Kotler 2020, Chapter 12 Marketing Channels PDF

CHAPTER 12 – Marketing channels Mini contents Company case - UNIQLO: the innovative route in fashion retailing ◦ Supply chains and the value delivery network The nature and importance of marketing channels. Channel behaviour and organization ◦ Company case - Zara: controlling the supply chain an...

CHAPTER 12 – Marketing channels Mini contents Company case - UNIQLO: the innovative route in fashion retailing ◦ Supply chains and the value delivery network The nature and importance of marketing channels. Channel behaviour and organization ◦ Company case - Zara: controlling the supply chain and marketing channels ◦ Changing channel organization: a contemporary approach Physical or online stores? ◦ Organizing efficient online retailing. Real Marketing Working with channel partners to create value for customers Omni channels ◦ Real Marketing -Omni channel retailing: creating a seamless shopping experience Designing international marketing channels Company case - Marketing channel strategies for multi-franchised premium products ◦ Marketing channel-management decisions ◦ Marketing logistics and supply chain management. Retailing ◦ Company case - Mystery shopping. Wholesaling Chapter preview We now arrive at the third marketing mix tool marketing channels. Firms rarely work alone in creating value for customers and building profitable customer relationships. Instead, most are only 2 single link in a larger supply chain and marketing channel. As such, an individual firm's success depends not only on how well it performs but also on how well its entire marketing channel competes with competitors channels. The first part of this chapter explores the nature of marketing channels and the marketer's channel design and crucial management decisions that have to be made. Marketing channels - regardless of whether they connect to consumers in physical or online stores, or a combination in an omni channel approach - have become a truly strategic activity for most companies. We then examine physical distribution -( or logistics and in the last section we'll look more closely at two major channel intermediaries retailers and wholesalers. Fast Retailing, Asia's top and the world's third-largest apparel retailer, has revolutionized the retail clothing industry by creating and fostering innovative retail experiences. The company Fast Retailing has turned uNiQLo, its key brand, into a global one by living up to its "Made for All' credo. The company has built long-term relationships with material manufacturers and cooperates with them to offer high-quality products at affordable prices with limited environmental impact. Learning objectives After reading this chapter, you should be able to: 1. Explain why companies use marketing channels and discuss the functions these channels perform. 2. Discuss how channel members interact and how they organize to perform the work of the channel. 3. Identify the major decisions open to a company in setting up marketing channels 4. Explain how companies select. motivate and evaluate channel members Explain the role of retailers in the marketing channel and describe the major types of 5 retailers. 6. Describe the major retailer marketing decisions. ____________________________________________ Clever strategies for marketing channels can contribute strongly to customer value and create competitive advantage for both a firm and its channel partners. It demonstrates that firms cannot create competitiveness and bring value to customers by themselves. Instead, they must work closely with other firms in a larger value delivery network. Supply chains and the value delivery network Value delivery network – The network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system in delivering customer value. Producing a product Or service and making it available to buyers requires building relation- ships with key suppliers and resellers in the company's supply chain. This supply chain consists of upstream' and downstream' partners. Upstream from the company is the set of firms that supply the raw materials, components, parts, information, finances and expertise needed to create a product or service. Marketers, however, have traditionally focused on the 'downstream' side of the supply chain - on the marketing channel that looks towards the customer. Downstream marketing channel partners, such as wholesalers and retailers, form a vital connection between a firm and its customers. The term supply chain may be too limited - it takes a make-and-sell view of the business. It suggests that raw materials, productive inputs and factory capacity should serve as the starting point for market planning. A better term would be demand chain because it suggests a sense-and-respond view of the market. Taking this view, planning starts with the needs of target customers, to which the company responds by organizing a chain of resources and activities_with the goal of creating customer value. Even a demand chain view of a business may be too limited, because it takes a step-by-step, linear view of purchase-production-consumption activities. Companies are often forming more numerous and complex relationships with other firms than a chain perspective would suggest. Therefore, value delivery networks may be a more appropriate term to use in many instances. As defined in Chapter 2, a value delivery network is made up of the company, suppliers, distributors and ultimately customers who partner' with each other to improve the performance of the entire system. This chapter focuses on marketing channels- on the downstream side of the value delivery network. We examine four major questions concerning marketing channels. What is the nature of marketing channels and why are they important? What are the critical decisions and main problems that companies face in designing and managing their marketing chan- nels? How do channel firms interact and organize to do the work of the channel? And, finally, what role do physical distribution and supply chain management play in attracting and satisfying customers? The nature and importance of marketing channels Marketing channel – (distribution channel) A set of interdependent organizations that help make a product or service available tor use or consumption by the consumer or business user. Few producers sell their goods directly to the final users. Instead, most use intermediaries -to bring their products to market. They try to forge a marketing channel - a set of interde- pendent organizations that help to make a product or service available for use or consump- tion by the consumer or business user. A company's channel decisions directly affect every other marketing decision. Nonethe less, companies often pay too little attention to their marketing channels, sometimes with damaging results. Marketing channel decisions often involve long- term commitments to other old products could be scrapped and replaced by new ones as market tastes evolve, marketing firms. While advertising, pricing or promotion programmes can easily be changed, just like channels are different. Through contracts with franchisees, independent dealers or large retailers, they cannot readily replace these channels with company owned stores or websites if conditions change Therefore, management must design its channels carefully, with an eye on tomorrow's likely selling environment as well as today's. If producer introduces S new product that makes life difficult for an existing product in the producer's portfolio, it is a natural consequence of product development. But if a marketing channel that outper forms existing channels would be introduced , much is at stake, Existing channels may lose viability while emerging channels prosper. How channel members add value - a traditional approach Why do producers give some of the selling job to channel partners? After all, doing so means giving up some control over how and to whom they sell their products. Producers use intermediaries because they create greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own. And it helps manufacturers focus on being good a...manufacturing! Figure 12.1 shows how using intermediaries can provide economies. Figure 12.1(a) shows three manufacturers, each using direct marketing to reach three customers. This system requires nine different contacts. Figure 12.1(b) shows the three manufacturers working through one distributor, who contacts the three customers. This system requires only six contacts. In this way, intermediaries reduce the amount of work that must be done by both producers and consumers. From the economic system's point of view, the role of marketing intermediaries is to transform the assortments of ptoducts made by producers into the assortments wanted by consumers. Producers make narrow assortments of products in large quantities, but consumers want broad assortments of products in small quantities. Marketing channel members buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Thus, intermediaries play an important role in matching supply and demand. In making products and services available to consumers, channel members add value by bridging the major time, place and possession gaps that separate goods and services from those who would use them. With this traditional approach, members of the marketing channel perform many key functions: Physical distribution: transporting and storing goods. Financing: acquiring and using funds to cover the costs of the channel work. Risk-taking: assuming the risks of carrying out the channel work. Iinformation: gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange. Promotion: developing and spreading persuasive communications about an offer. Contact: finding and communicating with prospective buyers. Matching: shaping and fiting the offer to the buyer's needs, including activities such as manufacturing, grading, assembling and packaging.  