Class 16 - Marketing Channels: Delivering Customer Value - Chapter 12

Summary

Professor Ahern introduces Chapter 12 on marketing channels, focusing on delivering customer value. The lecture covers upstream and downstream partners in supply chains, the roles of supply and demand chains, and the concept of marketing channels. Examples are provided, such as gum distribution and grocery stores as intermediaries. The lecture also discusses the bullwhip effect, channel conflict, franchises, and distribution intensity, including intensive, exclusive, and selective distribution.

Takeaways

• 📚 Chapter 12 focuses on marketing channels and their role in delivering customer value from the manufacturer to the end user.
• 🔄 The concept of supply chains involves both upstream partners (suppliers of raw materials and components) and downstream partners (retailers and wholesalers).
• 🛒 Downstream partners are crucial for the distribution and marketing of products to end customers.
• 🔑 Understanding supply and demand chains is fundamental to marketing and supply chain management.
• 🏬 Marketing channels can be a set of independent organizations that facilitate the availability of products or services to consumers.
• 🌐 Examples of marketing channels include retailers, wholesalers, and online platforms like Amazon.
• 📈 The 'bullwhip effect' describes the phenomenon where demand fluctuations are magnified at different stages of the supply chain.
• 💬 Channel conflict can arise from disagreements among channel members over goals, roles, and rewards.
• 🔄 Horizontal conflict occurs between firms at the same level of the channel, while vertical conflict happens between different levels.
• 🏢 Franchises are a type of contractual vertical marketing system where a franchisor links different stages of production and distribution.
• 📊 Companies can use multi-channel distribution systems to reach consumers, including direct sales and sales through intermediaries.
• 📦 Distribution intensity refers to the exclusivity and saturation level of a product in the market, with options like intensive, exclusive, and selective distribution.

Q & A

What is the main focus of Chapter 12 in the Principles of Marketing course?

Chapter 12 focuses on 'Marketing Channels Delivering Customer Value', discussing the concept of channels and channels of distribution from a marketing perspective, particularly how products are distributed and marketed from the manufacturer to the end user.

What is the role of upstream partners in a supply chain?

Upstream partners are firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product or service. They contribute to the production and supply of the product or service before it reaches the marketplace.

Can you explain the concept of downstream partners as mentioned in the script?

Downstream partners include marketing channels or distribution channels that look towards the customer. They consist of retailers and wholesalers and are involved after the product or service is completely set, helping to distribute and market the product to end-users.

What is the difference between supply chain and demand chain?

The supply chain refers to how a firm makes and sells products, including raw materials, productive units, and factory capacity. The demand chain, on the other hand, starts with the need of the target customer and responds by supplying products to fulfill that demand.

How does the concept of marketing channels differ from distribution channels?

A marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the end consumer. It includes not only distribution but also involves marketing efforts to make the product accessible to consumers.

What is an example of a marketing channel mentioned in the script?

An example of a marketing channel is a gum manufacturer using grocery stores, convenience stores, or online platforms like Amazon as intermediaries to distribute their gum to end consumers.

What is the Bullwhip Effect in the context of supply chain management?

The Bullwhip Effect refers to a phenomenon where orders sent to the manufacturer by retailers create larger demand variances than the sales to the end customer. This can cause inefficiencies and exaggerated fluctuations in the supply chain due to poor communication and demand prediction.

What is channel conflict and what are the two types mentioned in the script?

Channel conflict refers to disagreements among channel members over goals, roles, and rewards. The two types mentioned are horizontal conflict, which occurs among firms at the same level of the channel, and vertical conflict, which happens between different levels of the same channel or supply chain.

What is a franchise organization as described in the script?

A franchise organization is a contractual vertical marketing system where a franchisor links between several stages of the production and distribution process, allowing franchisees to distribute a brand's products or services under certain agreements and guidelines.

What are the three levels of distribution intensity discussed in the script?

The three levels of distribution intensity are intensive distribution, where many channels are used to saturate the market; exclusive distribution, where only certain selected distributors are allowed to sell the product; and selective distribution, where a subset of agreed-upon distributors is chosen to sell the product.

How does a multi-channel distribution system work as explained in the script?

A multi-channel distribution system involves a producer using more than one channel to distribute products to customers. For example, a technology company like Apple might sell directly to customers, through retailers, or through distributors to business segments, using various channels like stores, online platforms, and dealer networks.

