their Functions
Types of Channel Intermediaries
The primary difference separating intermediaries is whether or not they take title
to the product
1. Retailers are firms that sell mainly to consumers. They take title to
Chapter 13 ♦ Marketing Channels 13-5
3. Agents and brokers facilitate the sale of a product from producer to
PowerPoint 13-16:
Channel Functions
Performed by
Intermediaries
Review Question 2.1
PowerPoint 13-17:
Logistics
A. Channel Functions Performed by Intermediaries
1. Transactional functions include contacting and communicating with
prospective buyers to make them aware of existing products and
explain their features, advantages, and benefits.
2. Logistics is the process of strategically managing the efficient flow
and storage of raw materials, in-process inventory, and finished goods
from point of origin to point of consumption. Logistical functions
3 Describe the channel structures for consumer and business
products and discuss alternative channel arrangements
III. Channel Structures
The appropriate configuration of channel members to move a product from the
producer to the end user may differ greatly by product.
PowerPoint 13-20, 13-21:
Channels for Consumer
Products
distribution for a common
product.
Review Question 3.1
A. Channels for Consumer Products
1. Producers use the direct channel to sell directly to consumers. It
then passes from one or more wholesalers to retailers, and finally
retailers sell to the consumer.
a. A retailer channel is used when the retailer is large and can buy
Factors Suggesting Type
Intermediary
13-6 Chapter 13 ♦ Marketing Channels
Channels for Business
Products
1. Direct channels are typical in business and industry markets.
2. Companies selling standardized items of moderate or low value often
rely on industrial distributors, which are like a supermarket for
organizations.
Review Questions 3.2 and
3.3
PowerPoint 13–24:
Alternative Channel
Arrangements
C. Alternative Channel Arrangements
1. Some producers select two or more channels to distribute the same
products to target markets, a practice called multiple distribution or
dual distribution. A variation of this practice is the marketing of
similar products using different brand names.
manufacturer’s already established channel.
4 Discuss the issues that influence channel strategy
PowerPoint 13–27:
Channel Strategy
Decisions
IV. Making Channel Strategy Decisions
Marketing channel strategy involves several critical decisions:
The marketing manager faces two important issues: what factors will influence
the channel(s) and what level of distribution intensity will be appropriate.
Review Question 4.2
PowerPoint 13–28:
Market Factors
A. Factors Affecting Channel Choice
1. Market factors include target customer profiles and preferences,
geographic location, size of market, and competition.
PowerPoint 13–31, 13-32:
Levels of Distribution
B. Levels of Distribution Intensity
Chapter 13 ♦ Marketing Channels 13-7
Intensity
Review Question 4.1
1. Intensive distribution is distribution aimed at having a product
available in every outlet where target consumers might want to buy it.
a. Many convenience goods and supplies have intensive
2. Selective distribution is distribution achieved by screening dealers to
eliminate all but a few in any single area.
a. Selective distribution strategies often hinge on a manufacturer’s
3. The most restrictive form of distribution, exclusive distribution,
entails establishing one or a few dealers within a given area.
a. Consumer specialty goods, a few shopping goods, and major
5 Describe the different channel relationship types and their
unique costs and benefits
PowerPoint 13–35:
Types of Channel
Relationships
PowerPoint 13-37:
V. Types of Channel Relationships
Social relationships play an important role in building unity among channel
members.
A. Channel Relationship Types
1. Arm’s length relationships are loose relationships, characterized by
2. At the opposite end of the relationship continuum are integrated
3. Cooperative relationships, which exist between arm’s-length and
integrated relationships, take the form of informal partnership with
6 Explain channel leadership, conflict, and partnering
13-8 Chapter 13 ♦ Marketing Channels
PowerPoint 13-40:
Managing Channel
Relationships
PowerPoint 13-41:
PowerPoint 13-42:
Channel Conflict and
Partnering
PowerPoint 13-43:
PowerPoint 13-44:
Channel Partnering
VI. Managing Channel Relationships
A. Channel Power, Control, and Leadership
1. Channel power is a channel member’s capacity to control or
influence the behavior of another member’s behavior.
2. Channel control is a situation that occurs when one channel member
B. Channel Conflict
1. Inequitable channel relationships often lead to channel conflict which
is a clash of goals and methods between distribution channel
members.
