-Marketing channels and channel intermediaries -Channel structures -Omnichannel versus multichannel marketing [SLIDE 1] A marketing channel (or channel of distribution), is a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. The channels are a component of “place” in the marketing mix. In the supply chain model, the direction from manufacturers to raw material suppliers is "upstream" and the direction from manufacturer to the end user is "downstream." Channel members are all parties in the marketing channel who negotiate with one another, buy and sell products, and facilitate the change of ownership between seller and buyer -- between the manufacturer and final customer. [SLIDE 2] Marketing channels attain economies of scale through specialization and division of labor by aiding upstream producers in marketing to end users or consumers. For instance, if the Coca-Cola company had to negotiate directly with all stores, or place all local ads, the process would be slow and expensive. Local wholesalers and distributors can more quickly address the needs for each region or city. Channel members are valuable because they can add utility to the exchange between manufacturer and the end user. There are four key types of utility: -Form utility: the elements of composition and appearance of a product that make it desirable. -Time utility: the increase in customer satisfaction gained by making a good or service available at the appropriate time. -Place utility: the usefulness of a good or service as a function of the location at which it is made available. -Exchange utility: the increased value of a product that is created as its ownership is transferred. Form utility can refer to other producers. For instance, a farmer gets raw materials to produce oats. Another company then provides form utility to take the oats and manufacture cereal. A member of the channel can address more than one utility. For instance, a grocery store works to ensure the products are in a location near you, that they are available when you want them, and that purchasing the product is easy. [SLIDE 3] As mentioned, intermediaries negotiate with each other in order to help transfer product ownership from the producer to the customer. The most prominent difference between types of intermediaries is whether or not they take ownership as part of the exchange. There are three primary types of intermediaries: -Merchant wholesalers: buy goods from manufacturers and resell them to customers (business, government, consumers). These intermediaries take ownership of the products and store them in their own warehouses. -Agents and brokers: wholesalers who do not take ownership but facilitate sale from producer to end user by representing retailers, wholesalers, or manufacturers. -Retailers: typically own products and sell mainly to consumers. When deciding which channels to use, producers evaluate their products on a few scales, including: -Customized and highly complex products are typically sold through agents and brokers while standardized products can be sold through wholesalers. -Buyer purchase frequency and urgency impact channel. The lack of urgency might lead a book buyer to an ecommerce wholesaler while great urgency might lead them to a retailer. -Market characteristics affect the decision. If the manufacturer is close to the market, a direct approach might be chosen, while mass manufactured goods sold over a wide area will require intermediaries. [SLIDE 4] Intermediaries in marketing channels perform three essential functions: -Transactional: contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages and benefits -Logistical: transportation and storage of products, as well as sorting , accumulation, consolidation, and/or allocation. -Facilitating: research, finance, and other services that help the manufacturer understand and reach markets. [SLIDE 5] Intermediaries in marketing channels perform three essential functions: Transactional: contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages and benefits Logistical: transportation and storage of products, as well as sorting , accumulation, consolidation, and/or allocation. Facilitating: research, finance, and other services that help the manufacturer understand and reach markets. [SLIDE 6] For business products, there are five key marketing channels: -Direct to business: Direct channels are typical in business, especially for suppliers with whom manufacturers need to manage detailed specifications or where the product is expensive. -Direct to government: Selling to governments is a very different process than selling to business, usually with far more paperwork and slower sales cycles. -Industrial distributor: For regularly-purchased items, and when suppliers are too small to have a sales force, industrial distributors are a way to link from producer to buyer. -Agent/broker: For commodity or specialty items, an agent can link smaller producers into communications to sell to larger companies. -Agent/broker industrial: Similar to agent/brokers above, except the agent/broker works between the producer and the industrial distributor. [SLIDE 7] A producer rarely uses a single channel. In addition, there are alternative channels than can be used as the circumstances warrant. Some of those options are: -Dual or multiple distribution: The use of two or more channels to distribute the same product to target markets. -Nontraditional channels: Nonphysical channels that facilitate the unique market access of the products and services. Late night infomercials are a nontraditional channel. -Strategic channel alliances: Cooperative agreements between business firms to use the other’s already established channels. The Eddie Bauer edition Ford Explorers are an example of such an alliance; Starbucks opening cafes in Barnes & Nobles stores is another. -Secondary channels: When a producer sells to one user who then later sells the same product. Car companies sell to rental agencies, which use the cars and then sell them to consumers. -Grey market channels: Secondary channels that are unintended to be used by the producer, which often flow illegally to the consumer. This also involves selling counterfeit products of legal brands. -Reverse channels: These enable customers to return products or components for reuse or remanufacturing. Recycling is one example. -Drop and shop: Several retailers allow customers to bring used products for return or donation at the store entrance. Best Buy has recycle bins for batteries and electronic devices at the store entrance. [SLIDE 8] Digital channels are electronic pathways that allow products and related information to flow from producer to consumer. Phone sales have existed for almost the entire life of phones, and ecommerce started not long after the Web was invented. A growing segment of society purchases goods on ecommerce sites such as Amazon, eBay and those of physical retailers such as Walmart who have added ecommerce as a channel. Even electronic content can be channels, as ads appear regularly in video games, music streaming, and more. The enormous growth of the laptop, tablet, and smart phone markets have brought a new word, mcommerce. This is ecommerce aimed at the mobile audience. The immediacy of mcommerce is providing large commercial opportunities to firms, especially with younger generations. mCommerce also includes companies reaching out on social media sites rather than directly on their own sites or via ads in other applications. [SLIDE 9] As can be seen, the channel options available to marketers are many. Three key factors can be used to evaluate which channels should be used: -Market factors: the target market, who they are, what they buy, where they are located. -Product factors: how complex products are, how expensive, where in the product life cycle, and other product features. -Producer factors: what marketing and financial resources are available, where is the producer compared to the customer, what pricing control is wanted. [SLIDE 10] Organizations have three options for the level of distribution intensity: -Intensive distribution: aimed at having a product available in every outlet where target customer might want to buy it. -Selective distribution: achieved by screening dealers to eliminate all but a few in a single area. -Exclusive distribution: establishes one or a few dealers within a given area. There a number of emerging or expanding distribution structures, including: -Flash sales: The growth of the mobile market has increased the use of flash sales, short notice events with big discounts. -Renting: This technique is expanding beyond its base to high fashion items and similar items not previously rented. -Subscriptions: These have moved past the old book-of-the-month club to wines, clothing, crafting kids, organic produce and a host of new products. [SLIDE 11] As mentioned, multichannel marketing involves using two or more channels to reach markets. This is needed, but it adds overhead. It usually means multiple, parallel supply chains, each with its own inventory, processes , and performance metrics. An example of the problem is a retailer who sells online and in a physical store (often called click-and-mortar). If a product is out at a store, a customer can be pointed to a web site that uses a distribution center in another state while a product might sit in a local retail distribution center. That creates inefficiencies, adds to costs, and lowers customer satisfaction. Omnichannel marketing is the work to integrate the processes of multiple channels to avoid similar problems. The goal is to provide all customers equal service regardless of the channel used. For instance, many ecommerce sites of retailers now link to local inventories and can tell a customer if the product is in stock. A purchase at that store saves shipping costs and time, and employees can have the product ready when the customer stops by.