let's continue our discussion
of the supply chain management aspect of
market value creation. specifically
focusing on marketing channels and marketing intermediaries.
let's first look
at some common marketing channels. probably the simplest
marketing channel is when producer sells directly
to the consumer. while this is the simplest channel
it may not always the the most effective
or efficient channel. For exampl,e
producers are experts at producing things.
They like to manufacture a lot.
and whenever the producer sells to the consumer
have to actually facilitate that exchange that
we talked about very early in this session of videos.
So what the producer might want to do would be to have
to involve someone in the middle - a marketing intermediary -
or middleman -that could facilitate exchanges
for them and allow the producer to focus on
producing products or services. so commonly
what will happen is the producer will sell products and services
to a marketing intermediary or middleman
called a retailer. by definition this
marketing intermediary is a
retailer because they sell directly
to the consumer. so now, the producer can
focus on producing products and services
sell those to a retailer who's a specialist
in selling products to consumers.
sometimes however, there might be so many retailers
involved in selling your product or service that the
producer doesn't even want to have to deal with that many
retailers. so instead, they might
add another intermediary between the
producer and the retailer called a wholesaler
or a distributor. in this case we have two
intermediaries - a wholesaler or distributor
and a retailer. the retailer sells to the
end consumer, and the wholesaler is the person
between (person or company) between the
producer and the retailer. again
sometimes there might be so many wholesalers
or distributors or a wholesaler or
distributor my not want to interact with just one producer.
so it might be more efficient or effective
to add an agent or broker who represents several producers
to the wholesaler or distributor. so you can definitely see that
while this producer to consumer
(the direct channel) appears to be the
simplest, it may be more efficient
or effective for the producer
and the consumer to add some marketing intermediaries.
people often
ask though, doesn't adding these intermediaries
increase costs to the consumer? because
each one of these intermediaries is wanting to make a profit
from the services they provide.
Let's discuss that a little bit more.
what if there were no intermediaries?
what if manufacturers had to deal directly with all consumers?
remember, manufacturers like producing
things huge quantiies and consumers typically
only buy in limited quantities
for their own personal use and consumption. keep in mind
consumers oftentimes like to be able to compare
products and services from various manufacturers
when they buy. so consumers would have to contact
multiple manufacturers to be able to look
at competing brands when they buy.
so oftentimes it makes sense
to actually add an intermediary
between the manufacturers and the consumers.
here manufacturers only have to deal with
a limited number of intermediaries, so they can focus
on doing what they do best - producing
volumes of their product or service -
and consumers can go to one
intermediary and see competing products or brands from
multiple manufacturers. keep in mind
also that when intermediaries
buy from a manufacturer,
they buy for many consumers; so they
would buy in many more quantities
much huger amounts of quantities than
any one consumer would buy. therefore, they can
buy at a discounted price. so if
TJ Maxx for example wanted to buy jeans
from Levi's, they might buy 100,000 pairs of
Levi jeans whereas you (any one consumer)
might only by one or two. so you can see why
TJ Maxx would sell to an (excuse me) -
Levi would sell to an intermediary
like TJ Maxx and much
reduced cost than they would sell to you.
oftentimes, intermediaries are really good
at performing certain functions
like adding tags or putting things on hangers or
that sort of thing, so manufacturers might sell
at a reduced cost to them for providing
some sort of functions. intermediaries
perform some basic functions
that manufacturers typically aren't experts in.
for one thing, they would buy huge quantities -
a hundred thousand pairs of jeans for example -
and when they bought those hundred thousand pairs,
they would sort them out by sizes,
or colors so that they could then
provide an assortment to their various stores.
what they might do send several of each size
and several of each color to a
particular store so the consumer would have an assortment
when they came to visit.
and then they would transport those to those stores.
sometimes they even buy off-season
so the manufacturer can actually sell
you know winter coats in March
and an intermediary might store those
then until the next September or October
when they would then sort them and transport them
to the retail outlet.
when the intermediary buys the products and services
from the manufacturer,
they are facilitating those transactions.
they buy those huge quantities and
take the risk from the manufacturer of selling that
product later to consumers.
and they facilitate those sales to consumers
by perhaps providing credit to consumers
having information about consumers and
what types of styles they want and
even offering special promotions and displays
in their stores so that consumers will be more
interested in buying those products or services.
so the bottom line is that
while a direct channel is the simplest
it's not always the most efficient or
effective because sometimes adding a marketing
intermediary like a wholesaler
or retailer who is a specialist
in logistical transaction and
facilitating functions can actually reduce
costs to consumers because they add
efficiency to the marketing channel.
one of the things to keep in mind is sometimes
within this marketing channel there might be
channel conflict that develops;
obviously it benefits the consumer
if the producers, the wholesalers, the retailers
have cooperation because when they're cooperating
their working more efficiently, which means (and effectively)
which means they reduce costs.
sometimes these producers,
wholesalers, or retailers might have
competing interests; each one has a
particular goal or objective they're trying to achieve
for their business. so when they have
competing interests, they might do something like
try to eliminate an intermediary - that's called
disintermediation. or they might
fight over which price they're buying it at.
let's look at an example of that.
Here's a sign that was posted at one time in Costco stores.
it says, due to our inability to be competitive
they're not going to be carrying Coca-Cola
products anymore. basically the two -
Coca-Cola, the producer, and Costco
(the retailer) have been negotiating a
price at which the retailer would buy the product
from the producer and they couldn't agree on that price.
the retailer wanted to buy it at a low enough price
that they can sell at to the consumer and be competitive with other
retailers, like Sam's Club or Trader Joe's.
the producer
wanted to sell it at a particular price to Costco
that would allow them to
make a significant amount of profit that they wanted.
so they couldn't agree on price
they probably were trying to figure out which
of the people in this marketing channel
had what's called "channel leadership" or power.
producers (Coca-Cola) thought that Coca-Cola had the channel
leadership or power. they thought if people
went to the retailer (Costco) and they didn't have Coca-Cola products,
that - guess what - they would go to another
retailer to be able to get their Coca-Cola
as well other products and services
that they might buy at Costco.
Costco thought - you know what? we think we have channel power
we think we have loyal Costco customers
that come to us and guess what? if we don't have
Coca-Cola they're going to buy another brand
of soft drink. in actuality,
probably there were some customers who would
still go to Costco and there probably were some customers
that would switch their retailer to get their Costco products.
but I think you can see how this illustrates
channel conflict
and who has channel power
within a particular marketing channel, and helps you to see how
channel cooperation can actually benefit
the consumer when the marketing channel
works smoothly together.