2. Sources of conflict may be conflicting goals, failure to fulfill the
4. Vertical conflict occurs between different levels in a marketing
channel.
5. The fairness with which channel members wish to be treated is called
justice, and it takes 3 forms:
a. Procedural Justice implies that each firm treats the others
C. Channel Partnering
1. A departure from the adversarial relationships of the past, channel
2. Channel alliances and partnerships help supply chain managers create
7 Discuss channels and distribution decisions in global markets
VII. Channels and Distribution Decisions for Global Markets
Chapter 13 ♦ Marketing Channels 13-9
PowerPoint 13-47:
Channels and Distribution
Decisions for Global
Markets
A. Developing Global Marketing Channels
Manufacturers introducing products in global markets must determine what
type of channel structure to use.
1. Channel structures and types abroad may differ from those in the
United States.
8 Identify the special problems and opportunities associated
with distribution in service organizations
Review Question 8.1
PowerPoint 13-50:
Channels and Distribution
Decisions for Services
VIII. Channels and Distribution Decisions for Services
The fastest-growing part of the U.S. economy is the service sector. The same
skills, techniques, and strategies used to manage inventory can be used to manage
service inventory.
Service distribution focuses on three main areas:
KEY TERMS
agents and brokers
Arm’s Length relationship
channel conflict
channel control
channel leader (channel captain)
channel members
cooperation)
channel power
cooperative relationships
13–10 Chapter 13 ♦ Marketing Channels
Suggested Homework:
• The end of each chapter contains numerous questions that can be assigned or used as the basis for longer
investigations into marketing.
REVIEW AND APPLICATIONS
1.1 Your family runs a specialty ice cream parlor, Scoops. It manufactures its own ice cream in small batches
and sells it only in pint-sized containers. After someone not affiliated with the company sent six pints of its ice
cream to a popular talk-show host, she proclaimed on her national TV show that it was the best ice cream she
had ever eaten. Immediately after the broadcast, orders came flooding in, overwhelming your small-batch
production schedule and your limited distribution system. The company’s shipping manager thinks she can
handle it, but you disagree. List the reasons why you need to restructure your channel of distribution.
The major reason why you need to restructure your supply chain is obvious: You cannot meet the sudden increased
can include retailers, such as supermarket chains).
2.1 What kind of marketing channel functions can be performed over the Internet? Why do you think so?
3.1 Describe the most likely marketing channel structure for each of these consumer products: candy bars,
Tupperware products, nonfiction books, new automobiles, farmers‘ market produce, and stereo equipment.
Now construct alternative channels for these same products.
Although students’ answers will vary, they should address some of these points:
• Manufacturers of candy bars typically use intensive distribution and are normally channeled through
wholesalers and retailers.
3.2 You have been hired to design an alternative channel of distribution for a firm specializing in the
manufacturing and marketing of novelties for college student organizations. In a memo to the president of
the firm, describe how the channel operates.
Although students’ answers will vary, they should address some of these points.
Chapter 13 ♦ Marketing Channels 13–11
3.3 Building on question 1.1, determine a new channel structure for Scoops. Write a proposal to present to your
key managers.
Students could build a good case for any of the structures described in the chapter, depending on what Scoops long-
4.1 Decide which distribution intensity level – intensive, selective, or exclusive – is used for the following
products, and why? Piaget watches, Land Rover sport utility vehicles, M & M’s, special edition Barbie dolls,
Crest toothpaste.
• Piaget watches – exclusive distribution – expensive, exclusive image.
4.2 Now that you have a basic channel structure for Scoops (from question 3.3), form a team of three to four
students and list the market, product, and producer factors that will affect your final channel structure.
• Market factors include: Who are the potential customers? Where do they buy? When do they buy? How do
5.1 Working with another student in the class, decide when it would be most advantageous for large companies
like Procter & Gamble, IBM, and/or Ford Motor Company to develop integrated relationships with smaller
suppliers. Would the same rules for integrated relationship development also apply to customers? Why or
why not?
