Marketing Channels and Supply Chain Management

1
Marketing Channels and Supply Chain Management
Marketing Principles Session 10

• Jeffrey E. Newcomb
• Red Widget Strategies
• for Hosei University

2
Looking Forward Where are we going?
Session 10, Marketing Channels and Supply Chain
Management, will help you to

• Explain why companies use distribution channels
  and discuss the functions these channels perform.
• Discuss how channel members interact and 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 supply chain management.

3
Caterpillar Case Story
For Caterpillar, distribution competitive
advantage

• Heavy earth-moving equipment
• market share 20 of worlds construction
  equipment business 30billion revenue
• Yellow is Caterpillars brand color tractors,
  loaders, bulldozers, trucks
• 300 products, 200 countries
• Dominates worlds markets for heavy construction
  and mining equipment Komatsu, 2 in the
  industry, is a worthy competitor
• 200 independent, networked dealers are key to
  success dealer network linked via computers
  electronic hooks for speed, access and
  efficiency

• In mid-1980s, extended support and credit to
  ailing dealers to insure the dealers survival
• Ships 99 of all parts required by dealers on the
  same day
• Managers in close touch with dealers
• Dealer training and development
• Dealer access to databases for
• ordering, sales trends and forecasts, customer
  satisfaction

Caterpillars promise Buy the iron get the
company.
4
Nature Importance of Marketing Channels

• Marketing or Distribution Channel
• A set of interdependent organizations involved in
  the process of making a product or service
  available for use or consumption by the consumer
  or business user getting products and services
  in the hands of the customer

• Channel choices affect other decisions in the
  marketing mix
• for example Pricing, Marketing communications
• A strong distribution system can be a competitive
  advantage
• Channel decisions may involve long-term
  commitments to other firms

5
How Channel Members (Intermediaries) Add Value

• Marketing channel members or Intermediaries can
  add value with
• Greater efficiency--fewer contacts required.
• Match product and service demand with supply.
• Specialization, and scale of operations.
• Bridge gaps of time and place separating products
  from users.
• Intermediaries must add greater value than if
  producers were to provide direct marketing
  distribution

6
Strong Distribution as a Competitive Advantage

• FedEx improved its distribution to consumers and
  small business by acquiring Kinkos in 2004
  through downstream
• vertical integration

7
Review from Session 2, Customer Relationships
A Bibliophiles Value-Delivery Network

• A Value Delivery Network
• consists of the company, suppliers, distributors
  and customers who partner to improve the
  performance of the entire system

Competition is between networks, not
companies. The winner is the company with the
better network.
What is an example of a value delivery network
in which you participate?
8
Distribution Channels Key Functions
Information
Communication
Risk-taking
Negotiation
Payments
Ordering
Physical Distribution
Financing
9
Channel Behavior

• The channel will be most effective when
• each member is assigned tasks it can do best
• all members cooperate to attain channel goals
• If these conditions fail, conflict occurs
• Horizontal Conflict occurs among firms
• at the same level of the channel
• Example Conflict between auto dealers
• of the same make in the same city
• Vertical Conflict occurs between different
• levels of the same channel
• Example Conflict between online sales
• and in-store sales
• Some conflict can mean constructive competition

10
Consumer and Business Marketing Channels
11
Vertical Marketing Systems

• Vertical Marketing System (VMS)
• A distribution channel structure in which
  producers, wholesalers, and retailers act as a
  unified system
• Compare with a
• Conventional distribution channel
• A distribution structure with one or more
  independent channel members, lacking leadership
  and power,
• often resulting in poor performance

12
Vertical Marketing Systems vs. Conventional
Distribution Channels
Conventional Distribution Channel
Vertical Marketing System
Manufacturer

Manufacturer
Wholesaler
Retailer
In a Vertical Marketing System (VMS), one channel
member owns another, contracts with another, or
influences another so that all channel members
cooperate to serve the consumer
13
Vertical Marketing Systems
In choosing a VMS, ask Is channel conflict
improved? Is channel power constructive? What
are implications for multi-channel or hybrid
marketing?
14
Franchise Organizations
Franchising provides rapid business expansion
with greater efficiency, and offers turn-key
ownership opportunities for small businesses

• Manufacturer-Sponsored Retailer
• Toyota and its independent franchised dealers
• Manufacturer-Sponsored Wholesaler
• Coca-Colas licensed bottlers
• Service-Firm Sponsored Retailer
• McDonalds, Avis, Holiday Inn

More on Contractual VMS in Session 11,
Retailing and Wholesaling
15
Channel Behavior and Organization

