Marketing Channels and Supply Chain Management

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Principles of Marketing
12

• Marketing Channels and Supply Chain Management

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Learning Objectives

• After studying this chapter, you should be able
  to
• Explain how companies use marketing channels and
  discuss the functions these channels perform
• Discuss how channel members interact and how they
  organize to perform the work of the channel
• Identify the major channel alternatives open to a
  company
• Explain how companies select, motivate, and
  evaluate channel members
• Discuss the nature and importance of marketing
  logistics and integrated supply chain management

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Chapter Outline

• Supply Chains and the Value Delivery Network
• The Nature and Importance of Marketing Channels
• Channel Behavior and Organization
• Channel Design Decisions
• Channel Management Decisions
• Public Policy and Distribution Decisions
• Marketing Logistics and Supply Chain Management

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Supply Chains and
the Value Delivery Network

• Supply Chain Partners
• Upstream partners include raw material suppliers,
  components, parts, information, finances, and
  expertise to create a product or service
• Downstream partners include the marketing
  channels or distribution channels that look
  toward the customer

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Supply Chains and
the Value Delivery Network

• Supply Chain Views
• Supply chain make and sell view includes the
  firms raw materials, productive inputs, and
  factory capacity
• Demand chain sense and respond view suggests
  that planning starts with the needs of the target
  customer and the firm responds to these needs by
  organizing a chain of resources and activities
  with the goal of creating customer value

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Supply Chains and
the Value Delivery Network

• Value Delivery Network

• The value delivery network is the firms
  suppliers, distributors, and ultimately customers
  who partner with each other to improve the
  performance of the entire system

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Supply Chains and
the Value Delivery Network

• Marketing Channel Questions
• What is the nature of marketing channels and why
  are they important?
• How do channel firms interact and organize to do
  the work of the channel?
• What role do physical distribution and supply
  chain management play in attracting customers?

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The Nature and Importance of Marketing
Channels

• Marketing Channel Defined
• Marketing channel is a set of independent
  organizations that help make a product or service
  available for use or consumption by the consumer
  or business users

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Channel members add value by bridging the major
  time, place, and possession gaps that separate
  goods and services from those who would use them

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Producers use intermediaries because they create
  greater efficiency in making goods available to
  target markets.

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Intermediaries offer the firm more than it can
  achieve on its own through their contacts,
  experience, specialization, and scale of
  operations

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The Nature and Importance of Marketing
Channels
How Channel Members Add Value

• From an economic view, intermediaries transform
  the assortment of products into assortments
  wanted by consumers

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Information refers to the gathering and
  distributing research and intelligence
  information about actors and forces in the
  marketing environment needed for planning and
  aiding exchange
• Promotion refers to the development and spreading
  persuasive communications about an offer
• Contacts refers to finding and communicating with
  prospective buyers

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Matching refers to shaping and fitting the offer
  to the buyers needs, including activities such
  as manufacturing, grading, assembling, and
  packaging
• Negotiation refers to reaching an agreement on
  price and other terms of the offer so that
  ownership or possession can be transferred

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The Nature and Importance of Marketing
Channels

• How Channel Members Add Value
• Physical distribution refers to transporting and
  storing goods
• Financing refers to acquiring and using funds to
  cover the costs or carrying out the channel work
• Risk taking refers to assuming the risks of
  carrying out the channel work

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The Nature and Importance of Marketing
Channels

• Number of Channel Members
• Channel level refers to each layer of marketing
  intermediaries that performs some work in
  bringing the product and its ownership closer to
  the final buyer
• Direct marketing channel has no intermediary
  levels the company sells directly to consumers
• Indirect marketing channels contain one or more
  intermediaries

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The Nature and Importance of Marketing
Channels

• Number of Channel Members
• Connected by types of flows
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow

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Channel Behavior and Organization

• Channel Behavior
• Marketing channel consists of firms that have
  partnered for their common good with each member
  playing a specialized role

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Channel Behavior and Organization

• Channel Behavior
• Channel conflict refers to disagreement over
  goals, roles, and rewards by channel members
• Horizontal conflict
• Vertical conflict

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Channel Behavior and Organization

• Channel Behavior
• Horizontal conflict is conflict among members at
  the same channel level
• Vertical conflict is conflict between different
  levels of the same channel

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Channel Behavior and Organization

• Conventional Distribution Systems
• Conventional distribution systems consist of one
  or more independent producers, wholesalers, and
  retailers. Each seeks to maximize its own profits
  and there is little control over the other
  members and no formal means for assigning roles
  and resolving conflict.