Integrated relationships are at the high end of the connection spectrum. Organizations with this type of
13–12 Chapter 13 ♦ Marketing Channels
6.1 Procter & Gamble and Wal-Mart are key partners in a shared channel. P&G is one of Wal–Mart’s biggest
suppliers, and Wal-Mart provides extremely detailed scanner data about customer purchases of P&G
products. Wal-Mart has begun selling its own brand of Sam’s Choice laundry detergent in bright orange
bottles alongside P&G’s Tide but for a greatly reduced price. What do you think will be the impact of this
new product on what has been a stable channel relationship?
Students could argue either that it will have a negative impact or a positive impact on the relationship.
• Negative impact: By selling a private label brand (Sam’s Choice) in a very similar package to that of Tide
7.1 Go to the World Trade Organization’s Web site at www.wto.org. What can you learn at the site about
how globalization affects channel management and other aspects of business?
8.1 Assume that you are the marketing manager of a hospital. Write a report indicating the distribution
functions that concern you. Discuss the similarities and dissimilarities of distribution for services and for
goods.
The major challenge is determining how to deliver the service cost effectively and when and where the customer
Supplemental Exercise: Group Work
Review and Applications
Review and Applications Questions 1.1, 3.1, 4.2, and 5.1 lend themselves well to group work. For those activities,
divide the class into small groups of 4-5 people. Students from each group should read the question and then use
Chapter 13 ♦ Marketing Channels 13–13
APPLICATION EXERCISE
Purpose: For students to experience through their own investigation the complexity of channel management.
Setting It Up: This works best as an individual assignment. If you have a small class, you can do as described below and
have students submit a detailed story board depicting the channels they researched. Alternatively, you can have students
submit textual descriptions on regular paper if your class is larger.
John L. Beisel
Pittsburg State University IDENTIFYING CHANNELS OF DISTRIBUTION
Students in my Distribution Management class are required to list 20 products that they regularly purchase or are
ETHICS EXERCISE
1. What do you think about Wholesome’s idea for opening a new distribution channel?
There are really two issues relative to the new distribution channel. First, opening the channel to distribute the
vitamin-enriched cookie is ethical and laudable. As the scenario indicates, the cookie would be beneficial to the
2. Does the AMA Statement of Ethics address this issue? Go to www.marketingpower.com and review the
statement. Then, write a brief paragraph on what the AMA Statement of Ethics contains that relates to
distribution channels in developing nations.
The AMA statement of Ethics has a specific section that relates to distribution. One point in this section
MARKETING PLAN EXERCISE
13–14 Chapter 13 ♦ Marketing Channels
CASE STUDY
Time Warner/Viacom: Countdown to a Blackout
1. What is the channel arrangement between Viacom, Time Warner, and consumers? Who are the
intermediaries?
The channel arrangement between Viacom, Time Warner, and consumers benefits both companies as well as
2. What is the Channel Conflict between Viacom and Time Warner?
The conflict between Viacom and Time Warner is a vertical conflict since it occurs between different levels in a
3. Obviously the conflict between Viacom and Time Warner has strained their relationship. If you were in
charge of one of these companies, what steps would you take to improve their channel relationships?
Student answers will vary.
LESSON PLAN FOR VIDEO
Company Clips: Sephora—Business Is Beautiful
The beauty-retail store, Sephora, was founded in 1969 in France and since then has become a leader in sales of health
and beauty-aid products. It opened its first store in the United States in 1998 on 5th Avenue in New York City and prides
itself on being ahead of the market in skin care trends. Its luxurious environment is the selling point for over 250 brands.
On its shelves, Sephora maintains a balance of big brand names with lesser–known, up-and-coming brands. Sephora
also carries its own private brand, which it promotes independently in the store. Each sales representative in a Sephora
store is trained to best help customers find the products that best fit their skin types and lifestyles. Watch the video to
learn what techniques Sephora uses to keep its shelves stocked and customers happy.
1. Why is important to customers that Sephora keep detailed information about its inventory? What does
Sephora do to insure its numbers are accurate?
The customer should expect to find the product available when visiting the store. Sephora has constant awareness of
2. How does Sephora manage its marketing channel? What information goes into deciding which suppliers
become incorporated?
Chapter 13 ♦ Marketing Channels 13–15
Sephora merchandisers, located in San Francisco, manage each vendor, or brand, relationship. Once on board, the
Supplemental Exercise: Video
Company Clips
Pre-Class Prep for You:
• Preview the Company Clips video segment for Chapter 13. This exercise reviews concepts for LO1-LO7.
