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Marketing Channels and supply chain management

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Principles of Marketing


  Marketing Channels and
 Supply Chain Management
Learning Objectives
After studying this chapter, you should be able to:
1.  Explain how companies use marketing channels and
    discuss the functions these channels perform
2.  Discuss how channel members interact and how
    they organize to perform the work of the channel
3.  Identify the major channel alternatives open to a
    company
4.  Explain how companies select, motivate, and
    evaluate channel members
5.  Discuss the nature and importance of marketing
    logistics and integrated supply chain management
                                              12-2
Chapter Outline

1.   Supply Chains and the Value Delivery
     Network
2.   The Nature and Importance of Marketing
     Channels
3.   Channel Behavior and Organization
4.   Channel Design Decisions
5.   Channel Management Decisions
6.   Public Policy and Distribution Decisions
7.   Marketing Logistics and Supply Chain
     Management

                                           12-3
Supply Chains and
the Value Delivery Network
             Supply 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 customer

                                        12-4
Supply Chains and
the Value Delivery Network

                Supply Chain Views

Supply chain “make and sell” view includes the firm’s
   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
                                               12-5
  Supply Chains and
  the Value Delivery Network
             Value Delivery Network


The value delivery network is the firm’s
  suppliers, distributors, and ultimately
  customers who partner with each other to
  improve the performance of the entire
  system



                                         12-6
Supply Chains and
the Value Delivery Network

          Marketing 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 Channels

          Marketing 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




                                        12-8
The Nature and Importance of
Marketing Channels

       How 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 them



                                        12-9
The Nature and Importance of
Marketing Channels

    How Channel Members Add Value

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


                                 12-10
The Nature and Importance of
Marketing Channels

       How Channel Members Add Value

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




                                        12-11
 The Nature and Importance of
 Marketing Channels
      How Channel Members Add Value


From an economic view, intermediaries
   transform the assortment of products
   into assortments wanted by consumers




                                          12-12
The Nature and Importance of
Marketing Channels
        How 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
                                              12-13
The Nature and Importance of
Marketing Channels
       How Channel Members Add Value

Matching refers to shaping and fitting the
  offer to the buyer’s 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

                                         12-14
The Nature and Importance of
Marketing Channels
         How Channel Members Add Value

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 work


                                                12-15
The Nature and Importance of
Marketing Channels
           Number 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
   intermediaries
                                               12-16
The Nature and Importance of
Marketing Channels

         Number of Channel Members

Connected by types of flows:
•  Physical flow of products
•  Flow of ownership
•  Payment flow
•  Information flow
•  Promotion flow
                                     12-17
Channel Behavior and Organization

              Channel Behavior

Marketing channel consists of firms that have
  partnered for their common good with each
  member playing a specialized role




                                       12-18
Channel Behavior and Organization

              Channel Behavior

Channel conflict refers to disagreement over
  goals, roles, and rewards by channel
  members
• Horizontal conflict
• Vertical conflict


                                       12-19
Channel Behavior and Organization

               Channel Behavior

Horizontal conflict is conflict among
  members at the same channel level

Vertical conflict is conflict between different
   levels of the same channel


                                          12-20
Channel Behavior and Organization

       Conventional 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 Organization

           Vertical 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 systems
•  Contractual marketing systems
•  Administered marketing systems
                                          12-22
   Channel Behavior and Organization
            Vertical Marketing Systems


Corporate vertical marketing system
  integrates successive stages of production
  and distribution under single ownership




                                               12-23
Channel Behavior and Organization

          Vertical 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
Channel Behavior and Organization

            Vertical Marketing Systems

Franchise organization links several stages
   in the production distribution process
  •   Manufacturer-sponsored retailer franchise system
  •   Manufacturer-sponsored wholesaler franchise
      system
  •   Service firm-sponsored retailer franchise system


                                              12-25
Channel Behavior and Organization

         Vertical Marketing Systems

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




                                      12-26
Channel Behavior and Organization

        Horizontal 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 Organization

      Multichannel 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
    segments


                                          12-28
Channel Behavior and Organization

          Multichannel Distribution Systems
                Hybrid Marketing Channels

•   Advantages
    •   Increased sales and market coverage
    •   New opportunities to tailor products and services
        to specific needs of diverse customer segments
•   Challenges
    •   Hard to control
    •   Create channel conflict
                                                  12-29
Channel Behavior and Organization

