Summary – Integrated Case (ICA1)
Marketing
Marketing: an Introduction (2020) 18th edition, Global Edition, by Kotler and Armstrong
- Chapter 10: Marketing Channels: Delivering Customer Value
- Chapter 12: Communicating Customer Value: Advertising and Public Relations
- Chapter 14: Direct, Online, Social Media, and Mobile Marketing
Finance and Accounting
Miller-Nobles T.L. & B.L. Mattison (2022) Horngren’s Financial & Managerial Accounting: The Managerial
Chapters, Pearson, Global Edition 7th edition, ISBN: 9781292412337.
- Chapter 4: 191-210
- Chapter 3: 123-144 + 148
- Chapter 2: 90-92
Supply Chain Marketing
Supply Chain Management: A Logistics Perspective(2017), 10th Edition. John J. Coyle, C. John Langley, Jr.,
Robert A. Novack and Brian J. Gibson
- Chapter 5: Sourcing, the Purchasing Process, Traditional v Supply Chain Approach
- Chapter 10 + Appendix 10a: Materials Handling & Packaging
- Chapter 13: Logistics Performance Measurement
,Marketing
Chapter 10 – Marketing Channels: Delivering Customer
Value
1. Supply chains and the Value Delivery Network
Objective 10-1 Explain why companies use marketing channels and discuss the functions these
channels perform
Producing a product or service and making it available to buyers requires building relationships not
only with customers but also 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 – the marketing channels (or distribution channels) that look
toward the customer. Downstream marketing channel partners, such as wholesalers and retailers,
form a vital link between the firm and its customers.
The term supply chain may be too limited, as 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. Under this view, planning starts by identifying the needs of target customers, to
which the company responds by organising a chain of resources and activities with the goal of
creating customer value.
Yet 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. Instead, most large companies today are
engaged in building and managing a complex, continuously evolving value delivery network. 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.
1.1. The Nature and Importance of Marketing Channels
Few producers sell their goods directly to final users. Instead, most use intermediaries to bring their
products to market. They try to forge a marketing channel (or distribution channel) – a set of
interdependent organisations that help make a product or service available for use or consumption
by the consumer or business user.
A company’s channel decisions directly affect every other marketing decision. Pricing depends on
whether the company works with national discount chains, uses high-quality specialty stores, or sells
directly to consumers online. The firm’s sales force and communications decisions depend on how
much persuasion, training, motivation, and support its channel partners need. Whether a company
develops or acquires certain new products may depend on how well those products fit the
capabilities of its channel members.
Companies often pay too little attention to their distribution channels – sometimes with damaging
results. In contrast, many companies have used imaginative distribution systems to gain a
competitive advantage. Uber and Airbnb have disrupted the taxi and hospitality business.
Distribution channel decisions often involve long-term commitments to other firms. For example,
Nike can easily change their advertising, pricing or promotion programs. They can scrap old products
,and introduce new ones as market tastes demand. But when they set up distribution channels
through contracts with franchises, independent dealers, or large retailers, they cannot readily
replace these channels with company-owned stores or internet sites if the conditions change.
Therefore, management must design its channels carefully, with an eye on both today’s likely selling
environment and tomorrow’s as well.
1.2. How Channel Members Add Value
Producers use intermediaries because they create greater efficiency in making goods available to
target markets. Through their contacts, experience, specialisation, and scale of operation,
intermediaries usually offer the firm more than it can achieve on its own.
Figure 10.1 shows how using intermediaries can provide economies.
From the economic system’s point of view, the role of marketing intermediaries is to transform the
assortments of products 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 desired by consumers.
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 use them.
Members of the marketing channel perform many key functions. Some help to complete
transactions:
- Information. Gathering and distributing information about consumers, producers, and other
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 engaging customers and prospective buyers.
- Matching. Shaping offers to meet the buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging.
- Negotiation. Reaching an agreement on price and other terms so that ownership or
possession can be transferred.
Others help to fulfil the completed transactions:
- 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.
, The question is not whether these functions need to be performed – they must be – but rather who
will perform them. To the extent that the manufacturer performs these functions, its costs go up;
therefore, 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 intermediaries must charge more to cover the
costs of their work. In dividing the work of the channel, the various functions should be assigned to
the channel members that can add the most value for the cost.
1.2.1. Number of Channel Levels
Companies can design their distribution channels to make products and services available to
customers in different ways. Each layer of marketing intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer is a channel level. Because both the
producer and the final consumer perform some work, they are part of every channel.
The number of intermediary levels indicates the length of a channel. Figure 10.2 shows both
consumer and business channels of different lengths. Channel 1, a direct marketing channel, has no
intermediary levels – the company sells directly to consumers. The other channels are indirect
marketing channels, containing one or more intermediaries.
From the producer’s point of view, a greater number of levels means less control and greater channel
complexity. Moreover, all the institutions in the cannel 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.
2. Channel Behaviour and Organisation
Objective 10.2 Discuss how channel members interact and how they organise to perform the work
of the channel
2.1. Channel Behaviour
A marketing channels consists of firms that have partnered for their common good. Each channel
member depends on the others. Each channel member plays a specialised role in the channel. The