Negotiation: reaching an agreement on price and other terms of the offer so that owner ship or possession can be transferred. The question is not whether these functions need to be performed - they must be in one way Or another but rather who will perform them. To the extent that the manufacturer performs these functions, its costs go up and its prices must be higher. When some of these functions are shifted to intermediaries, the producer's costs and prices may be lower, but the intermedi- aries must charge more to cover the costs of their work. Sometimes, it is suggested that retailers buying directly from the factory can offer lower prices to consumers. This iS not necessarily true and it could even be argued that is very unlikely it to be true since the functions mentioned above still need to be performed. So statements on saving costs through eliminating distribution functions should be considered carefully. And in dividing the work of the channel, the various functions should be assigned to the channel members who can add the most value for the cost. Number of channel levels Direct marketing channel – A marketing channel that has no intermediary levels. Indirect marketing channel – A channel that contains one or more intermediaries. Companies can design their marketing channels to make products and services available to customers in different ways. Each layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer is a channel level. Because the producer and the final consumer both perform some work, they are part of every channel. The number of intermediary levels indicates the length of a channel. Figure 12.3/a) shows several consumer marketing channels of different lengths. Channel 1, called a direct marketing channel, has no intermediary levels; the company sells directly to consumers For example, IKEA, Hennes & Mauritz and Zara sell their products through direct channels. The remaining channels in Figure 12.3(a) are indirect marketing channels, containing One or more intermediaries. Figure 12.3(b) shows some common business marketing channels. The business marketer can use its own sales force to sell directly to business customers. Or it can sell to various types of intermediaries, who in turn sell to these customers. Consumer and business marketing channels with even more levels can sometimes be found. From the producer's point of view, a greater number of levels means less control and greater channel complexity. All of the institutions in the channel are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information] flow and the promotion flow. These flows can make even channels with only one or a few levels very complex. Channel behaviour and organization Channels are behavioural systems made up of real companies and people who interact to accomplish their individual and collective goals. Like groups of people, sometimes they work well together and sometimes they don't. Some channel systems consist only of informal inter- actions among loosely organized firms. Others consist of formal interactions guided by strong organizational structures. Vertical marketing systems For the channel as a whole to perform well, each channel member's role must be specified and channel conflict must be managed. The channel will perform better if it includes a firm, agency or mechanism that provides leadership and has the power to assign roles and manage conflict. The leader of the marketing channel is normally the company with most market power and is called channel captain. A conventional marketing channel consists of one or more independent producers, whole- salers and retailers. Historically, these have lacked such leadership and power, often resulting in damaging conflict and poor performance. Each is a separate business seeking to maximize its own profits, not seldom at the expense of the systemn as a whole. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. Conventional marketing channel – One or more independent producers, wholesalers and retailers. Vertical marketing system (VMS) – A marketing channel Structure in which producers, wholesalers and retailers act as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all co-operate. Marketing channels could be more or less integrated in various dimensions. If channels are highly integrated, one can talk about a vertical marketing system (vMs), meaning producers, wholesalers and retailers acting as a unified system. One channel member owns the others, has contracts with them or wields so much power that they must all co-operate. The vMs can be dominated by the producer, wholesaler or retailer: the one in control is called the channel captain. Controlling the entire distribution chain has turned Spanish clothing chain Inditex Group, with Zara as the most significant brand, into the world's largest and fastest-growing fashion retailer. In a contractual system, independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than each could achieve alone. Channel members to a varying extent coordinate their activities and manage conflict through contractual agreements. The franchise organization is the most common type of contractual relationship a channel member called a franchiser links several stages in the production-distribution process. Almost every kind of business has been franchised from hotels and fast food restaurants to dental clinics, dating services, wedding consultants and primary healthcare. But it has proven difficult to reach the same level of consistency in e.g. how the brand is exposed as when the manufacturer is running the marketing channels. Horizontal marketing systems Horizontal marketing system – A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. Another channel development is the horizontal marketing system, in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production or marketing resources to accomplish more than any one company could alone. Such initiatives are typically examples of co-marketing and may take various forms. Companies might join forces with competitors or non-competitors. They might work with each other on a temporary or permanent basis, or they may create a separate company. This flexible approach to co-operation between firms can work well. McDonald's co-operates with Sinopec, China's largest petrol retailer, to locate drive-through restaurants at Sinopec's more than 30,000 petrol stations. The move greatly speeds McDonald's expansion into China while at the same time pulling hungry motorists into Sinopec's petrol stations. Dependencies and conflicts in marketing channels To a varying extent, channel members depend on the others. A Siemens white goods dealer depends on Siemens to design white goods that meet consumer needs. In turn, Siemens depends on the dealer to attract, persuade and negotiate with consumers. Each Siemens dealer also depends on other dealers to provide good sales and service that will uphold the brand's reputation. The success of individual Siemens dealers depends on how well the entire Siemens marketing channel competes with the channels of other white goods manu- facturers. Ideally, because the success of individual channel members depends on overall channel success, all channel firms should work together smoothly They should understand and accept their roles, coordinate their activities and co-operate to attain overall channel goals. However, channel members rarely take such a broad view. Co-operating to achieve overall channel goals sometimes means giving up individual company goals. Channel members often disagree on who should do what and for what rewards. Horizontal channel conflict occurs among firms at the same level of the channel. For instance, Elon white goods dealers in Borås might complain that the Gothenburg dealers steal sales from them by pricing too low or by advertising outside their assigned territories Vertical channel conflict conflicts between different levels of the same channel, is even more common For example, Electrolux may create hard feelings and conflict with its main independent-dealer channel if it were to extend its own Electrolux Home dealer network or start selling through mass -merchandise retailers. Apple would in L similar manner, under- mine indirect