How a product moves from raw material to finished good to the consumer is a marketing channel, also called a supply chain. Marketing channel decisions are as important as the decisions companies make about the features and prices of products. Channel partners are firms that actively promote and sell a product as it travels through its channel to its user. Companies try to choose the best channels and channel partners to help them sell products because doing so can give them a competitive advantage.
A direct marketing channel consists of just two parties—a producer and a consumer. By contrast, a channel that includes one or more intermediaries (wholesaler, distributor, or broker or agent) is an indirect channel. Firms often utilize multiple channels to reach more customers and increase their effectiveness. Some companies find ways to increase their sales by forming strategic channel alliances with one another. Other companies look for ways to cut out the middlemen from the channel, a process known as disintermediation. Direct foreign investment, joint ventures, exporting, franchising, and licensing are some of the channels by which firms attempt to enter foreign markets.
Selecting the best marketing channel is critical because it can mean the success or failure of your product. The type of customer you’re selling to will have an impact on the channel you select. In fact, this should be your prime consideration. The type of product, your organization’s capabilities versus those of other channel members, the way competing products are marketed, and changes in the business environment and technology can also affect your marketing channel decisions. Various factors affect a company’s decisions about the intensity of a product’s distribution. An intensive distribution strategy involves selling a product in as many outlets as possible. Selective distribution involves selling a product at select outlets in specific locations. Exclusive distribution involves selling a product through one or very few outlets.
Channel partners that wield channel power are referred to as channel leaders. A dispute among channel members is called a channel conflict. A vertical conflict is one that occurs between two different types of members in a channel. By contrast, a horizontal conflict is one that occurs between organizations of the same type. Channel leaders are often in the best position to resolve channel conflicts. Vertical and horizontal marketing systems can help foster channel cooperation, as can creating marketing programs to help a channel’s members all generate greater revenues and profits.
Backward Integration: Occurs when a company moves upstream in the supply chain—that is, toward the beginning.
Brokers: Don’t purchase or take title to the products they sell. Their role is limited to negotiating sales contracts for producers.
Category Killer: Sells a high volume of a particular type of product and, in doing so, dominates the competition, or “category.”
Channel Conflict: A dispute among channel members.
Channel Leaders: Strong channel partners often wield what’s called channel power.
Channel Power: Channel partners that wield channel power are referred to as channel leaders. A dispute among channel members is called a channel conflict. A vertical conflict is one that occurs between two different types of members in a channel. By contrast, a horizontal conflict is one that occurs between organizations of the same type. Channel leaders are often in the best position to resolve channel conflicts.
Channel Members: The firms a company partners with to actively promote and sell a product as it travels through its marketing channel to users.
Conventional Marketing System: The channel members have no affiliation with one another. All the members operate independently. If the sale or the purchase of a product seems like a good deal at the time, an organization pursues it. But there is no expectation among the channel members that they have to work with one another in the future.
Convenience Stores: Miniature supermarkets that sell gasoline and are open twenty-four hours a day.
Department Stores: Stores that carry a wide variety of household and personal types of merchandise such as clothing and jewelry.
Direct Channel: The shortest marketing channel consists of just two parties—a producer and a consumer.
Direct Marketing: Companies communicate with consumers urging them to contact their firms directly to buy products.
Drugstores: Specialize in selling over-the-counter medications, prescriptions, and health and beauty products and offer services such as photo developing.
Distributors: Merchant wholesalers are wholesalers that take title to the goods. They are also sometimes referred to as distributors, dealers, and jobbers. The category includes both full-service wholesalers and limited-service wholesalers.
Disintermediation: You might be tempted to think middlemen, or intermediaries, are bad. If you can cut them out of the deal—a process marketing professionals call disintermediation—products can be sold more cheaply, can’t they? Large retailers, including Target and Walmart, sometimes bypass middlemen. Instead, they buy their products directly from manufacturers and then store and distribute them to their own retail outlets.
Dumping: The practice of selling a large quantity of goods at a price too low to be economically justifiable in another country.
Exclusive Distribution: Involves selling products through one or very few outlets. Most students often think exclusive means high priced, but that’s not always the case.
Free on Board (FOB): A provision designates who is responsible for what shipping costs and who owns the title to the goods and when.
