marketing channels and supply chain management

Marketing Channels and Supply Chain Management12Principles of Marketing

Learning ObjectivesAfter studying this chapter, you should be able to:Explain how companies use marketing channels and discuss the functions these channels performDiscuss how channel members interact and how they organize to perform the work of the channelIdentify the major channel alternatives open to a companyExplain how companies select, motivate, and evaluate channel membersDiscuss the nature and importance of marketing logistics and integrated supply chain management12-2

Chapter Outline

Supply Chains and the Value Delivery NetworkThe Nature and Importance of Marketing ChannelsChannel Behavior and OrganizationChannel Design DecisionsChannel Management DecisionsPublic Policy and Distribution DecisionsMarketing Logistics and Supply Chain Management12-3

Supply Chains and the Value Delivery NetworkSupply 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 customer12-4

Supply Chains and the Value Delivery NetworkSupply 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

The value delivery network is the firms suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system12-6Value Delivery Network

Supply Chains and the Value Delivery NetworkMarketing 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?12-7

The Nature and Importance of Marketing ChannelsMarketing 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 ChannelsHow 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 them12-9


Producers use intermediaries because they create greater efficiency in making goods available to target markets. 12-10


Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations12-11

The Nature and Importance of Marketing ChannelsFrom an economic view, intermediaries transform the assortment of products into assortments wanted by consumers12-12How 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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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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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 work12-15

The Nature and Importance of Marketing ChannelsNumber 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 intermediaries12-16

The Nature and Importance of Marketing ChannelsNumber of Channel Members

Connected by types of flows:Physical flow of productsFlow of ownershipPayment flowInformation flowPromotion flow12-17

Channel Behavior and OrganizationChannel 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 conflict refers to disagreement over goals, roles, and rewards by channel membersHorizontal conflictVertical conflict12-19


Horizontal conflict is conflict among members at the same channel level

Vertical conflict is conflict between different levels of the same channel12-20

Channel Behavior and OrganizationConventional 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.12-21

Channel Behavior and OrganizationVertical 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 systemsContractual marketing systemsAdministered marketing systems12-22

Channel Behavior and OrganizationCorporate vertical marketing system integrates successive stages of production and distribution under single ownership

12-23Vertical 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.12-24


Franchise organization links several stages in the production distribution processManufacturer-sponsored retailer franchise systemManufacturer-sponsored wholesaler franchise systemService firm-sponsored retailer franchise system12-25


Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power.12-26

Channel Behavior and OrganizationHorizontal 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.12-27

Channel Behavior and OrganizationMultichannel 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 segments12-28

Channel Behavior and OrganizationMultichannel Distribution Systems Hybrid Marketing Channels

AdvantagesIncreased sales and market coverageNew opportunities to tailor products and services to specific needs of diverse customer segmentsChallengesHard to controlCreate channel conflict12-29

Channel Behavior and OrganizationChanging 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 ones12-30

Channel Design DecisionsAnalyzing Consumer Needs

Designing a channel system requires:Analyzing consumer needsSetting channel objectivesIdentifying major channel alternativesEvaluation

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Channel Design DecisionsAnalyzing Consumer Needs

Designing a marketing channel starts with finding out what target customers want from the channel12-32

Channel Design DecisionsSetting Channel Objectives

In terms of:Targeted levels of customer serviceWhat segments to serveBest channels to sueMinimizing the cost of meeting customer service requirements12-33

Channel Design DecisionsObjectives are influenced by:Nature of the companyMarketing intermediariesCompetitorsEnvironment12-34Setting Channel Objectives

Channel Design DecisionsIdentifying Major Alternatives

In terms of:Types of intermediariesNumber of intermediariesResponsibilities of each channel member12-35


Types of intermediaries refers to channel members available to carry out channel work. Examples include:Company sales forceManufacturers agencyIndustrial distributors12-36


Company sales force strategiesExpand direct sales forceAssign outside salespeople to territoriesDevelop a separate sales force Telesales