Outlines

00:00

📚 Introduction to Marketing Channels

Professor Ahern begins the lecture by welcoming students to Marketing 3336, focusing on Chapter 12: Marketing Channels Delivering Customer Value. The chapter discusses the concept of marketing channels and distribution from a marketing and supply chain perspective. It covers the journey of a product from the manufacturer to the end user. The lecture introduces the idea of supply chains and value delivery networks, distinguishing between upstream partners, who supply raw materials and components, and downstream partners, which include retailers and wholesalers. The importance of understanding these concepts for both marketing and supply chain management is emphasized, suggesting that students consider focusing on supply chain management if interested.

05:01

🛒 Understanding Supply Chains and Distribution

The lecture continues with a discussion on supply chains and value networks, explaining the roles of upstream and downstream partners in the production and distribution of products. The concept of supply and demand chains is introduced, with supply chains focusing on production and materials sourcing, and demand chains starting with customer needs and working backwards to production. Marketing channels are defined as a set of independent organizations that help make products available to consumers, using examples like gum manufacturers and grocery stores to illustrate how products reach the end consumer through various distribution channels.

10:01

💼 The Role of Intermediaries in Distribution

This section delves into the role of intermediaries, such as distributors and retailers, in the distribution process. Intermediaries add value by providing information, promotions, and physical distribution of products. They match customers with products and can negotiate deals on behalf of consumers. The lecture uses the example of a grocery store like HEB, which sources products from various suppliers and manufacturers, making shopping convenient for customers. The importance of intermediaries in simplifying the shopping process and adding value to both producers and consumers is highlighted.

15:02

🚚 Levels of Distribution Channels

The lecture discusses the different levels of distribution channels, distinguishing between business-to-business (B2B) and business-to-consumer (B2C) markets. It explains how products move from producers to consumers through various intermediaries, such as wholesalers and retailers. The concept of the bullwhip effect is introduced, which occurs when there are multiple layers of intermediaries between the producer and the consumer, leading to inefficiencies and miscommunications in demand forecasting. A video example is mentioned to further illustrate the bullwhip effect.

20:03

🤝 Channel Conflict and Franchise Organizations

This part of the lecture addresses channel conflict, which arises when there are disagreements among channel members over goals, roles, and rewards. Examples of horizontal conflict, where firms at the same level compete, and vertical conflict, where different levels of the supply chain have disputes, are provided. The lecture also covers franchise organizations, which are contractual vertical marketing systems, and how they function. The difference between horizontal and vertical marketing systems is explained, with examples given for each.

25:05

📈 Multi-Channel Distribution and Intensity of Distribution

The final section of the lecture discusses multi-channel distribution systems, where producers use more than one channel to reach customers, such as direct sales and sales through intermediaries. The concept of distribution intensity is introduced, with examples of intensive, exclusive, and selective distribution. The lecture concludes by emphasizing the importance of understanding channels for careers in supply chain management and encourages interested students to explore related programs.

Keywords

💡Marketing Channels

Marketing channels refer to the pathways through which products or services move from the producer to the end consumer. They are a critical component of the marketing mix, facilitating the distribution and sale of goods. In the video, Professor Ahern discusses how these channels work downstream from the manufacturer to the end user, emphasizing their importance in marketing and supply chain management.

💡Channels of Distribution

Channels of distribution are the specific routes a product takes from the producer to the end-user. They can include retailers, wholesalers, and direct sales. The script mentions how these channels are viewed from a marketing perspective, highlighting their role in delivering customer value and the complexity of modern markets beyond simple retail transactions.

💡Upstream Partners

Upstream partners are firms that supply the necessary raw materials, components, parts, information, finances, and expertise needed to create a product or service. They are part of the supply chain and are crucial for the production process. The script uses the example of raw materials and components that go into a product to illustrate the concept of upstream partners.

💡Downstream Partners

Downstream partners include entities like retailers and wholesalers that focus on getting the product or service to the customer. They are the marketing channels that facilitate the last leg of the product's journey to the end-user. The script explains that downstream partners are essential for distribution and marketing of products to customers.

💡Supply Chain

The supply chain encompasses the process of producing and delivering a product or service, from the procurement of raw materials to the manufacturing and eventual delivery to the end consumer. It is a key concept in the video, with an emphasis on how materials are supplied and the chain of materials involved in production.