channel member commitment if and when they assign new dealers, or even worse, set up their own, direct channels. Channel conflict – Disagreement among marketing channel members on goals and roles-who should do what and for what rewards. Some conflict in the channel takes the form of healthy competition, but severe or prolonged conflict can disrupt channel effectiveness and cause lasting harm to channel relationships For example, the McDonald's conflict with its franchisees might represent normal give and take over the respective rights of the channel partners. However, severe or prolonged conflict can disrupt channel effectiveness and cause lasting harm to channel relation- ships. McDonald's should manage the channel conflict carefully to keep it from getting out of hand. Changing channel organization: a contemporary approach Changes in technology and the growth of direct and online marketing are having a profound impact on the nature and design of marketing channels. One major trend is towards disintermediation: the cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional resellers by radical new types of intermediaries. Thus, in many industries, traditional intermediaries are d ropping by the wayside Disintermediation – The cutting out of marketing channel intermediaries by product or service producers. or the displacement of traditional resellers by radical new types of intermediaries Channel design decisions We now look at several channel decisions manufacturers face. In designing marketing chan- nels, manufacturers struggle between what is ideal and what is practical. A new frm with limited capital usually starts by selling in a limited market area. Deciding on the best chan- nels might not be a problem: the problem might simply be how to convince one or a few good intermediaries to handle the line. If successful, the new firm can branch out to new markets through the existing intermedi aries. In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through distributors. In one part of the country, it might grant exclusive franchises; in another, it might sell through all available outlets. Then, it might add a web store that sells directly to hard-to-reach customers. In this way, channel systems often evolve to meet market opportunities and conditions. Marketing channel design-Analysing consumer needs, setting channel objectives, identi- fying major channel alterna- tives and evaluating them For maximum effectiveness, however, channel analysis and decision-making should be more purposeful. Marketing channel design calls for analysing consumer needs, setting channel objectives, identifying major channel alternatives and evaluating them. Designing the marketing channel starts with finding out what target consumers want from the channel. Do consumers want to buy from nearby locations or are they willing to travel to more distant centralized locations? Would they rather buy in person, by phone or online? Do they value breadth of assortment or do they prefer specialized stores? Do consumers want many add-on services (delivery, repairs, installation) or will they obtain these elsewhere? The faster the delivery, the greater the assortment provided, and the more add-on services supplied, the greater the channel's service level and the higher the price. The company must balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences. The success of discount retailing shows that consumers will often accept lower service levels in exchange for lower prices, and consumers may accept a higher price level at different points of time. The very same customer may buy five Kexchoklad at IC A Maxi for sEk 20 on Tuesday night, then pay SEK 10 for one Kexchoklad at a lunch cafe on Wednesday, and sEK 16 for a Kexchoklad on Saturday night, on the way home from a party. One or more channels? Multichannel marketing channels Today, with the proliferation of customer segments and channel possibilities, more and more companies have adopted multichannel marketing channels: a single firm sets up two or more marketing channels to reach more customer segments. The producer may sell directly to one consumer segment using direct-mail catalogues, telemarketing and the Internet, while another consumer segment is reached through retailers. Almost every large company and many small ones distribute through multiple channels The buyer can choose between selected large, full-service dealers and their sales forces (at a higher cost) or buying online or in the supermarket at a lower cost, with fewer services. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments. Multichannel marketing channels – Setting up two or more marketing channels to reach more customer segments. Meanwhile, the higher the number of channels and retailers, the more difficult it is to manage and control the marketing channels. For exclusive brands, in particular, protecting brand values is a crucial priority in designing distribution strategies. For generic products, on the other hand, such considerations are smaller priorities compared with the need for high sales volumes. Producers of convenience products and common raw materials typically seek intensive distribution - a strategy in which they stock their products in as many outlets as possible. These products must be available where and when consumers want them. Tooth- paste, milk, salt and newspapers are sold in millions of outlets to provide maximum brand exposure and consumer convenience. Intensive distribution – Stocking the product in as many outlets as possible. Exclusive distribution – Giving a limited number of dealers the exclusive right to distribute the company's products in their territories. By contrast, some producers purposely limit the number of intermediaries handling their products. The strictest form of this practice is exclusive distribution, in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Exclusive distribution is often found in the luxury cars and prestige clothing industries, Exclusive Rolex watches are typically sold by only handful of authorized dealers in any given market area. By granting exclusive distribution, Rolex gains stronger dealer selling support and more control over dealer prices, promotion and services. Exclusive distribution also enhances the brand's image and allows for higher mark-ups. Buyers are less likely to even try to make a bargain if selling points are few. Selective distribution – The use of more than one, but fewer than all, of the intermediaries who are willing to carry the company's products. Between intensive and exclusive distribution lies selective distribution - the use of more than one, but fewer than all, of the retailers who are willing to sell a company's products. Many furniture, home appliance and clothing brands are distributed in this manner. By using selective distribution, they can develop good working relationships with selected channel members and expect a better-than-average selling effort. Selective distribution gives producers good market coverage with more control and less cost than does intensive Distribution. The very effect of applying selective distribution may not be different from exclusive distribu- tion. For an upmarket clothing brand applying exclusive distribution, the manufacturer or national sales office might consider two stores in Gothenburg a good balance between market coverage and intra-brand competition. But selective distribution may mean that a third store is one more than the underlying demand in the market area gives room for thus, a third store would close down and two stores remain. Number and size of retail outlets Companies must also determine not only the number of channels but also the number of retailers. A large number of retailers increases the market coverage, which is a great advan- tage for many companies. But many retailers will mean intra-brand competition, which may be harmful for exclusive products and durables. For generic products, intra-brand competi tion is normally not a problem. There are other considerations in deciding on the number of dealers. Small dealers in rural areas may use up a disproportionate amount of the company's administrative resources, as they are less professional and will have less knowledge about general trends in the market. Their understanding of a manufacturer's overall strategy may be limited. On the other hand, small dealers have good knowledge of their local markets and are likely to derive substantial advantages from their foothold in the local, social network. Big dealers are more professional and easier to deal with for the manufacturer. The 'mental distance' between the head office of the manufacturer and the head office of a large retail group is not very large. Big dealers understand the manufacturer's intentions and are likely to invest if the investment is expected to generate increased profits. However, they have much more market power than small dealers and may even be stronger than some producers. When the dealer beats the manufacturer in terms of market power, the often-made assumption that the manufacturer