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Channel Behavior and Organization

• Vertical Marketing Systems
• Vertical marketing systems (VMS) provide channel
  leadership and consist of producers, wholesalers,
  and retailers acting as a unified system and
  consist of
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems

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Channel Behavior and Organization
Vertical Marketing Systems

• Corporate vertical marketing system integrates
  successive stages of production and distribution
  under single ownership

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Channel Behavior and Organization

• Vertical Marketing Systems
• Contractual vertical marketing system consists of
  independent firms at different levels of
  production and distribution who join together
  through contracts to obtain more economies or
  sales impact than each could achieve alone. The
  most common form is the franchise organization.

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Channel Behavior and Organization

• Vertical Marketing Systems
• Franchise organization links several stages in
  the production distribution process
• Manufacturer-sponsored retailer franchise system
• Manufacturer-sponsored wholesaler franchise
  system
• Service firm-sponsored retailer franchise system

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Channel Behavior and Organization

• Vertical Marketing Systems
• Administered vertical marketing system has a few
  dominant channel members without common
  ownership. Leadership comes from size and power.

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Channel Behavior and Organization

• Horizontal Marketing Systems
• Horizontal marketing systems include two or more
  companies at one level that join together to
  follow a new marketing opportunity. Companies
  combine financial, production, or marketing
  resources to accomplish more than any one company
  could alone.

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Channel Behavior and Organization

• Multichannel Distribution Systems
• Hybrid Marketing Channels
• Hybrid marketing channels exist when a single
  firm sets up two or more marketing channels to
  reach one or more customer segments

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Channel Behavior and Organization

• Multichannel Distribution Systems
• Hybrid Marketing Channels
• Advantages
• Increased sales and market coverage
• New opportunities to tailor products and services
  to specific needs of diverse customer segments
• Challenges
• Hard to control
• Create channel conflict

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Channel Behavior and Organization

• Changing Channel Organization
• Disintermediation occurs when product or service
  producers cut out intermediaries and go directly
  to final buyers, or when radically new types of
  channel intermediaries displace traditional ones

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Channel Design Decisions

• Analyzing Consumer Needs
• Designing a channel system requires
• Analyzing consumer needs
• Setting channel objectives
• Identifying major channel alternatives
• Evaluation

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Channel Design Decisions

• Analyzing Consumer Needs
• Designing a marketing channel starts with finding
  out what target customers want from the channel

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Channel Design Decisions

• Setting Channel Objectives
• In terms of
• Targeted levels of customer service
• What segments to serve
• Best channels to sue
• Minimizing the cost of meeting customer service
  requirements

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Channel Design Decisions
Setting Channel Objectives

• Objectives are influenced by
• Nature of the company
• Marketing intermediaries
• Competitors
• Environment

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Channel Design Decisions

• Identifying Major Alternatives
• In terms of
• Types of intermediaries
• Number of intermediaries
• Responsibilities of each channel member

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Channel Design Decisions

• Identifying Major Alternatives
• Types of intermediaries refers to channel members
  available to carry out channel work. Examples
  include
• Company sales force
• Manufacturers agency
• Industrial distributors

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Channel Design Decisions

• Identifying Major Alternatives
• Company sales force strategies
• Expand direct sales force
• Assign outside salespeople to territories
• Develop a separate sales force
• Telesales

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Channel Design Decisions

• Identifying Major Alternatives
• Manufacturers agencies are independent firms
  whose sales forces handle related products from
  many companies in different regions or industries