💡Demand Chain

The demand chain is the concept of planning that starts with the target customer's needs and works backwards to ensure that products and services are supplied to meet that demand. It is introduced in the script as a counterpart to the supply chain, focusing on customer demand and how it drives production and supply.

💡Intermediaries

Intermediaries are organizations or individuals that facilitate the exchange between producers and consumers by providing services such as marketing, promotion, and physical distribution. The script gives examples of how intermediaries like grocery stores make products available to consumers, simplifying the shopping process and adding value through promotions and information provision.

💡Bullwhip Effect

The bullwhip effect is a phenomenon where small changes in consumer demand lead to larger fluctuations upstream in the supply chain, causing inefficiencies and excess inventory. The script describes this effect through the example of how a decrease in customer demand can lead retailers to reduce orders, which amplifies as it moves up the supply chain, causing disorder.

💡Channel Conflict

Channel conflict arises when there is disagreement among channel members over goals, roles, and rewards. The script differentiates between horizontal conflict, which occurs among firms at the same level, and vertical conflict, which happens between different levels of the supply chain. Examples from the script include competition among car dealerships and tensions between McDonald's and its franchisees.

💡Franchises

A franchise is a contractual vertical marketing system where a franchisor grants the right to a franchisee to distribute a product or service using the franchisor's brand. The script explains franchises as a way for businesses to expand their reach through independent operators who follow a specific business model and branding.

💡Distribution Intensity

Distribution intensity refers to the degree to which a product is made available through various channels. The script outlines three levels: intensive distribution (using as many channels as possible), exclusive distribution (limiting to certain distributors), and selective distribution (choosing a subset of distributors). This concept is important for understanding how companies manage the availability of their products in the market.

Highlights

Introduction to Chapter 12: Marketing Channels Delivering Customer Value

Importance of understanding marketing and supply chain management concepts

The role of upstream partners in supplying raw materials and components

Downstream partners' function in marketing and distributing products to end users