is channel captain must be questioned. Examples are numerous: ICA, Walmart and Elgiganten derive advantages from not being dependent upon a single manufac turer in their procurement processes. Responsibilities of channel members The producer and intermediaries need to agree on the terms and responsibilities of each channel member. They should agree on price policies, conditions of sale, territorial rights and specific services to be performed by each party. The producer should establish a list price and a fair set of discounts for intermediaries. It must define each channel member's territory, and it should be careful about where it places new retailers, since such moves may undermine the market and power of the existing retailers. Mutual services and duties need to be spelled out carefully, especially in franchise and exclu- Sive marketing channels For example, McDonald's provides franchisees with promotional support, a record- keeping system, training at Hamburger University (not Hamburg Univer- sity!) and general management assistance. In turn, franchisees must meet company stand- ards for physical facilities and food quality, co- operate with new promotion programmes, provide requested information and buy specified food products. Physical or online stores? E-commerce is a broad concept and means that: a company or a consumer sells, buys or exchanges a product, service or information online. E- commerce between consumers is extensive and goods are sold for large amounts, supported by solutions that facilitate transac- tions, e.g the opportunity to rate sellers and buyers and to transfer money over. Swish. For marketing purposes, we need to dig deeper into what actually differs between online stores and online retailing On the one hand and physical stores in a traditional marketing channels framework on the other. There are significant differences, however, the entire marketing channel design must not be different: regardless of whether a company decides to sel through online or physical outlets, there is a need to offer customers delivery (at home, at a parcel delivery point or through in-store delivery/purchase), the opportunity to hand in complaints and/or return the product, product demonstration, support etc. Online stores are often operating internationally, something that has contributed to ma. king prices more and more equal across countries. But customers have to be attentive here, internationally operating online retailers such as Asos often claim to offer free deliveries and returns (although the latter tends to become less common in the aftermath of extremely high return quotas in some instances). But prices differ, first since E.U. VAT rates differ - outside the Eu there may also be tolls to be paid. If you shop from another EU country, you must pay the difference between that country's lower VAT and the Swedish vAT. In addition, online retailers attempt to compensate for free deiivery and returns through charging higher prices abroad compared to the domestic market. If you compare a product from a uK-based Asos on the U.K, website with the price in other European prices, you'll find that the price difference can't be explained only by an unfavourable currency exchange rate-and this applied long before Brexit, so free delivery and free returns may not be the whole story. For a transaction to be true e-commerce, all parts of the purchase must be digital: the consumer's information collection, ordering and delivery. If you buy a ticket on sj.se or a necklace on wish.com, it is e-commerce - if you find an advertisement for a pizza oven on blocket.se or a used car on wayke.se it is not e-commerce, at least not as 1ong as you visit the seller to have a look at the item before you buy it. E-commerce offers several advantages over sales through physical stores: Prices are often lower. An online store has fewer employees who help customers and the stores' stores are in most cases located in low-rent areas, far from where consumers shop in physical stores. The online stores are open around the clock. The consumer does not have to travel, which is associated with costs and time. Competition is sharper - it's easy to buy from foreign companies. The supply is greater coop.se offers far more products than the average Coop store. It is more convenient when you do not have to go to a store. At the same time, e-commerce has several disadvantages: Delivery time. Although many online stores are fast - the customer at the online pharmacy Apotea can, for example, order an item on Saturday and have it delivered home on Sunday free of charge - this means, in addition to waiting time, an uncertainty. After all, it is not certain that the goods will come as promised. If you need a pair of skates or a dress, the physical store has an advantage. Delivery. Consumers are often not at home during the day as carriers ship goods and going to a parcel delivery point takes time and most would like to avoid this - it may even eliminate the initial advantage of not having to physically visit a store,. The shopping experience. Sure it is nice to not have to go to a store, but many people like to do it.  Product information, Certainly, some parts of the product's properties - weight, environmental impact, dimensions, performance and battery life - can be presented equally well in an online store. But whether it is a camera, a dress or a sofa, the physical store offers an advantage-you can feel and pinch, smell, look at and form an idea of the product. Companies have to make a strategic choice: should they invest in online retailing, physical stores or a combination? Many online stores offer free shipping and free returns, which means that the seller is responsible for both the shipping to the buyer and the return shipping. For the seller, this means a cost for shipping but also an administrative cost for handling the returned goods. This creates huge costs for the selling company. At the same time, free returns may be necessary - the physical stores usually offer free returns. Without free returns, online stores have a competitive disadvantage compared with physical stores. Some consumers avoid buying in physical stores, often for convenience. But to think that physical stores are disappearing is probably a hasty conclusion. With attractive physical stores, consumers can enjoy the opportunity to visit many stores in a short time, see and feel the products and get advice from the employees. You can often read about 'the retail apocalypse' or the similar - for a long time interest rates have been low and lots of venture capital has been invested in online retailing, with closures of physical stores as a consequence. But online retailing is often not a profitable business, just like physical retailing has become tougher over time. In some online stores, the returns are more than 50 per cent of sales - the major part of what has been sold is coming back, and the online store has to pay the freight both to the customer and back. All this is not only expensive for the online store, it also impacts the environment - and surely it can be easier to visit the stores than to run back and forth to the parcel delivery point? Consumers are increasingly aware of the environmental impact of their consumption, meanwhile, companies put more and more emphasis on corporate social responsibility and environmental and sustainability impact, The design of marketing channels is crucial here. One thing is clear. The competition between physical stores and online stores will continue and the winner of it is you as a consumer! We'll need stores in one format or another, also in the foreseeable future. Organizing efficient online retailing Digitization may be strongly associated with the transition from physical stores to online stores. However, there are many instances of inefficient online retailing - like there are many instances of efficient physical retailing. In traditional marketing channels, sales and physical distribution take place in the same channel. When customers are geographically dispersed, sales volumes are small and when the company has a large customer base, local stocks are preferred to meet consumer demand for convenience, availability, and fast delivery. There is hence a conflict between having products available while keeping stock low. Keeping products in stock involves three costs. First, the interest rate on the items, second, storage space involves a cost, and third, products may become outdated or deteriorate in some cases (consumer electronics, and fresh fruit, respectively, for instance). Centralizing inventory may reduce inventory costs, something that speaks for online retailing, however, it can never beat physical stores on fast delivery, at least not for consumers living close to a store. In addition, centralized warehouses offer a more complete range with high availability, as in the case of dark stores. From e.g.coop.se, you can order just about any item including ducks, large lobsters or a whole rainbow trout articles you'll hardly find in the local store. An issue