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

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Industrial distributorsFind distributors in different regions or industries Exclusive distributionMargin opportunitiesTrainingSupport12-39


Number of marketing intermediaries to use at each levelStrategies:Intensive distributionExclusive distributionSelective distribution12-40


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 possible12-41

Channel Design DecisionsExclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territoriesLuxury automobilesHigh-end apparel12-42Identifying 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 productsTelevisionsAppliances12-43

Channel Design DecisionsResponsibilities of Channel Members

Producers and intermediaries need to agree on:Price policiesConditions of saleTerritorial rightsServices provided by each party12-44

Channel Design DecisionsEvaluating the Major Alternatives

Each alternative should be evaluated against:Economic criteriaControlAdaptive criteria12-45

Channel Design DecisionsEvaluating 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 changes12-46

Channel Design DecisionsDesigning International Distribution Channels

Channel systems can vary from country to country

Must be able to adapt channel strategies to the existing structures within each country12-47

Channel Management Decisions

Channel management involves:Selecting channel membersManaging channel membersMotivating channel membersEvaluating channel members12-48

Channel Management DecisionsSelecting Channel Members

Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel membersYears in businessLines carriedProfit record12-49


Selecting intermediaries that are sales agents involves evaluating:Number and character of other lines carriedSize and quality of sales force12-50


Selecting intermediaries that are retail stores that want exclusive or selective distribution involves evaluating: Stores customersLocationsGrowth potential12-51

Channel Management DecisionsManaging 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 members12-52

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 products12-53


Benefits of exclusive distribution include:Seller obtains more loyal and dependable dealersDealers obtain a steady and stronger seller support12-54


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 line12-55

Marketing Logistics and Supply Chain Management

Nature and importance of logistics management in the supply chainGoals of the logistics systemMajor logistics functionsNeed for integrated supply chain management12-56

Marketing Logistics and Supply Chain ManagementNature 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 profit12-57


Marketing logistics involves:Outbound distribution: Moving products from the factory to resellers and consumersInbound distribution: Moving products and materials from suppliers to the factoryReverse distribution: Moving broken, unwanted, or excess products returned by consumers or resellers12-58


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 consumers12-59


Importance of logisticsCompetitive advantage by giving customers better service at lower pricesCost savings to the company and its customersProduct variety requires improved logisticsInformation technology has created opportunities for distribution efficiency

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Marketing Logistics and Supply Chain ManagementGoals of the Logistics System

To provide a targeted level of customer service at the least cost with the objective to maximize profit, not sales12-61

Marketing Logistics and Supply Chain ManagementMajor Logistics Functions

WarehousingInventory managementTransportationLogistics information management12-62


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 themStorage warehousesDistribution centers12-63


Storage warehouses are designed to store goods, not move them

Distribution centers are designed to move goods, not store them12-64


Inventory management balances carrying too little and too much inventoryJust-in-time logistics systemsRFID12-65


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 control12-66

Marketing Logistics and Supply Chain ManagementTransportation affects the pricing of products, delivery performance, and condition of the goods when they arriveTruckRailWaterPipelineAirInternet12-67Major Logistics Functions


Intermodal transportation combines two or more modes of transportationPiggyback uses rail and truckFishyback uses water and truckAirtruck uses air and truck12-68

Marketing Logistics and Supply Chain ManagementLogistics 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)12-69

Marketing Logistics and Supply Chain ManagementIntegrated Logistics Management

Integrated logistics management is the recognition that providing customer service and trimming distribution costs require teamwork internally and externallyCross-functional teamwork inside the companyBuilding partner relationships12-70


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 management12-71


Building partner relationships refers to the understanding that one companys distribution is another companys supply system12-72


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 costAllow the company to focus on its core businessAre more knowledgeable of complex logistics12-73

The End

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marketing channels and supply chain management

Documents

nature of marketing

channel membersdiscuss

chain of resources

valuethe nature

distribution channels

supply chain management

channels performdiscuss

valuechannel members