Marketing Channels and Supply Chain Management

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Chapter 11

• Marketing Channels and Supply Chain Management

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

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What is a Distribution Channel?
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.
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Why are Marketing Intermediaries Used?

• 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.
• Purpose match supply from producers to demand
  from consumers.

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A Distributor Reduces the Number of Channel
Transactions (Fig. 11-1)
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Distribution Channel Functions
These Functions Should be Assigned to the Channel
Member Who Can Perform Them Most Efficiently and
Effectively.
Risk Taking
Information
Financing
Promotion
Contact
Physical Distribution
Matching
Negotiation
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Interactive Student Assignments

• List and briefly discuss the marketing channel
  functions that are involved in completing and
  fulfilling transactions.
• Which functions apply most in each of the
  following situations?
• A retailer puts in a rush re-order for a needed
  Christmas item that is in short supply.
• An Internet marketer seeks ways to identify and
  contact its market.

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Number of Channel Levels (Fig. 11-2)
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Channel Behavior Organization

• The channel will be most effective when
• each member is assigned tasks it can do best.
• all members cooperate to attain overall channel
  goals and satisfy the target market.
• When this doesnt happen, conflict occurs
• Horizontal Conflict occurs among firms at the
  same level of the channel, i.e retailer to
  retailer.
• Vertical Conflict occurs between different levels
  of the same channel, i.e. wholesaler to retailer.
• Each channel members role must be specified and
  conflict must be managed.

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Conventional Distribution Channel Vs. a Vertical
Marketing System (Fig. 11-3)
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Types of Vertical Marketing Systems
Corporate VMS Common Ownership at Different
Levels of the Channel i.e. Sears
Contractual VMS Contractual Agreements
Among Channel Members i.e Western Auto
Administered VMS Leadership is Assumed by One
or a Few Dominant Members i.e. Kraft
Degree of Direct Control
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Types of Vertical Marketing Systems
Administered VMS
Corporate VMS
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Innovations in Marketing Systems

• Horizontal Marketing System
• Two or More Companies at One Channel Level Join
  Together to Follow a New Marketing Opportunity.
• Example
• Banks in Grocery Stores

• Hybrid Marketing System
• A Single Firm Sets Up Two or More Marketing
  Channels to Reach One or More Customer Segments.
• Example
• Retailers, Catalogs, and Sales Force

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Hybrid Marketing Channel (Fig. 11-4)
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Changing Channel Organization

• A Major Trend is Toward Disintermediation Which
  Means that Product and Service Producers are
  Bypassing Intermediaries and Going Directly to
  Final Buyers or That New Types of Channel
  Intermediaries are Emerging to Displace
  Traditional Ones.

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Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives Constraints
Identifying Major Alternatives
Evaluating the Major Alternatives
Designing International Distribution Channels
Responsibilities of Intermediaries
Types of Intermediaries
Number of Intermediaries
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Number of Marketing Intermediaries
Intensive Distribution
Selective Distribution
Exclusive Distribution
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Discussion Question

• Decide which distribution strategy--intensive,
  selective, or exclusive--is used for the
  following products, and why
• Piaget watches,
• Acura automobiles,
• Snickers candy bars.

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Channel Management Decisions
Selecting Channel Members
Motivating Channel Members
Evaluating Channel Members
FEEDBACK
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Marketing Logistics and Supply Chain Management

• Involves getting the right product to the right
  customers in the right place at the right time.
• Marketing logistics addresses
• Outbound distribution,
• Inbound distribution,
• Reverse distribution,
• Entire supply chain management.

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Supply Chain Management (Fig. 11-5)
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Goals of the Logistics System
Higher Distribution Costs Higher Customer
Service Levels

• Goal
• To Provide a Targeted Level of Customer Service
• at the Least Cost.

Maximize Profits, Not Sales
Lower Distribution Costs Lower Customer Service
Levels
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Major Logistics Functions
Order Processing Received Processed Shipped
Costs Minimize Costs of Attaining
Logistics Objectives
Logistics Functions
Warehousing Storage Distribution Automated
Transportation Rail, Truck, Water,
Pipeline, Air, Intermodal
Inventory When to order How much to
order Just-in-time
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Transportation Modes
Rail Nations largest carrier, cost-effective
for shipping bulk products, piggyback
Truck Flexible in routing time schedules,
efficient for short-hauls of high value goods
Water Low cost for shipping bulky, low-value,
non-perishable goods, slowest form
Pipeline Ship petroleum, natural gas, and
chemicals from sources to markets
Air High cost, ideal when speed is needed or
distance markets have to be reached
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Integrated Logistics Management

• Concept Recognizes that Providing Better Customer
  Service and Trimming Distribution Costs Requires
  Teamwork, Both Inside the Company and Among All
  the Marketing Channel Organizations.
• Involves
• Cross-functional teamwork inside the company
• Building channel partnerships
• Third-party logistics

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Toys R Us Partner

• Western Publishing Group partners with Toys R
  Us to create mini-bookstore sections called
  Books R Us within each store.
• This helps to build channel partnerships that
  benefit both companies.

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Rest Stop Reviewing the Concept

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