• Review your lesson plan.
• Make sure you have all of the equipment needed to show the video to the class, including the DVD and a way to
project the video.
• Ask students to study Exhibit 13.2, Marketing Channel Functions Performed by Intermediaries.
Pre-Class Prep for Students:
• Have students review and familiarize themselves with the following terms and concepts: marketing channel;
many stores are there in their area? How many brands does the store carry?
Video Review Exercise Activity
• Warm-up
o Briefly discuss students’ findings from the third Pre–Class Prep activity. How many Sephora shops are
there in their area? How many brands does the store carry?
• In-Class Preview
o Discuss Exhibit 13.3, Marketing Channels for Consumer Products.
video segment.
• Follow-up
o Divide students into groups of 3-5 and have them describe how Sephora handles the six main logistical
components of their supply chain. For components that aren’t specifically addressed by the video, have the
Supplemental Exercise: Class Activity
Physical Distribution
In this exercise students will learn how to select a mode of transportation.
Divide the class into small groups and randomly assign each group to a product and a customer location. The groups
Here are some suggestions:
1. Twenty-four air compressors, each in a shipping crate 36″ by 36″ by 60“, weighing 400 pounds each, to a customer
1,000 miles away. Choose a city relevant to your location.
the West) or Los Angeles (if you are in the East). The orchids can be without refrigeration for only twelve hours.
4. Two 12-ounce, 4-inch gears that are needed at a plant 300 miles away for a customer’s machine that has broken
down and stopped an assembly line.
Supplemental Exercise: Class Activity
Selection of a Channel or Distribution
The purpose of this exercise is to get students to evaluate how the marketplace moves raw materials to manufacturers and
then on to the consumer.
13–18 Chapter 13 ♦ Marketing Channels
GREAT IDEAS FOR TEACHING CHAPTER 13
James S. Cleveland, Sage College of Albany
DISCUSSION BOARD TOPICS TO ENCOURAGE PARTICIPATION
Discussion board questions provided to students to encourage them to engage in thinking and writing about the content
of the Principles of Marketing course usually take the form of a provocative statement to which students are asked to
I have developed, therefore, a series of discussion board questions to use with experienced, adult students. These
questions are designed to encourage them to use their experiences as employees and consumers as doorways to better
understand the course material, and to make their own responses more interesting to themselves and to the other students
in the class who will read and comment on them.
Each question has three parts:
1. First, there is a sentence or two from the students’ textbook introducing the topic. By using the text author’s
own words, students are enabled to locate relevant material in the text more easily, the text content is
Here are additional such discussion board questions developed for Chapter 13 of Marketing 10e. Each is written to
fit the same text cited above but could easily be rewritten and revised to fit another text.
Series A
1. Marketing channels aid in overcoming discrepancies of quantity, assortment, time, and space created by
economies of scale in production.
Series B
1. Organizations have three options for distribution intensity: intensive distribution, selective distribution, or
Chapter 13 ♦ Marketing Channels 13–19
Monica Perry, University of North Carolina at Charlotte
Thomas Stevenson, University of North Carolina at Charlotte
MARKETING CHANNEL FUNCTIONS:
A LOW-TECH KINESTHETIC SIMULATION
Why?
Undergraduate students often have only a slight appreciation for the functions provided by intermediaries in marketing
channels. Advertising messages that tout “we keep prices low by cutting out the middleman” merely exacerbate the
problem.
What?
How?
1. Prior to conducting the simulation
Make Signs on different color cardstock for various positions, lists and products:
• 4 Different Manufacturers (e.g. Proctor & Gamble, Kraft, etc.)
Use products that students are reasonably familiar with, such as grocery products.
2. Conducting the simulation in class
• Obtain 13 student volunteers and assign them Manufacturer (2 students per) and Consumer (1 student per)
positions. Give Manufacturers signs, product pallets and scissors. Give Consumers signs and shopping lists.
• Have the Consumers stand on one side of the classroom while the Manufacturers stand on the opposite side.
• Part I.
If you have a large class, run multiple channels so that more students are involved.
• Part II
✓ Obtain 4 more volunteers to be the Retailer and give them the Purchase Orders. Place the Retailer in the
middle of the classroom between the Manufacturers and Consumers.
13–20 Chapter 13 ♦ Marketing Channels