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Channel Design Decisions

• Identifying Major Alternatives
• Industrial distributors
• Find distributors in different regions or
  industries
• Exclusive distribution
• Margin opportunities
• Training
• Support

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Channel Design Decisions

• Identifying Major Alternatives
• Number of marketing intermediaries to use at each
  level
• Strategies
• Intensive distribution
• Exclusive distribution
• Selective distribution

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Channel Design Decisions

• Identifying Major Alternatives
• Intensive distribution is a strategy used by
  producers of convenience products and common raw
  materials in which they stock their products in
  as many outlets as possible

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Channel Design Decisions
Identifying Major Alternatives

• Exclusive distribution is a strategy in which the
  producer gives only a limited number of dealers
  the exclusive right to distribute its products in
  their territories
• Luxury automobiles
• High-end apparel

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Channel Design Decisions

• Identifying Major Alternatives
• Selective distribution is a strategy when a
  producer uses more than one but fewer than all of
  the intermediaries willing to carry the
  producers products
• Televisions
• Appliances

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Channel Design Decisions

• Responsibilities of Channel Members
• Producers and intermediaries need to agree on
• Price policies
• Conditions of sale
• Territorial rights
• Services provided by each party

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Channel Design Decisions

• Evaluating the Major Alternatives
• Each alternative should be evaluated against
• Economic criteria
• Control
• Adaptive criteria

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Channel Design Decisions

• Evaluating the Major Alternatives
• Economic criteria compares the likely sales costs
  and profitability of different channel members
• Control refers to channel members control over
  the marketing of the product
• Adaptive criteria refers to the ability to remain
  flexible to adapt to environmental changes

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Channel Design Decisions

• Designing International Distribution Channels
• Channel systems can vary from country to country
• Must be able to adapt channel strategies to the
  existing structures within each country

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Channel Management Decisions

• Channel management involves
• Selecting channel members
• Managing channel members
• Motivating channel members
• Evaluating channel members

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Channel Management Decisions

• Selecting Channel Members
• Selecting channel members involves determining
  the characteristics that distinguish the better
  ones by evaluating channel members
• Years in business
• Lines carried
• Profit record

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Channel Management Decisions

• Selecting Channel Members
• Selecting intermediaries that are sales agents
  involves evaluating
• Number and character of other lines carried
• Size and quality of sales force

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Channel Management Decisions

• Selecting Channel Members
• Selecting intermediaries that are retail stores
  that want exclusive or selective distribution
  involves evaluating
• Stores customers
• Locations
• Growth potential

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Channel Management Decisions

• Managing and Motivating Channel Members
• Partner relationship management (PRM) and supply
  chain management (SCM) software are used to forge
  long-term partnerships with channel members and
  to recruit, train, organize, manage, motivate,
  and evaluate channel members

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Public Policy and Distribution Decisions

• Exclusive distribution is when the seller allows
  only certain outlets to carry its products
• Exclusive dealing is when the seller requires
  that the sellers not handle competitors products

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Public Policy and Distribution Decisions

• Benefits of exclusive distribution include
• Seller obtains more loyal and dependable dealers
• Dealers obtain a steady and stronger seller
  support

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Public Policy and Distribution Decisions

• Exclusive territorial agreement refers to an
  agreement where the producer may agree not to
  sell to other dealers in a given area or the
  buyer may agree to sell only in its own territory
• Tying agreements, while not necessarily illegal
  as long as they do not substantially lessen
  competition, are agreements where there is a
  strong brand that producers sometimes sell to
  dealers only if the dealers will take some or all
  of the rest of the line

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Marketing Logistics and
Supply Chain Management

• Nature and importance of logistics management in
  the supply chain
• Goals of the logistics system
• Major logistics functions
• Need for integrated supply chain management

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Marketing Logistics and
Supply Chain Management