with online retailing of some goods, in particular food, is the picking process, which is much more complex for groceries compared to many other products. A shopping cart in online clothing retailing often consists of two to three items, which is significantly less than a shopping cart with 50 to 100 items of groceries which require different tempera- tures, and might be heavy. When the warehouse is integrated with the physical store, the picking takes place directly from the shelves inside the store. A recent study shows that in many instances, efficiency is limited since store employees first put the groceries on the shelves while others soon pick articles down from the shelves to pick the customer's online order. In addition, eficiency is further reduced, as the store is not built in an optimal way to manage the pick at the online store unless it's a dark store, which is built for efficient online order picking. In a dark store, customers' online orders are picked and placed in various temperature zones while waiting for transport. The picking process can also take place in a hybrid variant where picking is done in-store or through on-line warehouse depending on the customer's desired delivery method. If the customer wants a home delivery, the picking takes place at the online store and if the customer wants to pick up in store, the picking takes place in the store. Or, alternatively, certain parts of the shopping list are picked up in dark stores while fresh products are picked up in physical stores and then transported to the customer. Even though efficiency might be improved significantly, it's difficult to beat the cost struc- ture of customers purchasing their articles using self-scanner checkout in a physical store The customer will spend time doing it but has in many cases proven to be unwilling to pay for somebody else doing it, hence it remains an open question whether consumers will buy groceries in online or physical stores in the future. Omni channels Omni channel – A marketing channel's approach that integrates the buyer experiences from various marketing channels into a consistent whole. Omni channels aim at creating customer-oriented, seamless experiences - regardless of where and when the customer is researching, looking at, trying, purchasing or returning a product, he or she could do that in any channel something that is assumed to increase customer satisfaction. However, creating integrated channels is challenge, and in a study of Swedish IC A dealers it was found that all twelve retailers participating in the study see the online business as a challenge. Not only may different channels spread different messages and present the products in different ways, they are also often run by different owners and hence incentive structures might be different. For instance, physical store owners may dislike that Internet sales cannibalizes on physical store sales while the head office of the brand may be under pressure from owners, in many cases the stock-market, to increase online sales. Although a first-mover advantage sounds great, research suggests that first movers may neither benefit from a larger market share, higher margins nor higher marketing efficiency compared to those entering an established market. Consumers purchasing online are increasingly aware about prices, a behaviour that is rein- forced by the tough competition between physical stores and online stores, hence consumers expect to pay the same price online and offline. Charging different prices creates a number or problems not a new phenomena at all such as convincing customers about why they should pay a higher price online or offline, or whether they are getting a higher price as return than the retail price at hand if they're returning an item bought in a city centre in a factory store. A solid solution would be to charge customers for picking and delivery - both activities creating value for consumers since they'll save time and money when they don't have to visit a store. Designing international marketing channels International marketers face many additional complexities in designing their channels. Each country has its own unique physical distribution system that has evolved over time and changes very slowly. These channel systems can vary widely from country to country. Thus, global marketers must usually adapt their channel strategies to the existing structures within each country. For example, China and India are huge markets, each with populations of well over one billion people. However, because of partly inadequate distribution systems most companies can profitably access only a small portion of the population located in each country's most affluent cities. Deciding how to enter the market Once a company has decided to sell in a foreign country, it must determine the best mode of entry. Its choices are exporting, joint venturing and direct investment. Figure 12.4 shows three market entry strategies, along with the options each one offers. As the figure shows, each succeeding strategy involves more commitment and risk, but also more control and potential profits. Exporting – Entering a foreign market by selling goods produced in the company's home country, often with little modification. The simplest way to enter a foreign market i is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand exports to a particular market. In either case, the company produces all its goods in its home country. Exporting involves the least change in the company's product lines, organization, investments or mission. Companies typically start with indirect exporting, working through independent international marketing intermediaries. It involves less risk and investment because the firm does not require an overseas marketing organization or network. International marketing intermedi- aries bring know-how and services to the relationship, so the seller normally makes fewer mistakes. Sellers may eventually move into direct exporting, whereby they handle their owr exports. The investment and risk are somewhat greater in this strategy, but so is the potential return. Joint venturing – Entering a foreign market by joining with foreign companies to produce or market a product or services. A second method of entering a foreign market is joint venturing - joining with foreign companies to produce or market products or services. Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad It differs from direct investment in that an association is formed with someone in the foreign country. There are four types of joint ventures: licensing, contract manufacturing, management contracting and joint ownership. Licensing – A method of entering a foreign market in which the company enters into an agreement with a licensee in the foreign market. Licensing is a simple way for a manufacturer to enter international marketing. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the company's manufacturing process, trademark, patent, trade secret or other item of value. Coca- Cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product. In Sweden, Heineken beer flows from Spendrups breweries. TokyO Disneyland Resort is owned and oper- ated by Oriental Land Company under licence from The Walt Disney Company. Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own operations. Contract manufacturing – company contracts with manufacturers in the foreign market to produce its product or provide its service. Another option is contract manufacturing – the company contracts with manufacturers in the foreign market to produce its product or provide its service. The drawbacks are decreased control ver the manufacturing process and loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or to buy out the local manufacturer. Management contracting – A joint venture in which the domestic firm supplies management know-how to a foreign company that supplies the capital,the domestic form exports management services rather than products. Under management contracting, the domestic firm supplies management know-how to a foreign company that supplies the capital. It is a low-risk method of getting into a foreign market, and it yields income from the beginning. The domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world. Management contracting is even more attractive if the contracting firm has an option to buy some share in the managed company later on. And it prevents the company from setting up its own operations for a period of time. Joint ownership – One company joins forces with a foreign investor to create a local business in which they share joint ownership and control. Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control. A company may buy an interest in a local firm or the two parties may form a new business venture. Joint ownership may be needed for economic or political reasons. The frm may lack the financial, physical or managerial resources to undertake the venture alone. Or a foreign government may require joint ownership as a condition for entry. However, partners may disagree over investment, marketing or other policies. Direct investment – Entering a foreign market by developing foreign-based assembly or manufacturing facilities. The biggest involvement in a foreign market comes through direct investment - the devel- opment of foreign-based assembly or manufacturing facilities. A country that has been very open to direct investment is Mexico. Automotive products are Mexico's largest exports and many cars driven in the United States and Europe are actually produced in Mexico- although recent U.S. protectionism has limited the former. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets or government changes such as Donald Trump's protectionist efforts. In some cases, a firm has no choice but to accept these risks if it wants to operate in the host country. Hence, exit costs are higher than for other foreign invest ment approaches. Marketing channel-management decisions Marketing channel management – Selecting, managing and motivating individual channel members and evaluating their performance over time. Once the company has reviewed its channel alternatives and decided on the best channel design, it must implement and manage the chosen channel. Marketing channel management calls for selecting, managing and motivating individual channel members and ◦evaluating their performance over time. Some producers have no trouble signing up channel members. Others have to work hard to line up enough qualified intermediaries. It goes back to market forces and how attractive the producer and the marketing channels are. The producer must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, co-operation in company promotion and training programmes, and services to the customer. Finally, manufacturers need to be sensitive to their dealers. Those who treat their dealers poorly risk not only losing dealer support but also causing some legal problems. And in the case of the strong, growing dealer groups, the power position of the manufacturer is weaker and dealers may cancel the agreement and start selling a competitor's products if the manufacturer is not sensitive to the dealer group's desires. Legal considerations If channel members don't agree, the various rights and duties may be subject to an inter- pretation from a legal perspective. For the most part, companies are legally free to develop whatever channel arrangements suit them. But there are exceptions: Exclusive and selective distribution arrangements are subject to substantial regulation. The European Commission applies block exemptions exceptions from the general rule of free competition across EC member states - to some industries, including vertical distribution agreements, R&D, etc. The original idea of this exception from free competition was that consumers might benefit from competitive restrictions. Marketing logistics and supply chain management Marketing logistics – Planning, implementing and controlling the physical flow of goods, services and related information from points of origin to points of consump- tion to meet customer requirements at a profit. Companies must decide on the best way to store, handle and move their products and services so that they are available to customers in the right assortments, at the right time and in the right place. Logistics effectiveness has a major impact on both customer satisfaction and company cost, and thus on profitability and competitiveness. To some managers, marketing logistics means only lorries and warehouses. But modern logistics is much more than this. Marketing logistics involves planning, implementing and controlling the physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit. Supply chain management – Managing upstream and downstream value-added flows of materials, final goods and related informa- tion among suppliers, the company, resellers and final consumers. In the past, physical distribution planners typically started with products at the plant and then tried to find low-cost s solutions to get them to customers. However, today's marketers prefer customer-centred logistics thinking, which starts with the marketplace and works backwards to the factory, or even to sources of supply. Marketing logistics involves not only outbound distribution (moving products from the factory to resellers and ultimately to customers) but also inbound distribution (moving products and materials from suppliers to the factory) and reverse distribution (moving unwanted, broken or excess products returned by consumers or resellers). That is, it involves entire supply chain management - managing upstream and downstream value-added flows of materials, final goods and related informa- tion among suppliers, the company, resellers and final consumers, as shown in Figure 12.5: By placing greater emphasis on logistics, companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices. Improved logistics can yield tremendous cost savings to both the company and its customers. As much as 20 per cent of an average product's price is accounted for by shipping and transport alone. This far exceeds the cost of advertising and many other marketing costs. More than almost any other marketing function, logistics affects the environment and reflects a firm's envi- ronmental sustainability efforts. Smart companies manage to reduce costs and the environ- mental impact at the same time in developing marketing logistics. Major logistics functions The goal of 1 marketing logistics should be to provide a targeted level of customer service at the least cost. Unfortunately, no logistics system can both maximize customer service and mini- mize distribution costs. Maximum customer service implies rapid delivery, large inventories, flexible assortments, liberal returns policies and other services all of which raise costs.In contrast, minimum distribution costs imply slower delivery, smaller inventories and larger shipping lots - which represent a lower level of overall customer service. Focusing the former iS more appropriate in business- -to- business markets, with high costs for customers if they don't get what they want on time. The latter appears cleverer for budget and volume brands in consumer markets. Warehousing Production and consumption cycles rarely match, SO most companies must store their goods while they wait to be sold. The storage function overcomes differences in required quantities and timing, ensuring that products are available when customers are ready to buy them. A company must decide on how many and what types of warehouses it needs and where they will be located. Inventory management Inventory management also affects customer satisfaction. Here, managers must maintain the delicate balaïce between carrying too little inventory and carrying too much. With too little stock, the firm risks not having products when customers want to buy. Carrying too much inventory results in higher-than-necessary inventory-carrying costs and stock obsolescence. Thus, in managing inventory, firms must balance the costs of carrying larger inventories against resulting sales and profits. Many companies have greatly reduced their inventories and related costs through just-in-time logistics systems. With such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. New stock arrives exactly when needed, rather than being stored in inven tory until being used. Transportation The choice of transportation carriers affects the pricing of products, delivery performance, sustainability and condition of the goods when they arrive - all of which will affect customer satisfaction. In shipping goods to its warehouses, dealers and customers, the company can choose among five main transportation modes: lorry, rail, water, pipeline and air. For some products, Internet may be a convenient distribution vehicle. Shippers also use intermodal transportation - combining two or more modes of transportation. Piggyback describes the use of rail and lorries; fishyback, water and lorries; trainship, water and rail; and airtruck, air and lorries. Intermodal transportation – Combining two or more modes of transportation. Integrated logistics management Logistics information can be shared and managed in many ways but most sharing takes place through traditional or Internet-based electronic data interchange (DI), the computerized exchange of data between organizations In some cases, suppliers might actually be asked tO generate orders and arrange deliveries for their customers. Many large retailers, e.g. ICA, work closely with major suppliers to set up vendor-managed inventory (VMI) systems or contin- uous inventory replenishment systems. Using VMI, the customer shares real- time data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries. Some retailers even go so far as to shift inventory and delivery costs to the supplier. Integrated logistics management – The logistics concept that emphasizes teamwork-both inside the company and among all the marketing channel organizations -to maximize the performance of the entire distribution system. Third-party logistics (3PL) provider – An independent logistics provider that