• Horizontal Marketing Systems
• Companies at the same level work together with
  channel members
• Created by joint ventures, strategic alliances
• Examples Rakuten Starbucks in grocery stores
  Radio Shack distributes iPods
• Multi-channel Distribution Systems
• Also called hybrid marketing channels
• Occurs when a firm uses two or more marketing
  channels Catalog, Web, Sales Force
• Examples Hewlett Packard, Reebok

What example of multi-channel distribution can
you offer?
16
Multi-channel Distribution System

• Reebok uses a multi-channel distribution system
  which includes a direct channel

17
Changing Channel Organization

• Impacts of e-commerce and
• global competition
• Increased disintermediation
• producers bypass intermediaries, go directly to
  final buyers
• Increased access to customers, and customers
  access to the business
• databases and networks enable convenient contact
• Increased speed to market
• technologies accelerate communication and
  transactions

Current channel intermediaries. airline
e-tickets create decreased need for travel
agents electronic music websites create
decreased demand for compact discs, traditional
music stores
18
Marketing Channels Value-Added vs. Channel Cost
H
Sales Force
Value-Added Resellers
Value-Added/Transaction
Direct Sales
Distributors
Retail Stores
Indirect Channels
Telemarketing
Internet
Direct Marketing Channels
L
Cost / Transaction
H
L
19
Channel Design Decisions

• Step 1 Analyzing Consumer Needs
• Consider cost and feasibility for meeting
  consumer needs
• Step 2 Setting Channel Objectives
• Set channel objectives at targeted level of
  customer service
• Many factors impact channel objectives
• Examples include budget constraints, ROI
  objectives,
• organizations growth strategy

20
Channel Design Decisions

• Step 3 Identifying Major Alternatives
• Types of intermediaries
• Intensive Stocking products in as many outlets
  as possible in Japan, small, convenient
  neighborhood shops requiring frequent attention
• Selective High-end, special purpose appliances
  audiophile sound systems
• Exclusive Harder-to-find products, specialty
  dealers
• Responsible Training and development for human
  resources consulting

21
Channel Design Decisions

• Step 4 Evaluating Major Alternatives
• Economic criteria Outcomes of distribution
  alternatives? What is the net present value of
  discounted future earnings?
• Control issues Who in the organization makes
  final decisions on distribution methods -- for
  example, shelf-space or seasonal offerings?
• Adaptive criteria What are the longer-term
  commitments? Do you have an exit strategy that
  is, a means to withdraw from the marketing
  channel if necessary?

22
Designing Marketing Channels
Your turn

• iRobots Roomba is a robotic vacuum which travels
  the floor and vacuums dirt. Its price about
  Y15,000

Consider our 4 steps in designing channels. What
characteristics are important when choosing
channel members? What retailers would you
choose? What other marketing channels, if any,
would you choose? What else would you need to
know to make good decisions about marketing
channels for Roomba?
23
Roomba Marketing Channels

• Channels for Roomba include
• online
• specialty retailers
• some department store
• Some questions to ask
• How would you describe the likely consumer?
  Consider consumer incomes, interests in
  technology
• Do retail channels carry other vacuum products?
  Does the Roomba complement current products -- or
  conflict with existing products?
• Will the distribution channel provide good
  customer service? As a new product, customers may
  need help for Roombas use

24
Channel Management Decisions

• Selecting channel members

• Which characteristics are important?
• Years in business
• Lines carried
• Growth and profit record
• Cooperativeness and reputation
• Type of customer
• Location

For Toyotas Lexus brand in US, there is no
problem in finding an authorized automobile
dealer. Why?
25
Channel Management Decisions

• Managing and motivating
• channel members

• Partner relationship management (PRM) for
  long-term partnerships
• Software to coordinate members

Examples 1) PRM software is used to collect data
for employee training and improvement throughout
the value-delivery network 2) General Motors is
training salespeople with PRM software to sell
the Hummer sports utility vehicle
26
Channel Management Decisions
Evaluating channel members

• Measure how the channel is performing with
• Sales
• Inventory
• Customer delivery
• Promotion and training
• Customer service

Example Automobile manufacturers motivate
dealers to improve with monthly performance
measures
27
Public Policy and Distribution Decisions

• Exclusive distribution
• Only certain outlets are allowed to carry
• a firms products Authorized Dealer
• Exclusive dealing
• Exclusive territorial agreements franchises
• Tying agreements with distributors to shut out
  a competitors product

