Marketing Channels and Supply Chain Management

1
Marketing Channels and Supply Chain Management

• Chapter 10

2
Road Map Previewing the Concepts

• Explain why companies 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 a
  company.

3
Road Map Previewing the Concepts

• Explain how companies select, motivate, and
  evaluate channel members.
• Discuss the nature and importance of marketing
  logistics and supply chain management.

4
How Channel Members Add Value

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

5

• What is a channel of distribution?
• A set of interdependent organizations
  (intermediaries) involved in the process of
  making a product or service available for use or
  consumption by consumer or business users.
• Usually the most time consuming and costly to
  change
• Distribution Channels show the flow of
  goods/services, their ownership, their payments,
  their information, and/or their promotion from
  the manufacturer to the end consumer.
• Marketing Channel decisions are among the most
  important and expensive decisions that management
  face, and will directly affect every other
  marketing decision.

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

6
Common Misperceptions about Distribution
Channels.

• What is the minimum cost of any channel? This
  is why your professor depicts a channel in what
  may appear to be a backward order. (Figure 10.2
  revised) Note that each channel intermediary
  performs some work which brings the product
  and/or its ownership closer to the final buyer.

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

7
Common Misperceptions about Distribution
Channels

• Each member depicted in a channel of
  distribution
• (excluding individual/household consumers) is
  an
• independent business/organizationSears as an
  example.

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

8
Common Misperceptions about Distribution Channels

• What is the minimum cost of any channel? This
  is why your professor depicts a channel in what
  may appear to be a backward order. (Figure 12.2
  revised) Note that each channel intermediary
  performs some work which brings the product
  and/or its ownership closer to the final
  buyer/user/renter.

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

9
Common Misperceptions about Distribution Channels

• Each member depicted in a channel of
  distribution (excluding individual/household
  consumers) is an independent business/organization
  Sears as an example.

C
P
Direct Channel
Channel 1
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

10
Common Misperceptions about Distribution Channels

• As small firms grow (usually geographically or
  in terms of distribution intensity), they will
  tend to transverse downward through the channels
  depicted below.

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

11
Common Misperceptions about Distribution Channels

• Business may use multiple channels may to
  service the same or different market segments for
  the same (or different) product(s).

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

12
Common Misperceptions about Distribution
Channels

• When a distribution channels product
  substantially changes form and/or is added to
  other products to form/ create a new product, it
  marks the end of one channel of distribution and
  the beginning of a new channel.

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4
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Common Misperceptions about distribution Channels

• Lets eliminate the middleman! Who are they?
  Why will eliminating the middleman not
  necessarily save money and therefore potentially
  not reduce prices charged to the ultimate
  customer?

C
P
Channel 1
Direct Channel
Indirect Channels
C
P
R
Channel 2
C
R
W
P
Channel 3
C
R
J/A
W
P
Channel 4

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offers the firm more than it can achieve on its
  own through the intermediaries
• Contacts
• Experience
• Specialization
• Scale of operation

14
Common Misperceptions about distribution Channels

• Fanning and distribution Channelssee Table 10.1

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Channel Functions

• Information
• Promotion
• Contact
• Matching

• Negotiation
• Physical distribution
• Financing
• Risk taking

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Channel Behavior

• The channel will be most effective when
• each member is assigned tasks it can do best.
• all members cooperate to attain overall channel
  goals.
• If this does not happen, conflict occurs
• Horizontal Conflict occurs among firms at the
  same level of the channel (e.g., retailer to
  retailer).
• Vertical Conflict occurs between different levels
  of the same channel (e.g., wholesaler to
  retailer).
• Some conflict can be healthy competition.

17
Vertical Marketing System

• A distribution channel structure in which
  producers, wholesalers, and retailers act as a
  unified system
• One channel member owns the other, has contracts
  with them, or has so much power that they all
  cooperate.

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Types of Vertical Marketing Systems

• Corporate VMS
• Contractual VMS
• Administered VMS

19
Franchise Organization

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

20
Innovations in Marketing Systems

• Horizontal Marketing System
• Hybrid Marketing System

21
Changing Channel Organization

• Disintermediation means that more and more,
  product and service producers are bypassing
  intermediaries and going directly to final
  buyers, or that radically new types of channel
  intermediaries are emerging to displace
  traditional ones.

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Channel Design Decisions

• Analyzing Consumer Needs
• Setting Channel Objectives
• Identifying Major Alternatives
• Types of intermediaries
• Number of intermediaries
• Responsibilities of intermediaries

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Types of Intermediaries

• Company sales force
• Manufacturers agency
• Industrial distributors

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Number of Intermediaries

• Intensive distribution
• Exclusive distribution
• Selective distribution

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Evaluating the Major Alternatives

• Economic Criteria
• A company compares the likely sales, costs, and
  profitability of different channel alternatives.
• Control Issues
• How and to whom should control be given?
• Adaptive Criteria
• Consider long-term commitment vs. flexibility.

26
Channel Management Decisions

• Selecting channel members
• Managing and motivating channel members
• Evaluating channel members

27
Public Policy and Distribution Decisions

• Exclusive distribution
• Exclusive dealing
• Exclusive territorial agreements
• Tying agreements

28
Logistics and Supply Chain Management

• Planning, implementing, and controlling the
  physical flow of goods, services, and related
  information from points of origin to points of
  consumption to meet customer requirements at a
  profit.
• Includes
• Outbound distribution
• Inbound distribution
• Reverse distribution

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Major Logistics Functions

• Warehousing
• Inventory management
• Transportation
• Logistics information management

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Warehousing

• How many, what types, and where?
• Storage warehouses
• Distribution centers
• Automated warehouses

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Inventory Management

• Must balance between too much and too little
  inventory.
• Just-in-time logistics systems
• RFID, AutoID, or Smart Tag technology

32
Transportation

• Trucks
• Railroads
• Water carriers
• Pipelines
• Air
• Internet
• Intermodal transportation

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Integrated Logistics Management

• The logistics concept that emphasizes teamwork,
  both inside the company and among all the
  marketing channel organizations, to maximize the
  performance of the entire distribution system.
• Involves
• Cross-functional teamwork inside the company
• Building logistics partnerships
• Third-party logistics

34
Rest Stop Reviewing the Concepts

• Explain why companies 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 a
  company.

35
Rest Stop Reviewing the Concepts

• Explain how companies select, motivate, and
  evaluate channel members.
• Discuss the nature and importance of marketing
  logistics and integrated supply chain management.