The significance of marketing channels in making products available to consumers

Supply chain versus demand chain dynamics

Examples of marketing channels using gum distribution

The role of intermediaries in simplifying the purchasing process for consumers

Value added by intermediaries in distribution and marketing

Different levels of distribution channels from producer to consumer

The Bullwhip Effect and its impact on supply chain management

Channel conflict: Horizontal and vertical conflicts among channel members

Franchising as a contractual vertical marketing system

Horizontal marketing systems and their collaboration opportunities

Multi-channel distribution systems used by companies like Apple

Intensity of distribution: Intensive, exclusive, and selective distribution

Career opportunities in supply chain management

Transcripts

hi students welcome to uh principles of

marketing uh marketing 3336

uh this is professor ahern and today

we're going to be covering uh

chapter 12. uh the title of chapter 12

is marketing channels delivering

customer value

so today we're going to be talking about

the concept of channels

and channels of distribution in

particular we're going to be thinking

about it from a marketing perspective

and the way the product is distributed

and marketed downstream

uh from the manufacturer all the way to

the end user

so um this is actually quite an

important chapter for us to understand

the foundations or fundamentals of

of the concepts within marketing and

supply chain management

um we actually have an entire major in

focus and supply chain in the bower

college of business so if this is

something of interest to you

i recommend that you pursue that or look

more into taking courses in this

particular area

let's start off by talking a little bit

about the idea of

supply chains and the value delivery

network

so when we think about supply chains and

this is the way products are supplied

and the value that can be brought

to the marketplace on products we have

what we call

upstream partners and downstream

partners

upstream partners are firms that supply

raw materials

components parts information finances

and expertise

needed to create a product or service so

what that is is think about

everything that goes into that product

or service from the raw materials to

every component of that product in order

to actually produce

manufacture or supply that product

downstream to the marketplace

these are what's called upstream

partners that happen within a

marketplace

recognize that the markets and the way

we sell products is far more complex

than simply a customer going to a retail

store and that's really what we're going

to be talking about today

when we talk about these supply chains

and value networks

so we have our upstream partners and

then we have our downstream partners

downstream partners include marketing

channel or distribution channels

that look towards the customer so they

include retailers and wholesalers

so this is after we have the product or

service completely set

and we're looking to get that product or

service out to customers

and have them use that end product or

service

we look to downstream partners as a

mechanism to get that product out and

sell that product

and supply it to downstream partners so

upstream partners help in the production

and supply

of information and products and services

to get that product or service ready for

the market

and downstream partners help in the

distribution

and marketing of that information

downstream to end

users and customers in those

marketplaces

so it's important for us to know these

two terms

next we'll talk about two important

terms that we'll use

quite a bit the first is what we call

supply chain and then demand chain

the supply chain is how we make and sell

this is this view includes the firm's

raw materials productive units

and factory capacity so this really

comes at the concept of how do we supply

the materials and the chain of materials

that go into the actual production

and manufacturing of our products the

demand chain

just like the when we think about up and

down the demand chain

is the sense of uh and respond element

so this this view suggests that planning

starts with the need to the target

customer

so the demand chain thinks about the

fact that customers demand

products and as a result of those

product and service demand

upstream we we then supply those

products

and produce those products to fulfill

that demand that's what we call the

demand chain

so if a supply chain where that

information and products are supplied

and demand chain downstream where the

demand is produced for those products to

be able to fulfill that demand

these are two viewpoints we look at from

the supply

and value delivery network

so we think about marketing channels as

opposed to fully a

distribution channel a marketing channel

is a set of in

independent organizations that help make

a product

or service available for use or

consumption by the consumer or business

user so what we're talking about is the

marketing channel

is is and we'll give you some really

good examples here today and we'll talk

about this

is is a set of organizations downstream

that we work with

uh to be able to make our product

service available

so that the end consumer can access it

and buy it and consume it simple example

of this

a manufacturer may uh makes

gum we produce different kinds of gum

think about

any gum manufacturer those gum

manufacturers don't simply just take

that gum and sell it to end users

usually

what they do do is they use what's

called an intermediary or a channel to

get that gum out to people

so where might you buy gum you might buy

gum in a grocery store

a convenience store you might buy gum

through the internet through

amazon but there's all kinds of ways in

which we can get gum and these are

called distribution channels

and and these channels help us to market

and supply those products

to the end customer that's what we're

talking about when we talk about a

marketing channel

or a distribution channel in this case

so we can have these distributors

actually provide

a really helpful resource for us

so let me give you an example of this

and let's just think of a grocery store

as an example let's think of heb

as a mechanism of distribution so heb

obviously does not make and produce

every product that you can buy at heb

they supply they get this these products

that they fill their shelves with at heb

when you go grocery shopping

from many different suppliers and

manufacturers

upstream so all of these people supply

to them

and they take that they make it

available to you so you can go in and

shop and have this big inventory of

product

that then you choose from so that you

can then

bring those home in a shopping basket

and use those in your grocery shopping

think about if we didn't have an

intermediary like this so we had milk

manufacturers

we had um uh we had beef and meat

manufacturers

we have bread manufacturers we have all

the different ones

out there that are out there and let's

say they had to communicate and work

with

every single customer for them to be

able to get products and if you as a

customer had to work with

all these different manufacturers to get

your supply

of all the products you need in order to

make your grocery basket full

that would cause a tremendous amount of

complexity and difficulty for you

to be able to shop and get all that but

what that's distributor does is they

actually take in

all of that stuff they package it put it

on the shelves help to market it

and get it out to that end consumer and

as a result of that

the number of contacts that that

distributor takes and consolidates

really makes it much better for that

customer now this is true for all kinds

of distributors

we're talking about retail but these are

all kinds of distributors

that take on this function of helping

