Chapter 11Chapter 11

Participation and Participation and Leadership in the Leadership in the

MarketingMarketing––Procurement Procurement ChannelsChannels

ChannelsChannels

Channel defined: A sequence of firms Channel defined: A sequence of firms through which a product moves from through which a product moves from producer to consumer.producer to consumer.

Process deals with both marketing and Process deals with both marketing and procurement; procurement; hence, marketing–hence, marketing–procurement (Mprocurement (M–P) –P) channelschannels

Selected Variations in MSelected Variations in M––P ChannelsP Channels

Channel VariationsChannel Variations——Complexity and LengthComplexity and Length

Direct marketing channel: One extreme Direct marketing channel: One extreme (simple and short channels)(simple and short channels)

Marketing of major commodities in domestic Marketing of major commodities in domestic markets: Involves intermediariesmarkets: Involves intermediaries

Marketing to foreign consumers: Other Marketing to foreign consumers: Other extreme (longest and least understood extreme (longest and least understood channels)channels)

Types of Intermediary Types of Intermediary OperationsOperations

MerchantsMerchants Brokers (agents)Brokers (agents) Vertically integrated operations of Vertically integrated operations of

sellerssellers Vertically integrated operations of Vertically integrated operations of

buyersbuyers

Merchants vs. BrokersMerchants vs. Brokers

Merchants: take title to goods and Merchants: take title to goods and take physical and financial riskstake physical and financial risks

Brokers: intermediaries who arrange Brokers: intermediaries who arrange transactions but do not take transactions but do not take ownership or finance customersownership or finance customers

AssemblersAssemblers

Definition: Collect small shipments from Definition: Collect small shipments from producers into larger-volume units for sale producers into larger-volume units for sale and shipment to processors or and shipment to processors or wholesalers.wholesalers.

Ownership: Independent, or owned from Ownership: Independent, or owned from above or belowabove or below

Marketing cooperatives: Assemblers Marketing cooperatives: Assemblers owned by farmersowned by farmers

Wholesale DistributionWholesale Distribution Processors must make sure that their Processors must make sure that their

products flow smoothly and efficiently products flow smoothly and efficiently through the market channelthrough the market channel

Processors use wholesalers, or they may Processors use wholesalers, or they may sell directly to larger-volume retailerssell directly to larger-volume retailers

Options:Options:– Independent wholesalersIndependent wholesalers– Integrated wholesalerIntegrated wholesaler–retailer (i.e., Wal-Mart)–retailer (i.e., Wal-Mart)– Agents or brokersAgents or brokers– Processors may organize a Processors may organize a

warehousing/wholesaling operationwarehousing/wholesaling operation

Channel LeadershipChannel Leadership

Some markets may have completely free and Some markets may have completely free and open competitionopen competition

Some markets may have some monopolistic Some markets may have some monopolistic competition, and participants who provide competition, and participants who provide leadership to others in that marketleadership to others in that market

Types of leadership:Types of leadership:– One extreme: vertical control and dominanceOne extreme: vertical control and dominance– Ownership and contracts at several stages in Ownership and contracts at several stages in

channelchannel– Smaller degree of market influence—with innovative Smaller degree of market influence—with innovative

leadersleaders

More on Channel LeadershipMore on Channel Leadership

Leadership is essential to improving Leadership is essential to improving productivityproductivity

Leadership may reside at any level of Leadership may reside at any level of marketing channel—anyone could be a marketing channel—anyone could be a leaderleader

Channel leaders: Channel leaders: – Take the initiative in getting things doneTake the initiative in getting things done– Make decisions and motivate the others in Make decisions and motivate the others in

the channel to go alongthe channel to go along

Demanded BrandsDemanded Brands

Branding: the identification by Branding: the identification by brand brand names, trademarks,names, trademarks, and so on of and so on of products or services by a seller (or sales products or services by a seller (or sales group)group)

Battle of the brands: manufacturers’ Battle of the brands: manufacturers’ brands vs. private labelsbrands vs. private labels

Successful brands: offer homogeneous Successful brands: offer homogeneous quality over time, can be easily identified, quality over time, can be easily identified, backed by aggressive promotional backed by aggressive promotional campaigncampaign

Changes in Channel Organization:Changes in Channel Organization:The Livestock-Meat IndustryThe Livestock-Meat Industry

Packers and railroad management Packers and railroad management organized national systems of livestock organized national systems of livestock procurement and distribution; farmers were procurement and distribution; farmers were too disunitedtoo disunited

Livestock-procurement system reorganized Livestock-procurement system reorganized when trucking became competitivewhen trucking became competitive

Recently, retail groups have challenged Recently, retail groups have challenged packers’ system of distributionpackers’ system of distribution

Advent of boxed beef example of changesAdvent of boxed beef example of changes

Class ExerciseClass Exercise

For your group’s agricultural commodity For your group’s agricultural commodity and agribusiness, research the and agribusiness, research the agribusiness’s efforts to develop agribusiness’s efforts to develop branded products. Find out:branded products. Find out:– Why the business has or has not pursued Why the business has or has not pursued

brandingbranding– The level of concentration for the industry The level of concentration for the industry

segment of your commodity, using USDA segment of your commodity, using USDA and Census Bureau dataand Census Bureau data