Marketing Channels and Supply Chain Management

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• Marketing Channels and Supply Chain Management

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Why Not Sell Every Product Directly to Consumers?

• Would it be cheaper?
• Would it be faster?
• Would it be more efficient?

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Who would Perform Channel Functions?

• Transaction Fulfilling
• Physical distribution
• Financing
• Risk taking

• Transaction Completing
• Information
• Promotion
• Contact
• Matching
• Negotiation

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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.

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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

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How a Distributor Reduces the Number of Channel
Transactions
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Figure 10-2Consumer and Business Marketing
Channels
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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.

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Channel Conflict
When it decided to sell its familiar containers
at retail through Target stores, Tupperware
avoided conflicts with its army of in-home sales
consultants by inviting them into the stores to
demonstrate the products.
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Tupperware Update
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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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Conventional vs. Vertical Marketing System
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Vertical Marketing System (VMS)

• 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 Common Ownership at Different
Levels of the Channel (e.g., Sears)
Contractual VMS Contractual Agreements
Among Channel Members (e.g., ACE Hardware)
Control
High
Administered VMS Leadership is Assumed by One
or a Few Dominant Members (e.g., Kraft)
Low
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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

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Innovations in Marketing Systems
Horizontal Marketing System
Hybrid Marketing System

• Two or more companies at one channel level join
  together to follow a new marketing opportunity.
• Example Banks in grocery stores

• A single firm sets up two or more marketing
  channels to reach one or more customer segments.
• Example Retailers and catalogs

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Hybrid Marketing Channel
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Disintermediation
Occurs when product and service producers cut out
intermediaries and go directly to final buyers,
or when radically new types of channel
intermediaries displace traditional ones.
The Internet has made the disintermediation of
many traditional retailers possible.
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Disintermediation
Travel supersites such as Expedia, Travelocity,
Priceline, Hotels.com, and Orbitz have threatened
the very existence of traditional travel agents.
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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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Selective Distribution
Luxury car makers sell exclusively through a
limited number of dealerships. Such limited
distribution enhances the cars image and
generates strong dealer support.
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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.

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International Channel Decisions

• Every country has its own unique distribution
  system that has evolved over time.
• Channel systems vary widely from country to
  country.
• Countries such as Japan have complex,
  multi-layered distribution systems that are hard
  for Western firms to penetrate.
• India and China have inefficient distribution
  systems, despite their enormous size.

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Channel Management Decisions
Selecting Channel Members
Managing Motivating Channel Members
Evaluating Channel Members
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Public Policy and Distribution DecisionsLegal
Basis Clayton Act of 1914.

• Exclusive distribution
• Only certain outlets allowed to carry
• Exclusive dealing
• Cannot handle competitors products
• Exclusive territorial agreements
• Tying agreements

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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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Supply Chain Management
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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
• Click Here to Find Out All About RFID

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Logistics Technology
In the not-too-distant future, AutoID or smart
tag technology could make the entire supply
chainwhich accounts for nearly 75 of a
products costintelligent and automated.
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Transportation

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

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Intermodal Transportation
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Intermodal Transportation
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Intermodal Transportation
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Third-Party Logistics
Marketing in Action

• UPSs Supply Chain Solution Group can help a firm
  shorten its supply chain and convert the supply
  chain into a strategic asset.

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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

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