companies get their products and

services to market

more efficiently so that that market can

leverage what we call these

intermediaries in the marketplace

so what are some of the value that we

talked about that value of helping them

distribute but there's lots of different

things

that intermediaries can do they can help

to provide

additional information about those

products and services to the end user

they can help you promote things they

can you know put promotions in place for

your products and services

put so for example when you go into a

grocery store to shop you would see

maybe your product

on an end aisle cap when you're walking

there you see a big promotion for it

maybe somebody's giving tests out

things like that promoting your product

maybe there's things going on to bring

attention to our products

on the shelf this is a promotion element

um they can make contacts for us to be

able to get people

in there and get them looking at or

shopping for our products

they can match people to our products

help them

people are searching for things they can

fulfill that

that that need for somebody for their

search giving an example

their distributors are intermediaries

we're not talking about groceries it

could be insurance

there are these independent agents that

work with lots of different insurance

companies to bring in insurance products

and you as a customer might go in and

say i want life insurance

so what they do is they go out and shop

lots of different

um agencies or lots of different um

life insurance companies to find the one

that works best for you

gives you the best price gives you the

best information

gives you the best deal and as a result

of that they've worked as an

intermediary to add value but they've

also added value to all these

different insurance companies by helping

to shop and match you

up with the insurance company that works

best for you

they help negotiate deals for you they

work in the physical distribution of

products think about the retail stores

we talked about

they often will help in financing for

example um

so maybe they have an expensive product

on the shelf and you can't afford it

they'll provide a finance plan for you

to get it

um this is true with automobiles for

example um so um

so we have let's say you're you're going

out there and shopping

for a new toyota so toyotas uh

gets their cars out to the retail

distribution

network these retail distributors you

shop at are independent of toyota

but what they do is you go in and shop

for your toyota and then they develop a

financing plan for you

they can add their own financing plan to

make it possible for you to have that

toyota

they take risks on they bear risk by

having products and services

uh to distribute uh in their stores so

there's a lot of things that they do to

add value

on top of simply just making an

opportunity

for somebody to just buy from them

so let me give you some examples there's

lots of different variants of

channels of distribution there's a

number of levels of what we call

channels of distribution so we see the

most simple one

is where we have and we're going to talk

about b to b versus b to c

over over on this side of the picture

here

this is what we call the consumer

markets so if we think about uh

consumer markets these are where an end

consumer

is shopping and utilizing our product

okay so that's a consumer market so you

see here consumer marketing channels

here are business marketing channels

this is where a business

end user ends up consuming our product

or using it

so i'll give you an example for both of

these what we see is

there are intermediaries that take place

between the producer and the consumer in

both of these situations

so we have situations where the producer

produces the product and they sell it

directly to the consumer

so that often would happen through

internet sales or actually people just

going in and making

shopping right at that producer's uh

site

so an example of this is a geico

for example geico goes direct

so if you want to shop for insurance

through geico

you go directly to geico and they go to

the consumer

okay so um so that's a that's an example

sorry about that flipping back and forth

the next we have as an example

is uh is when we have a retailer or

intermediary between that

so the producer produces the product

the producer produces the product and

they sell it through a retailer and then

it goes to a consumer

this is what we've talked about as a as

a classic example

of a retailer this could be at heb this

could be

uh any of those different best buy or

any of those so the producer

produces their product they give it to

the retailer it goes to the end consumer

we also have many situations where a

producer

goes to a wholesaler and the wholesaler

goes to the retailer

and then the retailer goes to the end

consumer so we have different

layers of of channel distributors

that the more complex distribution

channels have multiple layers within

them

this whole kind of thing happens also

within the business markets as well

with companies or business customers

down here

making the same types of consumption

decisions

as the consumer and using these

intermediaries to help them

distribute their products and services

downstream

now what happens i want to talk about

this there's a classic

uh thing that happens when you have

multiple layers within your system so

you have a producer

that's producing a product they sell it

to a wholesaler

the wholesaler sells their products to a

retailer and then the retailer sells it

to the consumer

the more intermediaries you have the

less communication you have between

this producer and this end consumer

as a result of that you have a

communication that takes place here

one that's here and one that's here that

causes something

called the bulwick of bullwhip effect

and that's when

information does not make its way

efficiently downstream

from the producer to the consumer we're

going to watch a little video to learn

more about what we call the bullwhip

effect here

today is bull whip effect the ball whip

effect refers to a frustrating

phenomenon that frequently starts with

falling customer demand

although it could start with the reverse

a previously unanticipated rapid rise in

customer demand

this fall in customer demand prompts

retailers to under order

so as to reduce their inventories the

ball whip effect can be explained as an

occurrence detected by the supply chain

where orders sent to the manufacturer

and supplier create

larger variants than the sales to the

end customer

these irregular orders in the lower part

of the supply chain develop to be more

distinct higher up in the supply chain

this variance can interrupt the

smoothness of the supply chain process

as each link in the supply chain will

over or underestimate the product demand

resulting in exaggerated fluctuations

through the numerous stages of a supply

chain key factors such as time

and supply of order decisions demand for

the supply

lack of communication and

disorganization can result in one of the

most common problems

in supply chain management this common

problem is known as the bull whip effect

also sometimes the whiplash effect in

this blog post we will explain this

concept

and outline some of the contributing

factors to this issue

okay so that's a little bit of

information about what we call one of

the most common phenomenas

of when these intermediaries don't speak

to each other and give each other detail

downstream

they just place orders and it causes a

lack of communication

it causes this element or thing called

the bullet effect

so for example you may have downstream

somebody making a bigger order than

usual

and then what we see is that order gets

exaggerated as it goes upstream because

people see a variant

or a shock in the system this is what's

called the bullet effect

[Music]

