Principles of Marketing,
Arab World Edition
Philip Kotler, Gary Armstrong, Anwar Habib, Ahmed
Tolba
Presentation prepared by Annelie Moukaddem Baalbaki
CHAPTER 12
Marketing Channels
Instructor: Talha Sarfaraz.
Copyright © 2011 Pearson Education
Marketing Channels
•Topic Outline
Supply Chains and the Value Delivery Network
The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Channel Design Decisions
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The Nature and Importance of
Marketing Channels
Marketing channel (distribution channel) is a set of
interdependent organizations that help make a
product or service available for use or consumption
by the consumer or business user.
Marketing channels consist of firms that have
partnered for their common good with each member
playing a specialized role.
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Supply Chains and the
Value Delivery Network
Upstream partners are firms that supply raw materials,
components, parts, information, finances, and
expertise needed to create a product or service.
Downstream partners include the marketing channels or
distribution channels that look toward the customer,
including retailers and wholesalers.
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Supply Chains and the
Value Delivery Network
Value delivery network is
composed of the company,
suppliers, distributors, and,
ultimately, customers who
partner with each other to
improve the performance of
the entire system.
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The Nature and Importance of
Marketing Channels
• They transform the assortment (variety) of products
into assortments (variety) wanted by consumers
• Bridge the major time, place, and possession gaps
that separate goods and services from users
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The Nature and Importance of
Marketing Channels
How Channel Members Add Value
Information Promotion Contact
Physical
Matching Negotiation
distribution
Financing Risk taking
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The Nature and Importance of
Marketing Channels
Number of Channel Levels
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The Nature and Importance of
Marketing Channels
Number of Channel Levels
• Connected by several types of flows
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow
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Channel Behavior and Organization
Channel Behavior
Channel conflict refers to disagreement among channel
members over goals, roles, and rewards.
• Horizontal conflict:occurs among firms at the
same level of the channel
• Vertical conflict: conflict between different levels
of the same channel
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Channel Behavior and Organization
Vertical Marketing Systems
Conventional distribution systems consist of one or more
independent producers, wholesalers, and retailers, each
separate business seeking to maximize its own profits,
perhaps even at the expense of profits for the system as a
whole.
conventional distribution channels have lacked leadership and
power, often resulting in damaging conflict and poor
performance
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Channel Behavior and Organization
Vertical Marketing Systems
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Channel Behavior and Organization
Vertical Marketing Systems
Vertical marketing systems (VMSs) provide channel
leadership and consist of producers, wholesalers,
and retailers acting as a unified system.
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems
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Channel Behavior and Organization
Vertical Marketing Systems
Corporate vertical marketing systems combine
successive stages of production and
distribution under single ownership.
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Channel Behavior and Organization
Vertical Marketing Systems
Contractual vertical marketing systems consist of
independent firms at different levels of
production and distribution who join together
through contracts.
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Channel Behavior and Organization
Vertical Marketing Systems
Franchise organization is a contractual vertical
marketing system in which a channel member,
called a franchisor, links several stages in the
production-distribution process.
There are three types of franchises.
The first type is the manufacturer-sponsored retailer
franchise system Ex. Ford
The second type is the manufacturer-sponsored wholesaler
franchise system Ex.Coca-Cola
The third type is the service-firm-sponsored retailer
franchise system Ex. Burger King
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Channel Behavior and Organization
Vertical Marketing Systems
An administered vertical marketing system is a
VMS that coordinates successive stages of production and
distribution through the size and power of one of the
parties. For example, GE, P&G, and Apple can command
unusual cooperation from many resellers regarding
displays, shelf space, promotions, and price policies.
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Channel Behavior and Organization
Horizontal Marketing Systems
Horizontal marketing system is a channel
arrangement 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. Companies might
join forces with competitors or
noncompetitors. They might work with each
other on a temporary or permanent basis,
or they may create a separate company.
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Channel Behavior and Organization
Multichannel Distribution Systems
Multichannel distribution systems are systems in
which a single firm sets up two or more
marketing channels to reach one or more
customer segments.
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Channel Behavior and Organization
Multichannel Distribution Systems
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Channel Behavior and Organization
Changing Channel Organization
Disintermediation is the
cutting out of
marketing channel
intermediaries by
producers or the
displacement of
traditional resellers by
new intermediaries.
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Channel Design Decisions
Analyzing Setting
consumer channel
needs objectives
Identifying Evaluating
channel channel
alternative alternative
s s
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Channel Design Decisions
Analyzing Consumer Needs
• Find out what target consumers want from the
channel
• Identify market segments
• Determine the best channels to use
• Minimize the cost of meeting customer service
requirements
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Channel Design Decisions
Setting Channel Objectives
• Determine targeted levels of customer
service
• Balance consumer needs against costs and
customer price preferences
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Channel Design Decisions
Identifying Major Alternatives
Types of intermediaries refers to channel
members available to carry out channel work.
Most companies face many channel member
choices.
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Channel Design Decisions
Identifying Major Alternatives
Number of Marketing Intermediaries
Intensive distribution
Exclusive distribution
Selective distribution
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Channel Design Decisions
Identifying Major Alternatives
Responsibilities of Channel Members
A producer and the intermediaries need to agree on
• Price policies
• Conditions of sale
• Territory rights
• Specific services
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Channel Design Decisions
Evaluating the Major Alternatives
• Economic criteria
• Control issues
• Adaptability criteria
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Channel Design Decisions
Designing International Distribution Channels
• Channel systems
can vary from
country to country.
• Marketers must be
able to adapt
channel strategies
to structures within
each country.
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