performs any or all of the functions required in getting its client's product to market. Today, more and more companies are adopting the concept of integrated logistics management. This concept recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. The members of a marketing channel are linked closely in creating customer value and building customer relationships. One company's distribution system iS another company's supply system. IKEA can create its stylish but affordable furniture and deliver the 'IKEA lifestyle only if its entire supply chain consisting of thousands of merchandise designers and suppliers, transport companies. warehouses and service providers - operates at maximum efficiency and customer-focused effectiveness. Most big companies love to make and sell their products, but many loathe the associated logistics 'grunt` work. A growing number of firms now outsource some or all of their logis- tics to third-party logistics (3PL) providers. These providers can often do the bundling, loading, unloading, sorting, storing, reloading, transporting, customs clearing and tracking required to get products out to customers more efficiently and at lower cost. Retailing Mystery shopper – The mystery shopper's role is to act and perform as a normal customer but with a special and specific task, such as measuring service quality levels of a hotel, a restaurant, an airline or a retail company. Retailing is the last step in the marketing channel and typically includes all the activi- ties involved in selling products or services directly to inal consumers for their personal, non-business use. Many institutions - manufacturers, wholesalers and retailers - do retailing. But most retailing is done by retailers: businesses whose sales come primarily from retailing. Retailing plays a very important role in most marketing channels. Retailers connect brands to consumers in the final step in the consumer's path to purchase, and it has been estimated that nearly 70 per cent of purchase decisions are made near or in the store. Many marketers are now embracing the concept of shopper marketing, the idea that the retail store itself is an important marketing medium. Shopper marketing involves focusing the entire marketing process - from product and brand development to logistics, promotion and merchandising towards turning shoppers into buyers at the point ofs sale. Hence, marketing efforts should be co-ordinated around the shopping process itself. Types of retailers The most important types retail stores are described in Table 12.1 and discussed in the following sections. Retailers can be classified in terms of several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge and how they are organized. Different types of customers and products require different amounts of service. Self-service retailers serve customers who are willing to perform their own 'locate-compare-select* process to save time Or money. Self-service is the basis of all discount operations and most retailers selling convenience goods (such as supermarkets) and fast-moving shopping goods (such as Gekås or Walmart). In full-service retailers, such as high-end speciality stores (Hästens and Tempur stores; Svenskt Tenn; Svensson i Lammhult) and department stores (such as El Corte Inglés and Nk), salespeople assist customers in every phase of the shop- ping process. Full-service stores usually carry more speciality goods for which customers need or want assistance or advice. They provide more services, resulting in much higher operating costs, which are passed along to customers as higher prices. In between are limited-service retailers. Speciality store – Retailer that carries narrow product lines with deep assortments within those lines. Retailers can also be classified by the length and breadth of their product assortments. Some retailers, such as speciality stores, carry narrow product lines with deep assortments within those lines. Today, speciality stores are flourishing. The increasing use of market segmentation, market targeting and product specialization has resulted in a greater need for stores that focus on specific products and segments Department store – Retailer that carries a wide variety of product lines. Supermarket – The most frequently shopped at type of retail store Convenience store – Small store that carries a limited line ofhigh-turnover convenience goods. Superstore – Retailer that is much larger than a regular supermarket and which offers a large assortment of routinely purchased food products, non-food items and services. Discount store – Retail store that sells standard merchandise at lower prices by accepting lower margins and selling higher volumes. Factory outlet – Retail store that offers prices as low as 50 per cent below retail on a wide range of mostly surplus, discounted or irregular goods. In contrast, epartment stores carry a wide variety of product lines. In recent years, epart- ment stores have been squeezed between more focused and flexible speciality stores, on the one hand, and more efficient, lower-priced discounters, on the other. Supermarkets are the most frequently shopped at type of retail store. In Sweden, supermar- kets have a quite unique position compared with almost any country. ICA's market share now exceeds 50 per cent, giving them a very strong position, and their market coverage is very high, despite all the attempts to compete with them Convenience stores are small stores that carry a limited line of high-turnover convenience goods, ranging from ICA Nära's or Coop Nära's 'mini super market approach to 7-Eleven's and Pressbyrån's more pronounced profile with long opening hours and high prices. Many 7-Eleven stores are located in city centres in Sweden while gas stations keep this role outside of city centres. Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, non-food items and services. A discount store sells standard merchandise at lower prices by accepting lower margins and selling higher volumes. The early discount stores cut expenses by offering few services and operating in warehouse-like facilities in low-rent, heavily travelled districts. Today's discounters have improved their store environments and increased their services, while at the same time keeping prices low through lean, efficient operations. Factory outlets sometimes group together in factory outlet malls, where dozens of outlet stores offer prices as low as 50 per cent below retail on a wide range of mostly surplus, discounted or irregular goods. Shopping malls now are moving upmarket - and even dropping factory' from their descriptions - narrowing the gap between factory outlet and more traditional forms of retailers. As the gap narrows, the discounts offered by outlets are getting smaller. Given their higher costs, the department stores must charge more than the off-price outlets. Manufac- turers counter that they send last year's merchandise and seconds to the factory outlet malls, not the new merchandise that they supply to the department stores. Still, the department stores are concerned about the growing number of shoppers willing to make weekend trips to stock up on branded merchandise at substantial savings. Many new store concepts across the world start as discount stores, but after a few years they provided additional services that increase the cost base. This is called the wheel-of-retailing. However, successful companies often stay with their core business idea and avoid taking on activities that increase the cost base - Ryanair is a great example of this. Franchising Although some retail stores are independently owned, many retailers are franchisees, thus their business model is based on a contractual association with a franchiser (a manufacturer, wholesaler or service organization). Franchisees are independent businesspeople who buy the right to own and operate one or more units in the franchise system. Franchise organiza tions are normally based on some unique product or service, on a method of doing business, trade name, good will or patent that the franchiser has developed. Well-known exam- ples are McDonald's, Circle K, Pressbyrån, Subway, Pizza Hut and 7-Eleven. Retailer marketing decisions In the past, retailers attracted customers with unique product assortments and more or better services. Today, retail assortments and services are looking more and more alike. You can find most consumer brands not only in department stores but also in mass-merchandise discount stores, off-price discount stores and on the web. Service differentiation among retailers has also eroded. Many department stores have trimmed their services, whereas discounters have increased theirs. Customers have become smarter and more price sensitive. They see nO reason to pay more for identical brands, especially when service differences are shrinking. For all these reasons, many retailers today are rethinking their marketing strategies. Like other businesses operations, retailers face major marketing decisions about segmenta- tion and targeting, store differentiation and positioning, and the retail marketing mix. Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets. Should the store focus on up-market, mid-market or down-market shoppers? Do target shoppers want variety, depth of assortment, convenience or low prices? Until they define and profile their markets, retailers cannot make consistent decisions about product assortment, services, pricing, advertising, store decor or any of the other decisions that must support their positions. Too many retailers, even big ones, fail to define their target markets and positions clearly. They try to have something for everyone and end up satisfying no market well. Retailers must decide on three major product variables: product assortment, services mix and store atmosphere. The retailer's product assortment should differentiate the retailer while matching target shoppers' expectations. Often, consumers in the area where the retailer is going to operate are asked about this, but asking customers has its limits, as we discussed in Chapter 4. Customers may not think beyond existing categories. One strategy is to offer merchandise that no other competitor carries, such as store brands or national brands for which it holds exclusivity. The services mix can also help to set one retailer apart from another. A strong footing in the local market area appears to have a strong correlation with satisfied customers, and thus firms with a local presence enjoy these advantages. The store's atmosphere is another important element in the reseller's product arsenal. The retailer wants to create a unique store experience, one that suits the target market and moves Retailers use any or all of the promotion tools - advertising, personal selling, sales promo- tion, public relations, and direct marketing - to reach consumers, and these tools - be it a mass or segmented market approach, are crucial in defining the retail business. Important to note in this context, the software' is more important than the 'hardware' - lack of buyer orientation in attitudes and business models cannot be compensated for by providing great location, great facilities, showrooms and product expositions. Siting decision: location matters! Retailers often point to three critical factors in retailing success: location, location and loca- tion. It's very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer's positioning. Successful companies have one thing in common: Hennes Mauritz, Apple and UNIQLO locate their stores in high-end addresses and trendy shopping districts - accordingly, the customer profile reflects the profile of those who visit this area. Affluent, young and dynamic people are likely to have a greater willingness to pay for great products and excellent service. Wholesaling -Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. Heavy and increasing manufacturing overcapacities make it increas ingly important for manufacturers to find sales channels for their products, and a wholesaler may try to find overproduced products and buy them at a low price, then sell them with substantial margins to retailers. Wholesalers add value by performing one Or more of the following channel functions: Selling and promoting: wholesalers' sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer. Buying and assortment building: wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work. Bulk breaking: wholesalers save their customers money by buying in bulk lots and breaking bulk (breaking large lots into small quantities). Warehousing: wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers. Transportation: wholesalers can provide quicker delivery to buyers because they are closer than the producers. Financing: wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time. Risk bearing: wholesalers absorb risk by taking title and bearing the costs of theft, damage, spoilage and obsolescence. Market information: wholesalers give information to suppliers and customers about competitors, new products and price developments. Management: services and advice: wholesalers often help retailers train their sales clerks, improve store layouts and displays, and set up accounting and inventory control systems. Broker – Brings buyers and sellers together and assists in negotiation. Agent – Generally represents buyers or sellers on a permanent basis. In addition to wholesalers, there are brokers and agents that do not take title to goods, and they perform only a few of the functions mentioned above. A broker brings buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more permanent basis. SUMMARY A company's channel decisions directly affect every other marketing decision. Some companies pay too little attention to their marketing channels, but others have used imaginative distribution systems to gain competi- tive advantage. Marketing channels perform many key functions, and most producers use intermediaries to bring their prod- ucts to market. They try to forge a marketing channel a set of interdependent organizations involved n the process of making a product or service available for uSe or consumption by the consumer or business user. Through their contacts, experience, specialization and scale of operation, intermediaries usually offer the firm more than it can achieve on its own. The channel will be most effective when each member is assigned the tasks it can do best. However, tough competition and a high importance of communicating a consistent brand image have made it increasingly important to co-ordinate different channel members' efforts. Channel design begins with assessing customer channel service needs and company channel objectives and constraints. The company then identifies the major channel alternatives in terms of the types of interme- diaries, the number of intermediaries and the channel responsibilities of each. Each channel alternative must be evaluated according to economic control and adaptive criteria. Channel management calls for selecting qualified intermediaries and motivating them. Indi- vidual channel members must be evaluated regularly. Companies could sell through physical or online stores Although the latter have grown significantly, it is not self-evident that physical retailers will disappear on a large scale. Organizing online retailing efficiently involves some challenges, and attempts to integrate various channels into a customer-oriented omni-channel approach, where consumers can get information, buy and return the products in the channel that suits them. Companies must decide how much their products, promotion, price and channels should be adapted for each foreign market. At one extreme, global companies use standardized global marketing worldwide. Others use an adapted global marketing, in which they adjust the marketing strategy and mix to each target market, bearing more costs but hoping for a larger market share and return. However, global standardization is not an all-or-nothing proposition. It's a matter of degree Most international marketers suggest that companies should 'think globally but act locally'`- that they should seek a balance between standardization and adaptation. Retailing includes all activities involved in selling goods or services directly to final consumers for their personal, non-business use. Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or for busi- ness use. Both wholesalers and retailers must target carefully and position themselves strongly in addition to deciding on product and service assortments, prices, promotion and place. In the long run, their only reason for existence comes from adding value by increasing the efficiency and effectiveness of the entire marketing channel. As with other types of marketers, the goal was to build value-adding customer relationships. Retailers that try to offer 'something for everyone end up satis- fying no market well. In contrast, successful retailers define their target markets well and position them- selves strongly. Today's successful retailers carefully orchestrate virtually every aspect of the consumer store experience. And it's very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer's positioning. Key terms Adapted global marketing Agent Broker Channel conflict Communication adaptation Contract manufacturing Convenience store Conventional marketing channel Department store Direct investment Direct marketing channel Discount store Disintermediation Exclusive distribution Exporting Factory outlet Horizontal marketing system Indirect marketing channel Integrated logistics management Intensive distribution Intermodal transportation Joint ownership Joint venturing Licensing Management contracting Marketing channel Marketing channel design Marketing channel management Marketing logistics (physical distribution) Multichannel marketing channels Mystery shopper Omni channel Product adaptation Product invention Selective distribution Speciality store Standardized global marketing Straight product extension Supermarket Superstore Supply chain management Third-party logistics (3PL) provider Value delivery network Vertical marketing system (VMS).