so next let's talk about something that

happens out there when we have

channel members uh in the marketplace so

we have more than one

channel member in the marketplace we

have and then you have

channel players or partners working out

there in the marketplace

we have different channel kinds of

conflict than it could occur

so channel conflict refers to a

disagreement among

channel members over goals roles and

rewards

so i'm going to give you an example of

what we call a horizontal conflict and a

vertical conflict

so horizontal conflict occurs among

firms at the same level of the channel

so if

two firms are working as intermediaries

at the same level

for instance a firms may complain about

others stealing sales for them

or or or hurting them at that same level

of the channel

so i'll give you an example this um when

there's not enough exclusivity

of uh of distribution uh within a

marketplace and we're going to talk

about that exclusivity so

um in in this in the city of houston

we have three big um uh

audi dealerships so if you want to buy a

car from audi

you can go to any one of the three

dealerships in the city of houston

oftentimes what people will do is they

will

they will work these dealerships against

each other to try to get the best price

for an audi

so you might call audi central audi

north houston and audi

south houston and try to get the best

price on the new audi

q5 uh sedan uh suv

so you might call up and say you know

i'm really looking for this q

q5 suv what's the best you can do then

you call the other one you call the

other one you have them competing

against each other

that causes what we call a horizontal

conflict

those members are competing against each

other that are causing conflict within

that

and as a result you get price erosion

and it hurts the overall image because

they're making each other look bad by

undercutting each other

another example is what we call vertical

now that's horizontal because that means

a cross vertical conflict happens up and

down

where in the channel or the supply chain

there's conflict that happens

so conflict between different levels of

the same channel

is even more common so for example

mcdonald's

recently faced a growing conflict with

its

among 3 000 what we call independent

franchises

so we'll talk about franchises in a

minute but what an independent franchise

is

is that they have paid for the right to

distribute mcdonald's

and they are not officially part of

mcdonald's but they're a franchise that

owns the right to distribute mcdonald's

products

so those mcdonald's that are out there

that are independent they're not store

company owned but they're independent

franchises

in a recent company webcast they

actually went out to these the

mcdonald's went out and they started

complaining that they were getting

information that the cap

the cashiers that these independent

franchises

were not pleasant enough in fact they

recommended that these individuals do

more smiling

because they're not engaging customers

and they're getting a lot of information

the mcdonald's uh service workers are

not

happy or friendly service workers as a

result of that

these service workers and stuff got

pretty upset back at mcdonald's

and mcdonald's and the service workers

were not happy with mcdonald's at the

same time

because the amount of demand for product

at mcdonald's during this period had

reduced too

so there weren't as many people coming

into the mcdonald's stores

and as a result there was some tension

because there wasn't enough

patrons and as a result of that the some

of the people's hours were being cut

they were being their salaries were

being cut so as a result

it caused what we call a vertical

conflict tension

so that's between the independent uh

distributor of a mcdonald's and the

parent company mcdonald's

had a conflict with one another and

that's what we call a vertical conflict

so we have horizontal across vertical up

and down

so we likely talked about with

mcdonald's there are different variants

of what we call

franchise organizations what a franchise

organization is a contractual

vertical marketing system in which a

channel member

called a franchisor links between

several stages of the production and

distribution process i'll give you an

example

um let's look at uh at any of the big

donut manufacturers that are out there

so for those of you who've ever been to

canada or the northeast you would see

tim horton donuts uh you'd also see

dunkin donuts

but there's all kinds of shipley there's

all kinds of other donut companies that

are out there

now these donut companies are typically

set up as what we call

franchisees or franchisers so what

they've done is they paid for the right

to be able to distribute and use the

name of that brand

dunkin donuts so somebody owns the right

for dunkin donuts

and exclusively distribute dunkin donuts

in a particular area

and as a result of that they get

training information

marketing everything of the benefit of

dunkin donuts

so that they can distribute use dunkin

donuts products and sell dunkin donuts

but they

manage their own what we call franchise

so franchises is an important concept

for us to understand i'd like us to all

understand what a franchise is

there are lots of franchise

opportunities out there ranging from

beauty products to

coffee to food to all kinds of things

where people set up their own franchise

and what that is is that an organization

sets up a

specific system for you to be able to

own the rights to to distribute

and they provide you criteria marketing

and other information to be able to make

you more effective

now let me talk about the difference but

really quickly about between

horizontal marketing systems and

vertical a hormone

horizontal marketing system is a channel