• Nature and Importance of Marketing Logistics
• Marketing logistics (physical distribution)
  involves planning, implementing, and controlling
  the physical flow of goods, services, and related
  information from points of origin to points of
  consumption to meet consumer requirements at a
  profit

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Marketing Logistics and
Supply Chain Management

• Nature and Importance of Marketing Logistics
• Marketing logistics involves
• Outbound distribution Moving products from the
  factory to resellers and consumers
• Inbound distribution Moving products and
  materials from suppliers to the factory
• Reverse distribution Moving broken, unwanted, or
  excess products returned by consumers or resellers

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Marketing Logistics and
Supply Chain Management

• Nature and Importance of Marketing Logistics
• Supply chain management is the process of
  managing upstream and downstream value-added
  flows of materials, final goods, and related
  information among suppliers, the company,
  resellers, and final consumers

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Marketing Logistics and
Supply Chain Management

• Nature and Importance of Marketing Logistics
• Importance of logistics
• Competitive advantage by giving customers better
  service at lower prices
• Cost savings to the company and its customers
• Product variety requires improved logistics
• Information technology has created opportunities
  for distribution efficiency

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Marketing Logistics and
Supply Chain Management

• Goals of the Logistics System
• To provide a targeted level of customer service
  at the least cost with the objective to maximize
  profit, not sales

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Warehousing
• Inventory management
• Transportation
• Logistics information management

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Warehousing is the storage function that
  overcomes differences in need quantities and
  timing, ensuring that the products are available
  when customers are ready to buy them
• Storage warehouses
• Distribution centers

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Storage warehouses are designed to store goods,
  not move them
• Distribution centers are designed to move goods,
  not store them

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Inventory management balances carrying too little
  and too much inventory
• Just-in-time logistics systems
• RFID

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Just-in-time logistics systems allow producers
  and retailers to carry small amounts of
  inventories of parts or merchandise
• RFID (radio frequency identification devices) are
  small transmitter chips embedded in or placed on
  products or packages to provide greater inventory
  control

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Marketing Logistics and
Supply Chain Management
Major Logistics Functions

• Transportation affects the pricing of products,
  delivery performance, and condition of the goods
  when they arrive
• Truck
• Rail
• Water
• Pipeline
• Air
• Internet

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Marketing Logistics and
Supply Chain Management

• Major Logistics Functions
• Intermodal transportation combines two or more
  modes of transportation
• Piggyback uses rail and truck
• Fishyback uses water and truck
• Airtruck uses air and truck

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Marketing Logistics and
Supply Chain Management

• Logistics Information Management
• Logistics information management is the
  management of the flow of information, including
  customer orders, billing, inventory levels, and
  customer data
• EDI (electronic data interchange)
• VMI (vendor-managed inventory)

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Marketing Logistics and
Supply Chain Management

• Integrated Logistics Management
• Integrated logistics management is the
  recognition that providing customer service and
  trimming distribution costs require teamwork
  internally and externally
• Cross-functional teamwork inside the company
• Building partner relationships

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Marketing Logistics and
Supply Chain Management

• Integrated Logistics Management
• Cross-functional teamwork inside the company
  refers to the inter-relationship of different
  departments within the company to achieve the
  goals of integrated supply chain management

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Marketing Logistics and
Supply Chain Management

• Integrated Logistics Management
• Building partner relationships refers to the
  understanding that one companys distribution is
  another companys supply system

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Marketing Logistics and
Supply Chain Management

• Integrated Logistics Management
• Third-party logistics is the outsourcing of
  logistics functions to third-party logistics
  providers (3PLs)
• Provide logistics functions more efficiently
• Provide logistics functions at lower cost
• Allow the company to focus on its core business
• Are more knowledgeable of complex logistics

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PowerPoint created by

• Ronald Heimler
• Dowling College, MBA
• Georgetown University, BS Business Administration
• Adjunct Professor, LIM College, NY
• Adjunct Professor, Long Island University, NY
• Lecturer, California Polytechnic State
  University, Pomona, CA
• President, Walter Heimler, Inc.