LO1  Explain what is meant by a marketing channel of distribution and why intermediaries are needed.

A marketing channel of distribution, or simply a marketing channel, consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Intermediaries make possible the flow of products from producers to buyers by performing three basic functions. The transactional function involves buying, selling, and risk taking because intermediaries stock merchandise in anticipation of sales. The logistical function involves the gathering, storing, and dispensing of products. The facilitating function assists producers in making goods and services more attractive to buyers. The performance of these functions by intermediaries creates time, place, form, and possession utility for consumers.

LO2  Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems.

Traditional marketing channels describe the route taken by products and services from producers to buyers. This route can range from a direct channel with no intermediaries, because a producer and ultimate consumers deal directly with each other, to indirect channels where intermediaries (agents, wholesalers, distributors, or retailers) are inserted between a producer and consumer and perform numerous channel functions. Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumer or business buyers. Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economics and maximum marketing impact. There are three major types of vertical marketing systems (VMS). A corporate VMS combines successive stages of production and distribution under a single ownership. A contractual VMS exists when independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone. An administered VMS achieves coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.

LO3  Describe the factors and considerations that affect a company's choice and management of a marketing channel.

Four factors affect a company's choice and management of a marketing channel. These are environmental factors, consumer factors, product factors, and company factors, all of which interact with each other. Recognizing that numerous routes to buyers exist and also recognizing the factors just described, marketers consider three questions when choosing and managing a marketing channel and intermediaries. First, which channel and intermediaries will provide the best coverage of the target market? Marketers typically choose one of three levels of market coverage: intensive, selective, or exclusive distribution. Second, which channel and intermediaries will best satisfy the buying requirements of the target market? These buying requirements fall into four categories: information, convenience, variety, and attendant services. Finally, which channel and intermediaries will be the most profitable? Here marketers look at the margins earned (revenues minus cost) for each channel member and for the channel as a whole.

LO4  Recognize how conflict, cooperation, and legal considerations affect marketing channel relationships.

Because marketing channels consist of independent individuals and firms, there is always potential for conflict which sometimes results in legal action. So channel members try to find ways to cooperate for their mutual benefit. Two types of conflict occur in marketing channels. Vertical conflict occurs between different levels in a marketing channel, for example, between a manufacturer and a wholesaler or retailer, or between a wholesaler and a retailer. Horizontal conflict occurs between intermediaries at the same level in a marketing channel, such as between two retailers or two or more wholesalers that handle the same manufacturer's brands. Because conflict can have destructive effects on the workings of a marketing channel, channel members seek ways to cooperate. One way is through a channel captain—a channel member that coordinates, directs, and supports other channel members. A firm becomes a channel captain because of its ability to influence the behavior of other channel members. Nevertheless, channel conflict can result in legal action. The most common legal actions arise from channel practices that restrain competition, create monopolies, or represent unfair methods of competition.