Horizontal Marketing System: Is one in which two companies at the same channel level—say, two manufacturers, two wholesalers, or two retailers—agree to cooperate with another to sell their products or to make the most of their marketing opportunities.
Horizontal Integration: Is one in which two companies at the same channel level—say, two manufacturers, two wholesalers, or two retailers—agree to cooperate with another to sell their products or to make the most of their marketing opportunities.
Gray Market: A market in which a producer hasn’t authorized its products to be sold (Burrows, 2009).
Horizontal Conflict: Conflict that occurs between organizations of the same type—say, two manufacturers that each want a powerful wholesaler to carry only its products.
Indirect Channel: Channel that includes one or more intermediaries—say, a wholesaler, distributor, or broker or agent.
Intensive Distribution: A strategy try to sell their products in as many outlets as possible.
Intermediaries: Many other products and services pass through multiple organizations before they get to you.
Industrial Distributors: Firms that supply products that businesses or government departments and agencies use but don’t resell.
Manufacturers’ Sales Offices or Branches: Selling units that work directly for manufacturers.
Merchant Wholesalers: Wholesalers that take title to the goods.
Nondisclosure Agreement (NDA): A contract that specifies what information is proprietary, or owned by the partner, and how, if at all, the partner can use that information.
Nonstore Retailing: Retailing not conducted in stores—is a growing trend.
Off-Price Retailers: Stores that sell a variety of discount merchandise that consists of seconds, overruns, and the previous season’s stock other stores have liquidated.
Online Retailers: Can fit into any of the previous categories; indeed, most traditional stores also have an online version. You can buy from JCPenney.com, Walmart.com, BigLots.com, and so forth. There are also stores, like O.co (formerly called Overstock.com) that operate only on the web.
Outlet Stores: Discount retailers that operated under the brand name of a single manufacturer, selling products that couldn’t be sold through normal retail channels due to mistakes made in manufacturing.
Pull Strategy: Focuses on creating demand for a product among consumers so that businesses agree to sell the product.
Push Strategy: Is one in which a manufacturer convinces wholesalers, distributors, or retailers to sell its products.
Pop-Up Store: Small temporary stores that can be kiosks or temporarily occupy unused retail space.
Resale Price Maintenance Agreement: An agreement whereby a producer of a product restricts the price a retailer can charge for it.
Retailers: Buy products from wholesalers, agents, or distributors and then sell them to consumers.
Selective Distribution: Involves selling products at select outlets in specific locations.
Store Brands: Products retailers produce themselves or pay manufacturers to produce for them.
Strategic Channel Alliances: Firms often utilize multiple channels to reach more customers and increase their effectiveness. Some companies find ways to increase their sales by forming strategic channel alliances with one another.
Specialty Stores: Sell a certain type of product, but they usually carry a deep line of it.
Supermarkets: Self-service retailers that provide a full range of food products to consumers, as well as some household products.
Superstores: Oversized department stores that carry a broad array of general merchandise as well as groceries.
Supply Chain Management: Firms are constantly monitoring their supply chains and tinkering with them so they’re as efficient as possible.
Supply Chain: Includes producers of the raw materials that go into a product. If it’s a food product, the supply chain extends back through the distributors all the way to the farmers who grew the ingredients and the companies from which the farmers purchased the seeds, fertilizer, or animals.
Used Retailers: Retailers that sell used products.
Vertical Conflict: Conflict that occurs between two different types of members in a channel—say, a manufacturer, an agent, a wholesaler, or a retailer.
Vertical Marketing System: In a vertical marketing system, channel members formally agree to closely cooperate with one another. (You have probably heard the saying, “If you can’t beat ’em, join ’em.”) A vertical marketing system can also be created by one channel member taking over the functions of another member; this is a form of disintermediation known as vertical integration.
Vertical Integration: A form of disintermediation in which a vertical marketing system can also be created by one channel member taking over the functions of another member.
Warehouse Clubs: Supercenters that sell products at a discount.
Wholesalers: Obtain large quantities of products from producers, store them, and break them down into cases and other smaller units more convenient for retailers to buy, a process called “breaking bulk.”
“8.7 Key Terms” from Principles of Marketing by [Author removed at request of original publisher] is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.