        Changing 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 ones



                                          12-30
Channel Design Decisions

           Analyzing Consumer Needs

Designing a channel system requires:
•  Analyzing consumer needs
•  Setting channel objectives
•  Identifying major channel alternatives
•  Evaluation


                                            12-31
Channel Design Decisions

          Analyzing Consumer Needs

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




                                       12-32
Channel Design Decisions

           Setting Channel Objectives

In terms of:
•   Targeted levels of customer service
•   What segments to serve
•   Best channels to sue
•   Minimizing the cost of meeting customer
    service requirements

                                        12-33
  Channel Design Decisions
           Setting Channel Objectives

Objectives are influenced by:
•  Nature of the company
•  Marketing intermediaries
•  Competitors
•  Environment



                                        12-34
Channel Design Decisions

         Identifying Major Alternatives

In terms of:
•   Types of intermediaries
•   Number of intermediaries
•   Responsibilities of each channel member



                                          12-35
Channel Design Decisions

         Identifying Major Alternatives

Types of intermediaries refers to channel
  members available to carry out channel
  work. Examples include:
• Company sales force
• Manufacturer’s agency
• Industrial distributors

                                          12-36
Channel Design Decisions

         Identifying Major Alternatives

Company sales force strategies
• Expand direct sales force
• Assign outside salespeople to territories
• Develop a separate sales force
• Telesales


                                          12-37
Channel Design Decisions

         Identifying Major Alternatives

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




                                          12-38
Channel Design Decisions

          Identifying Major Alternatives

Industrial distributors
•  Find distributors in different regions or
   industries
•  Exclusive distribution
•  Margin opportunities
•  Training
•  Support
                                           12-39
Channel Design Decisions

           Identifying Major Alternatives

Number of marketing intermediaries to use at
  each level
• Strategies:
  •   Intensive distribution
  •   Exclusive distribution
  •   Selective distribution


                                            12-40
Channel Design Decisions

         Identifying Major Alternatives

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 possible




                                          12-41
  Channel Design Decisions
           Identifying Major Alternatives

Exclusive distribution is a strategy in which
   the producer gives only a limited number of
   dealers the exclusive right to distribute its
   products in their territories
•  Luxury automobiles
•  High-end apparel

                                             12-42
Channel Design Decisions

          Identifying 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 producer’s products
•  Televisions
•  Appliances

                                            12-43
Channel Design Decisions

      Responsibilities of Channel Members

Producers and intermediaries need to agree on:
•  Price policies
•  Conditions of sale
•  Territorial rights
•  Services provided by each party


                                            12-44
Channel Design Decisions

        Evaluating the Major Alternatives

Each alternative should be evaluated against:
•  Economic criteria
•  Control
•  Adaptive criteria



                                            12-45
Channel Design Decisions

         Evaluating 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 changes

                                                    12-46
Channel Design Decisions

  Designing International Distribution Channels

Channel systems can vary from country to
   country

Must be able to adapt channel strategies to the
  existing structures within each country


                                          12-47
Channel Management Decisions


Channel management involves:
•  Selecting channel members
•  Managing channel members
•  Motivating channel members
•  Evaluating channel members



                                12-48
 Channel Management Decisions

            Selecting Channel Members

Selecting channel members involves determining
    the characteristics that distinguish the better
    ones by evaluating channel members
   •  Years in business
   •  Lines carried
   •  Profit record

                                             12-49
Channel Management Decisions

          Selecting Channel Members

Selecting intermediaries that are sales agents
   involves evaluating:
•  Number and character of other lines carried
•  Size and quality of sales force



                                        12-50
Channel Management Decisions

            Selecting Channel Members

Selecting intermediaries that are retail stores
   that want exclusive or selective distribution
   involves evaluating:
•   Store’s customers
•   Locations
•   Growth potential

