3) Exclusive deals between suppliers and retailers are becoming a mainstay for
specialists looking for an edge in the business world.
Terms and Responsibilities of Channel Members
Each channel member must be treated respectfully and given the opportunity to be profitable.
A) The main elements in the “trade–relations mix” are:
1) Price policy
2) Conditions of sale
Evaluating the Major Alternatives
Each channel alternative needs to be evaluated against economic, control, and adaptive
criteria.
Economic Criteria
A) Each channel will produce a different level of sales and costs.
Control and Adaptive Criteria
Using a sales agency poses a control problem.
To develop a channel, members must make some degree of commitment to each other for
a specified period of time
A) Yet these commitments invariably lead to a decrease in the producer’s ability to
respond to a changing marketplace.
CHANNEL-MANAGEMENT DECISIONS
Selecting Channel Members
To customers, the channels are the company. Companies need to select their channel members
carefully.
A) To facilitate channel member selection, producers should determine what
characteristics distinguish better intermediaries.
B) They should evaluate the:
1) Number of years in business
C) If the intermediaries are sales agents, producers should evaluate the:
1) Number and character of other lines carried.
2) Size and quality of the sales force.
Training and Motivating Channel Members
A company needs to determine intermediaries’ needs and construct a channel positioning such
that its channel offering is tailored to provide superior value to these intermediaries.
A) Stimulating channel members to top performance starts with understanding their needs
and wants.
Channel Power
Producers vary greatly in skill in managing distributors.
Channel power can be defined as the ability to alter channel member’s behavior.
Manufacturers can draw on the following types of power to elicit cooperation:
1) Coercive power
5) Referent power
Coercive and reward power are objectively observable.
Legitimate, expert, and referent power are more subjective and dependent on the ability and
willingness of parties to recognize them.
Channel Partnerships
More sophisticated companies try to forge a long-term partnership with distributors. The
manufacturer clearly communicates what it wants from its distributors in the way of
market coverage, inventory levels, marketing development, account solicitation, technical
Evaluating Channel Members
Producers must periodically evaluate intermediaries’ performance against such standards
as sales quota attainment, average inventory levels, customer delivery times, treatment of
damaged and lost goods, and cooperation in promotional and training programs.
A) Under performers need to be counseled, retrained, motivated, or terminated
Modifying Channel Design and Arrangements
No channel strategy remains effective over the whole product life cycle. In competitive
Channel Evolution
A new firm typically starts as a local operation selling in a fairly circumscribed market,
using a few existing intermediaries.
Channel Modification Decisions
A producer must periodically review and modify its channel design and arrangements.
Global Channel Considerations
International markets pose distinct challenges, including variations in customers’
shopping habits, but create opportunities at the same time.
CHANNEL INTEGRATION AND SYSTEMS
Distribution channels don’t stand still. New wholesaling and retailing institutions emerge, and
new channel systems evolve.
Vertical Marketing Systems
A conventional marketing system comprises an independent producer, wholesaler(s), and
retailer(s).
A) A vertical marketing system (VMS), by contrast, comprises the producer,
wholesaler(s), and retailer(s) acting as a unified system.
Corporate VMS
A) A corporate VMS combines successive stages of production and distribution under
single ownership.
Administered VMS
A) An administered VMS coordinates successive stages of production and distribution
through the size and power of one of the members.
Marketing Insight: Channel Stewards Take Charge
The definition of channel stewards: the ability of a given participant in the distribution
channel to create a go–to–market strategy that simultaneously addresses customers’ best
interests and drives profits for all partners.
Contractual VMS
A contractual VMS consists of independent firms at different levels of production and
The New Competition in Retailing
The new competition in retailing is no longer between independent business units but
Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or more
unrelated companies put together resources or programs to exploit an emerging
marketing opportunity.
Integrating Multi-Channel Marketing Systems
Most companies have adopted multichannel marketing.
A) Multi-channel marketing occurs when a single firm uses two or more marketing
channels to reach one or more customer segments.
3) More customized selling
D) The gains from adding new channels come at a price:
1) New channels typically introduce conflict and control problems.
2) Two or more channels may end up competing for the same customers.
3) The new channel may be more independent and make cooperation more difficult.
CONFLICT, COOPERATION, AND COMPETITION
Channel conflict is generated when one channel member’s actions prevents the channel from
achieving its goal.
Channel coordination occurs when channel members are brought together to advance the
goals of the channel, as opposed to their own potentially incompatible goals.
Types of Conflict and Competition
A) Horizontal channel conflict involves conflict between members at the same level
within the channel.
Causes of Channel Conflict
A) goal incompatibility
B) unclear roles and rights
Managing Channel Conflict
Some channel conflict can be constructive and lead to better adaptation to a changing
environment, but too much is dysfunctional. The challenge is not to eliminate conflict but to
manage it better.
There are several mechanisms for effective conflict management.
1) Strategic justification
Dilution and Cannibalization
Marketers must also be careful not to dilute their brands through inappropriate channels,
Legal and Ethical Issues in Channel Relations
Companies are legally free to develop whatever channel arrangements suit them. In fact, the
law seeks to prevent companies from using exclusionary tactics that might keep competitors
from using a channel.
A) Many producers like to develop exclusive channels for their products.
2) Exclusive distribution is legal as long as they do not substantially lessen
3) Exclusive distribution often includes exclusive territorial agreements.
a. The producer may agree not to sell to other dealers in a given area.
1) This practice is called full-line forcing.
C) Such tying agreements are not necessarily illegal, but they do violate U.S. law if they
tend to lessen competition substantially.
E-COMMERCE MARKETING PRACTICES
E-commerce uses a Web site to transact or facilitate the sale of products and services
online. Online retail sales have exploded in recent years, and it is easy to see why. Online
retailers can predictably provide convenient, informative, and personalized experiences
for vastly different types of consumers and businesses.
1) Search engines
2) Internet Service Providers (ISPs)
E-COMMERCE SUCCESS FACTORS
Companies must set up and operate their e-commerce Web sites carefully. Customer service is
critical.
Online shoppers may select an item for purchase but fail to complete the transaction—one
B2B E-COMMERCE
Although business-to-consumer (B2C) Web sites have attracted much attention in
the media, even more activity is being conducted on business-to-business (B2B)
sites, which are changing the supplier-customer relationship in profound ways.
(1) supplier Web sites;
(2) infomediaries, third parties that add value by aggregating information about
alternatives;
Brick-and-Click Companies
Although many brick-and-mortar companies may have initially debated whether to add
an online e-commerce channel for fear of channel conflict with their off-line retailers,
agents, or their own stores, most eventually added the Internet as a distribution channel
after seeing how much business was generated online.
A) Adding an e-commerce channel creates the threat of a backlash from retailers, brokers,
agents, or other intermediaries.
B) The question is how to sell both through intermediaries and online.
M-COMMERCE MARKETING PRACTICES
The widespread penetration of cell phones and smart phones—there are currently more
mobile phones than personal computers in the world—allows people to connect to the
Internet and place online orders on the move.
In the United States, mobile marketing is becoming more prevalent and taking all
forms.
Retailers such as Amazon, CVS, and Sears have launched m-commerce sites that
allow consumers to buy books, medicine, and even lawn mowers from their smart
phones. The travel industry has used m-commerce to target businesspeople who
need to book air or hotel reservations while on the move.