arrangement which two or more companies

at one level join together to follow a

new marketing opportunity so sometimes

those companies that are across that we

talked about can partner with one

another so this is an example right here

where nestle and cheerios uh uh

partnered with one another in this

situation

to be able to make a specific type of

of cheerio um nestle whole grain

you'll see partnerships by two or more

vertical players

to be able to come together to make

things happen

so um one of the things you'll see is

alexa you know you're seeing now this

whole thing with buick and alexa

so buick and alexa are working together

um

to be able to make things even better to

make an

even better sale of the buick product

with the alexa product

you start to see more advertising with

that

so another so that that's that's a

combination

we'd see the other thing we'll often

often see the most common thing we see

is what we call

multi-channel distribution systems so

oftentimes

producers will use more than one channel

to get their products

out there to customers so think of a

producer that's producing

um in in this case uh

technology so an example of this a

technology company like apple

made sell directly to customers so apple

has apple stores and apple stuff and

they actually go out

and they sell their stuff through

catalogs phones online mobile

they sell directly to customers that's

here what we call

segment one they also may sell their

products

through retailers like for example you

can get

apple products through best buy at a

retailer so they'll go they'll sell to

best buy

and best buy will sell to you another

example

is they'll actually get it through

distributors too

so they'll sell it through a

distribution company that'll go out to

what we call

dealers and those dealers will sell it

to the what we call the business segment

so this is the business side and this is

the consumer side

so on the business side the apple may

make apple

technology products that are sold to big

businesses

and different businesses and they're

sold through

distributors and dealers or they could

actually sell their products directly to

businesses

they can sell servers larger computer

products

they may actually sell it right to a

business segment directly to another

company

so in this case apple may sell their

products

to 3m corporations so that 3m can supply

their computers right at 3m

and they may actually use a sales force

to do this so it's not unusual for the

companies to sell direct

as well as through intermediaries in

both the consumer market

as well as in a business marketplace

the last thing i want to mention today

is a little bit about what we call

intensity of distribution

and i'd like you to become familiar with

this there are three levels of what we

call distribution intensity and this

gets

at the exclusivity as well as the

intensity of the way in which products

are distributed to the marketplace

the first concept is what we call

intensive distribution

this is where we try to use as many

channels as possible to saturate our

products

out in the market get them out as much

as we possibly can

and we don't worry about how they get

out there we just distribute them as

much as possible

things like gum we talked about that

before i don't care

who sells my gum i just want the gum to

get out there

be distributed anybody can sell it and i

intensively distribute the product

think about things that we're not

worried about being exclusive or having

exclusive rights

we just want as many people to get

access to it as possible

that's called intensive distribution the

next is what we call

exclusive distribution this is where we

choose

only certain people are allowed to

distribute our products

so an example of exclusive distribution

is what we talked about

car dealerships they might say that you

have the exclusive rights to distribute

that product in north houston

you have the exclusive distribution to

sell the product in central

in south houston you may actually only

they may actually only allow one

distributor in the entire city

so exclusive distribution makes it

exclusive to a particular

area or marketplace so that we limit the

number of suppliers in that

to be able to limit that the opportunity

to compete against

each other in that marketplace and then

uh and that that exclusive that makes

them exclusive to that area

and then selective distribution is where

we choose only a subset of

of of agreed upon distributors

to be able to sell our product so i'll

give you an example of this often

um often designer products

or often high-end luxury products only

want

certain types of stores to sell their

products they would not want for example

you would not want your coach bag

sold through some sort of low-end store

so what what it does is coach goes out

there

and makes deals with certain types of

stores for the right to be able to

distribute

their product to those stores and they

selectively decide what kind of stores

are allowed to sell a coach product

they approve it they go in there and

check it out and that's what we call

selective distribution

so there are a number of different types

of major uh

intermediaries in the marketplace so

this pretty much

covers the concept of channels i know we

covered it at a fairly high level we're

going to get back to a little bit of

that more as we move forward in the

course

i hope you found this to be interesting

if you did actually find it to be very

interesting

the supply chain is a huge thing in the

city of houston in fact there are a lot

of jobs in supply chain management

so i would look to the supply chain

programs at the university of houston if

you are particularly interested

uh thanks and and have a great day

everybody