                                           12-51
Channel Management Decisions

  Managing 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 members

                                         12-52
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 competitor’s
   products

                                          12-53
Public Policy and Distribution
Decisions


Benefits of exclusive distribution include:
•  Seller obtains more loyal and dependable
   dealers
•  Dealers obtain a steady and stronger seller
   support



                                         12-54
Public Policy and Distribution
Decisions

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 line

                                                12-55
Marketing Logistics and
Supply Chain Management


•   Nature and importance of logistics
    management in the supply chain
•   Goals of the logistics system
•   Major logistics functions
•   Need for integrated supply chain
    management


                                         12-56
Marketing Logistics and
Supply Chain Management

  Nature 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 profit

                                         12-57
Marketing Logistics and
Supply Chain Management

  Nature and Importance of Marketing Logistics

Marketing logistics involves:
•  Outbound distribution: Moving products from the
   factory to resellers and consumers
•  Inbound distribution: Moving products and materials
   from suppliers to the factory
•  Reverse distribution: Moving broken, unwanted, or
   excess products returned by consumers or resellers

                                              12-58
Marketing Logistics and
Supply Chain Management

  Nature and Importance of Marketing Logistics

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 consumers


                                         12-59
Marketing Logistics and
Supply Chain Management

  Nature and Importance of Marketing Logistics

Importance of logistics
•  Competitive advantage by giving customers better
   service at lower prices
•  Cost savings to the company and its customers
•  Product variety requires improved logistics
•  Information technology has created opportunities
   for distribution efficiency

                                             12-60
Marketing Logistics and
Supply Chain Management

          Goals of the Logistics System

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




                                          12-61
Marketing Logistics and
Supply Chain Management

           Major Logistics Functions

•   Warehousing
•   Inventory management
•   Transportation
•   Logistics information management



                                       12-62
Marketing Logistics and
Supply Chain Management

           Major Logistics Functions

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
  them
• Storage warehouses
• Distribution centers

                                       12-63
Marketing Logistics and
Supply Chain Management

          Major Logistics Functions

Storage warehouses are designed to store
   goods, not move them

Distribution centers are designed to move
   goods, not store them


                                      12-64
Marketing Logistics and
Supply Chain Management

         Major Logistics Functions

Inventory management balances carrying
   too little and too much inventory
•  Just-in-time logistics systems
•  RFID



                                     12-65
Marketing Logistics and
Supply Chain Management

             Major Logistics Functions

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
   control
                                                12-66
 Marketing Logistics and
 Supply Chain Management
           Major Logistics Functions

Transportation affects the pricing of products,
   delivery performance, and condition of the goods
   when they arrive
•  Truck
•  Rail
•  Water
•  Pipeline
•  Air
•  Internet
                                                12-67
Marketing Logistics and
Supply Chain Management

          Major Logistics Functions


Intermodal transportation combines two or
   more modes of transportation
•  Piggyback uses rail and truck
•  Fishyback uses water and truck
•  Airtruck uses air and truck


                                      12-68
Marketing Logistics and
Supply Chain Management

       Logistics 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 Management

        Integrated Logistics Management

Integrated logistics management is the
   recognition that providing customer service
   and trimming distribution costs require
   teamwork internally and externally
•  Cross-functional teamwork inside the
   company
•  Building partner relationships

                                          12-70
Marketing Logistics and
Supply Chain Management

        Integrated Logistics Management

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
   management


                                          12-71
Marketing Logistics and
Supply Chain Management

        Integrated Logistics Management

Building partner relationships refers to the
    understanding that one company’s
    distribution is another company’s supply
    system




                                          12-72
Marketing Logistics and
Supply Chain Management

          Integrated Logistics Management

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 cost
•  Allow the company to focus on its core business
•  Are more knowledgeable of complex logistics


                                                  12-73
PowerPoint created by:
                       Ronald Heimler

           Dowling College, MBA
           Georgetown University, BS Business
            Administration
           Adjunct Professor, LIM College, NY
           Adjunct Professor, Long Island University,
            NY
           Lecturer, California Polytechnic State
            University, Pomona, CA
           President, Walter Heimler, Inc.

				
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