ADMS 4230 Textbook Notes PDF

ADMS 4230 - Textbook notes CHAPTER 1 - Marketing Channel Concepts Learning outcomes: 1. Realize that new Internet-based technologies have created a metamorphosis in marketing channels and distribution systems. ↳ Amazon is the Walmart of the internet, dominates online channels, Wal...

ADMS 4230 - Textbook notes CHAPTER 1 - Marketing Channel Concepts Learning outcomes: 1. Realize that new Internet-based technologies have created a metamorphosis in marketing channels and distribution systems. ↳ Amazon is the Walmart of the internet, dominates online channels, Walmart is trying to combat Amazon with ‘Walmart Marketplace’ ↳ Emergence of internet based electronic commerce in the 21st century ↳ New technologies, business models, innovation ↳ Heightened customer expectations 2. Recognize that today’s customers expect more choices as to how, when, and where products and services are made available to them. ↳ Customers now expect far more and better channel choices for gaining access to the vast array of products and services from all over the planet-how,where, and when they want them. ↳ Simple, quick, and seamless buying experience is expected ↳ High customer expectations not only need to be met, but exceeded, to provide the high-level shopping experience customers expect 3. Be aware of the need for multi-channel strategies and structures to satisfy heightened customer expectations for channel choice. ↳ Customer expectations in B2C and B2B levels are not likely to be satisfied by a singular channel structure (high channel choice, flexibility, excellent buying experience) ↳ Combination of both Land-based and internet-based channels needed ↳ Properly targeted channels to hear appropriate customer segments ↳ Need to mesh smoothly and compliment each other rather than undermine each other ↳ 4 key challenges: ↪ Finding the optimal multi-channel mix ↪ Creating multi-channel synergies ↪ Avoiding multi channel conflicts ↪ Gaining a sustainable competitive advantage via multi-channel strategy ↳ Channel examples: ↪ Internet-Based, Online ↪ Retail Store ↪ Mail Order ↪ Wholesale Distributor ↪ Sales Representative ↪ Call Center ↪ Company Sales Force ↪ Vending Machine ↪ Company-Owned Retail Store  ↳ Quality over Quantity in your channel mix ↳ Multi-channel synergy: Using one channel to enhance effectiveness and efficiency of another channel. Eg. When buying a car most customers use other channels to figure out which car they want (online research), before going to a dealer to actually buy the car ↳ Multi channel conflict: Conflict between channels which are reaching the same customers. Eg. Manufacturer sells directly through online channel and also through independent distributors, independent distributors may see online channel as taking away their business. ↳ Sustainable competitive advantage: Competitive edge that cannot quickly ot easily be copied by competitors 4. Understand the definition of the marketing channel from a managerial perspective. ↳ Not possible to have a single definition for marketing channel ↳ Viewed as one of the key marketing decision areas marketing management must address. ↳ ‘Marketing channel’ from a managerial perspective can be defined as: The external contactual organization that management operates to achieve its distribution objectives. ↪ External: Marketing channel exists outside the firms ↪ Contactual organization: Firms or parties who are involved in negotiatory functions as a product or service moves from the producer to it’s ultimate user ↪ Operates: Involvement by management in the affairs of the channel ↪ Distribution objectives: Management has certain distribution goals in mind 5. See how marketing channels relate to the other strategic variables in the marketing mix. ↳ The classic marketing mix strategy model provides the framework for viewing the marketing channel from a marketing management perspective ↳ Marketing management process: Strategic blanding of four controllable marketing variables (Marketing mix), to meet the demands of the target market in light of internal and external uncontrollable variables. ↳ Major tasks of marketing management: Seek out potential target markets, and to develop appropriate and coordinated product, price promotion, and distribution strategies to serve those markets in a competitive and dynamic environment. ↳ Marketing channel strategy fits within the distribution (PLACE) variable in the marketing mix. ↳ Distribution strategy (PLACE) = Channel strategy + Logistics management ↪ Channel strategy is concerned with the entire process of setting up and operating the contactual organization that is responsible for meeting the firm’s distribution objectives ↪ Logistics management is more narrowly focused on providing product availability at the appropriate times and places in the marketing channel ↳ 6. Know the flows in marketing channels and how they relate to channel management.  ↳ Marketing channel flows provide the links that tie channel members and other agencies together in the distribution of goods and services. ↳ Most important flows: ↪ Product flow ↪ Negotiation flow ↪ Ownership flow ↪ Information flow ↪ Promotion flow ↳ Product flow: refers to the actual physical movement of the product from the manufacturer through all the parties who take physical possession of the product, from its point of production to final consumers. ↳ Negotiation flow: represents the interplay of the buying and selling functions associated with the transfer of title (right of ownership) ↳ Ownership flow: shows the movement of the title to the product as it is passed along from manufacturer to final consumers. ↳ Information flow: All parties participate in the exchange of information, and the flow can go any direction. ↳ Promotion flow: The flow of persuasive communication in the form of advertising, personal selling, sales promotion, and publicity. ↳ By thinking in terms of the five flows, it becomes obvious that channel management involves much more than merely managing the physical product flow through the channel. The other flows (of negotiation, ownership, information, and promotion) must also be managed and coordinated effectively to achieve the firm’s distribution objectives. 