Example Ben Jerrys Ice Cream fought bigger
packaged-foods producer Pillsbury, when
Pillsbury tried tying agreements with grocery
retailers for Haagen-Dazs ice cream
28
Marketing Logistics and Supply Chain Management

• Define logistics.
• Logistics is that part of the supply chain
  process that plans, implements and controls the
  efficient, physical flow and storage of goods,
  services and information from point-of-origin to
  point-of-consumption.
• from Council of Logistics Management (1998)
• Define supply chain management.
• Managing the upstream and downstream, value-added
  flows of materials, final goods and related
  information among suppliers, the organization,
  resellers and final consumers
• a value-delivery network of multiple business
  relationships

The power of the supply chain belongs to those
who have the relationship with the consumer or
end-user
29
Marketing Logistics and Supply Chain Management

• Marketing Logistics
• Outbound distribution logistics
• -factory to resellers to consumers
• Inbound distribution logistics
• -suppliers to the factory
• Reverse distribution logistics
• -moving broken, returned or excess products
• from either consumers or resellers

30
Marketing Logistics and Supply Chain Management

• Why the emphasis placed on logistics?
• Logistics offer organizations a source of
  competitive advantage
• Yield cost savings
• Greater product variety and changing consumer
  interests require improved logistics
• Improvements in distribution efficiency possible
  due to advances in information technology

31
Marketing Logistics and Supply Chain Management

• Goals of the logistics system
• No system can both maximize customer service and
  minimize costs
• Organizations must first weigh the benefits of
  higher service against the costs
• Frame goals of logistics with a customer focus
  we want to maximize profits, not sales.
• Ask What can we target as the level of customer
  service we want, and at the least cost?

32
Marketing Logistics and Supply Chain Management

• Major Logistics Functions
• Warehousing
• Inventory Management
• Transportation
• Integrated Logistics Management
• Cross-functional teamwork inside the organization
  
• Logistics partnerships through shared projects
• Increasingly, logistics outsourced to third-party
  organizations (3PL)

Example United Parcel Service (UPS) tells its
customers, Let us manage the supply chain you
focus on what you do best.
33
3QQ 3 Question Quiz
1. A(n) _____ is made up of the company,
suppliers, distributors and, ultimately,
customers who partner with each other to
improve the performance of the entire
system. a. supply chain b. dealer
network c. value delivery network d.
integrated marketing system
34
3QQ 3 Question Quiz

• 1. A(n) _____ is made up of the company,
  suppliers, distributors and, ultimately,
  customers who partner with each other to
  improve the performance of the entire system.
• a. supply chain
• b. dealer network
• c. value delivery network
• d. integrated marketing system

Value delivery networks define the new level of
market competition between networks, not
individual organizations.
35
3QQ3 Question Quiz

• 2. A franchise organization is a form
• of which vertical marketing system (VMS)?
• a. hybrid VMS
• b. corporate VMS
• c. contractual VMS
• d. administered VMS

36
3QQ3 Question Quiz

• 2. A franchise organization is a form
• of which vertical marketing system (VMS)?
• a. hybrid VMS
• b. corporate VMS
• c. contractual VMS
• d. administered VMS

Franchise organizations are owned and managed
independently, but under contract with the
licensor. Expectations of performance and
service are contractual
37
3QQ3 Question Quiz

• 3. ______ are defined as the planning,
  implementing and controlling of the physical flow
  of goods, services, and related information --
  from points of origin to points of consumption --
  in order to meet customer requirements at a
  profit.
• a. Supply chain studies
• b. Distribution networks
• c. Marketing logistics
• d. Outsourcing contracts

38
3QQ3 Question Quiz

• 3. ________ are defined as the planning,
  implementing and controlling of the physical flow
  of goods, services, and related information --
  from points of origin to points of consumption --
  in order to meet consumer requirements at a
  profit.
• a. Supply chain studies
• b. Distribution networks
• c. Marketing logistics
• d. Outsourcing contracts

Logistics are concerned with the physical flow or
transportation of goods, services and information
39
Your TOP TEN Terms

• Channel conflict
• Disintermediation
• Exclusive distribution
• Franchising
• Horizontal Marketing System
• Intensive distribution
• Marketing logistics
• Multi-channel distribution system
• Supply chain management
• Vertical marketing system (VMS)
• corporate, contractual, administered

40
Looking Back Where have we been?

• You should now be able to.
• Explain why organizations use distribution
  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
  an organization. Explain how organizations
  select, motivate, and evaluate channel members.
• Discuss the nature and importance of marketing
  logistics and supply chain management.