7. Understand the principles of specialization and division of labor as well as contactual efficiency in marketing channels. ↳ The primary paradigms for making the allocation decisions that result in various channel structures are specialization, division of labour, and contactual efficiency. ↳ Specialization and division of labour: Adam Smith’s classic book The Wealth of Nations published in 1776. ↪ Workers specialized in performing only one operation, had a vast increase in output resulted over what was possible when this same number of workers individually performed all of the operations.  ↪ By breaking down a complex task into smaller, less complex ones and allocating them to parties who are specialists at performing them, much greater efficiency results. ↳ Production AND Distribution tasks need to be allocated to the correct parties for maximum efficiency ↳ Production tasks are allocated intraorganizationally while distribution tasks are allocated interorganizationally ↳ Just as the manufacturer’s production manager should allocate production tasks on the basis of specialization and division of labour, so should the channel manager. ↳Contactual efficiency: The level of negotiation effort between sellers and buyers relative to achieving a distribution objective. ↳ The relationship between an input (negotiation effort) and an output (the distribution objective) 8. Be familiar with the concepts of channel structure and ancillary structure and recognize the difference between them. ↳ Managerial perspective of Channel structure: The group of channel members to which a set of distribution tasks has been allocated. ↳ In developing channel structure, the channel manager is faced with an allocation decision; that is, given a set of distribution tasks that must be performed to accomplish a firm’s distribution objectives, the manager must decide how to allocate or structure the tasks. ↳ Multi-channel strategy: The firm has chosen to reach its customers through more than one channel. ↪ Increasingly popular as of recent ↪ Emergence of internet technology and online sales in the 21st century, many firms adopted a multi-channel strategy that includes online channels. ↳ Ancillary Structure: Participants who do not perform the negotiatory functions of buying, selling, and transferring title are considered to belong to the Ancillary structure of the marketing channel. The group of institutions (facilitating agencies) that assists channel members in performing distribution tasks. ↳ Channel managers must again allocate distribution tasks to those parties best suited to performing them. ↪ Because the ancillary structure involves nonmember channel participants, however, the problems faced in developing and managing the ancillary structure are likely to be less complex than those encountered in developing (and managing) channel structures. ↳ The channel manager also deals with facilitating agencies that are outside of the channel decision-making process. BUT the channel manager does not have to negotiate or deal with them on the same basis as channel members. CHAPTER 2 - The Channel Participants Learning outcomes: 1. Be familiar with the classification of the major participants in marketing channels. ↳ The three basic divisions of the marketing channel are producers and manufacturers, intermediaries, and final users. ↳ View final users as target markets that are served by the commercial subsystem of the channel. ↳ The commercial channel excludes final users ↳ Producers and manufacturers consist of firms that are involved in extracting, growing, or making products. ↳ Most producing/manufacturing firms are not in a favourable position to distribute products directly to their final user markets. 2. Understand why producers and manufacturers often find it necessary to shift many of the distribution tasks to intermediaries. ↳ Intermediaries, or middlemen, are independent businesses that assist producers and manufacturers (and final users) in the performance of negotiatory functions and other distribution tasks. Intermediaries. ↳ Producing and manufacturing firms often face high average costs for distribution tasks when they attempt to perform them by themselves. ↳ By shifting the distribution tasks to other channel participants, such as wholesalers and/or retailers, producers and manufacturers make substantial monetary savings. ↳ Intermediaries distribute the products of many other manufacturers and are therefore able to spread the high fixed costs of performing the distribution tasks over large quantities of diverse products, thus achieving economies of scope as well as economies of scale in distribution. 3. Identify the major types of wholesalers as reflected in the Census of Wholesale Trade. ↳ Wholesalers: consist of businesses that are engaged in selling goods for resale or business use to retail, industrial, commercial, institutional, professional or agricultural firms, as well as to other wholesalers. Also included are firms acting as agents or brokers in either buying goods for or selling them to such customers. ↳ 3 Major types of wholesalers as defined by the Census of Wholesale Trade: 1. Merchant wholesalers ↪ Firms engaged primarily in buying, taking title to, usually storing and physically handling products in relatively large quantities. They then resell the products in smaller quantities to retailers, other wholesalers and to industrial, commercial or institutional concerns 2. Agents, Brokers, and Commision Merchants ↪ Are also independent middlemen who do not, for all or most of their business, take title to the goods in which they deal. But they are actively involved in negotiatory functions of buying and selling while acting on behalf of their clients. 3. Manufacturers’ sales branches and offices ↪ Are owned and operated by manufacturers but are physically separated from manufacturing plants. They are used primarily for the purpose of distributing the manufacturer’s own products at wholesale 4. Be aware of major trends in wholesale structure, including patterns of size and concentration in wholesaling. ↳ Absolute sales of all three types of wholesalers increased substantially between 1992-2002, although the percentage of increase varied somewhat. ↳ While the share of total wholesale sales of agents, brokers, and commission merchants slipped from 10.9 percent to 10 percent between 1992-2002. 5. Recognize and explain the value of distribution tasks performed by the major types of wholesalers. ↳ Modern, well-managed merchant wholesalers are especially well suited for performing the following types of distribution tasks for producers and manufacturers: 1. Providing market coverage ↪ Market coverage is provided by merchant wholesalers to manufacturers because the markets for the products of most manufacturers consist of many customers spread over large geographical areas. 2. Making sales contacts ↪ Sales contact is a valuable service provided by merchant wholesalers.  ↪ By using wholesalers to reach all or a significant portion of their customers, manufacturers may be able to substantially reduce the costs of outside sales contacts because their sales force would be calling on a relatively small number of wholesalers rather than a much larger number of customers. 3. Holding inventory ↪ Holding inventory is another crucial task performed by wholesalers for manufacturers. Merchant wholesalers take title to, and usually stock, the products of the manufacturers whom they represent. 4. Processing orders ↪ Order processing performed by wholesalers is very helpful to manufacturers because many customers buy in small quantities. ↪ Wholesalers, on the other hand, are specifically geared to handle small orders from many customers. By carrying the products of many manufacturers, wholesalers’ order processing costs can be absorbed by the sale of a broader array of products than that of a typical manufacturer. 5. Gathering market information ↪ Gathering market information is another task of substantial benefit to manufacturers. Wholesalers are usually quite close to their customers geographically and in many cases have continuous contact through frequent sales calls. Hence, they are in a good position to learn about customers’ product and service requirements. Such information, if passed on to manufacturers, can be valuable for product planning, pricing, and the development of competitive marketing strategy. 6. Offering customer support ↪ is the final distribution task that wholesalers provide for manufacturers. Products may need to be exchanged or returned, or a customer may require setup, adjustment, repairs or technical assistance. For manufacturers to provide such services directly to large numbers of customers can be very costly. Instead, manufacturers can use wholesalers to assist them in providing these services to customers. This extra support by wholesalers, often referred to as value added services, plays a crucial role in making wholesalers vital members of the marketing channel from the standpoints of both the manufacturers who supply them and the customers to whom they sell. 6. Appreciate the complexity of retail structure and be familiar with the different approaches used to classify retailers, including the classifications used by the Census of Retail Trade. ↳ Retailers consist of business firms engaged primarily in selling merchandise for personal or household consumption and rendering services incidental to the sale of goods. ↳ 7. Know about major trends occurring in retail structure, especially with regard to size and concentration in retailing. ↳ 8. Have an overview of the distribution tasks performed by retailers. ↳ Retailers are particularly well suited for performing such distribution tasks as: 1. Offering manpower and physical facilities that enable producers, manufacturers and wholesalers to have many points of contact with consumers 2. Providing personal selling, advertising and display to sell suppliers’ products 3. Interpreting consumer demand and relaying it through the channel 4. Dividing large quantities of products into consumer-sized lots 5. Offering storage points close to points of consumer contact 6. Reducing risks of producers, manufacturers and wholesalers by accepting delivery of merchandise in advance of the selling season ↳ 9. Be cognizant of the retailer’s changing role in the marketing channel. ↳  10. Appreciate the role played by facilitating agencies in marketing channels. ↳ Facilitating agencies such as transportation companies, storage firms, order-processing firms, third party logistics providers, advertising agencies, financial institutions, insurers and marketing researchers, while not members of the marketing channel, are still called upon frequently by any or all of the channel members to help perform many different distribution tasks. MIDTERM chap. 1-8