© 2001 south-western college publishing1 chapter ten marketing channels and logistics decisions...

© 2001 South-Western College

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CHAPTER TEN

MARKETING CHANNELS AND LOGISTICS DECISIONS

Prepared by Jack Gifford

Miami University (Ohio)


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MARKETING CHANNELS

A marketing channel can be viewed as a large canal or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer from the point of origin.

ORIGIN

FINAL CONSUMER


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MARKETING CHANNELS ACHIEVE EFFICIENCIES THROUGH SPECIALIZATION AND DIVISION OF LABOR

According to the concept of specialization and division of labor, breaking down a complex task into smaller, simpler ones and allocating them to specialists will create greater efficiency and lower average production costs. A number of channel members have evolved to provide

these efficiencies between manufacturers and final consumers. They often take the form of wholesalers and retailers.

M W R C


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MARKETING CHANNELS ALSO AID IN OVERCOMING DISCREPENCIES OF….

QUANTITY DISCREPANCY

ASSORTMENT DISCREPANCY

TEMPORAL DISCREPANCY

SPACIAL DISCREPANCY

• Manufacture in large quantities, but consume individually in smaller quantities.

•Manufacture water skis but individuals want a variety of boating supplies.

• Grow blueberries 3 months a year in Michigan, but wish to consume 12 months a year throughout the USA


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MARKETING CHANNEL MEMBERS HELP TO OVERCOME CONTACT INEFFICIENCIES

Manufacturer B

Manufacturer A

Manufacturer C

Manufacturer D

Manufacturer E

Manufacturer F

Manufacturer G

Consumer one stop shopping for any electronic or entertainment needs


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CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS

Retailers (Discussed in the next chapter)

Merchant wholesalers Facilitate the movement of products

and services from the manufacturer to producers, resellers, governments, institutions, and retailers

Take title to the goods they sell Usually operate one or more

warehouses

MMMMMMMM

Merchant Wholesaler

Govt.

Retailers

Resellers

Institutions


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CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS

Agents and Brokers Facilitate the movement of products

and services from the manufacturer to end users by representing retailers, wholesalers or manufacturers

Do not take title to the goods they sell

Little input into the terms of sale Receive a fee or commission based

upon sales volume

MMMMMMMM

Agents and Brokers

Retailers

Wholesalers

Manufacturers


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CHANNEL FUNCTIONS PERFORMED BY INTERMEDIARIES

Transactional functions Contacting and promoting Negotiating Risk-taking

Logistical functions Physically distributing Storing Sorting

Facilitating functions Researching Financing Marketing intelligence

Sorting out Breaking down a

heterogeneous supply into separate homogeneous stocks

Accumulation Combining similar stocks

into a larger homogeneous supply

Allocation Breaking a homogeneous

supply into smaller lot Assortment

Combining collections buyers want at one place


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CHANNEL STRUCTURES FOR CONSUMER PRODUCTS

DIRECT RETAILER WHOLESALER AGENT/BROKERCHANNEL CHANNEL CHANNEL CHANNEL

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents or Brokers

Producer Producer Producer Producer


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CHANNEL STRUCTURES FOR BUSINESS-TO- BUSINESS AND INDUSTRIAL PRODUCTS

DIRECT INDUSTRIAL AGENT/BROKER AGENT/BROKER CHANNEL DISTRIBUTOR CHANNEL INDUSTRIAL

Industrial Government

Industrial Industrial Industrial

Distributor Distributor

Wholesalers

Agents or Brokers

Producer Producer Producer Producer

Agents or Brokers


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ALTERNATIVE CHANNEL ARRANGEMENTS

Dual distribution

systems

Nontraditional

channels

Adaptive channels

Using more than one channel for similar goods or services

Internet, mail-order, or infomercials

Variations on traditional channels to meet a member need


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STRATEGIC CHANNEL ALLIANCES

One manufacturer shares another manufacturer’s distribution channels, creating savings through economies of scale for both

Strategic channel alliances are also common for selling in global markets where cultural differences, distance, or other barriers can inhibit channel establishment

CHINAKraft Cheeses

Yoplait Yogurt


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CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE

Market factors Target market

considerations Industrial or consumer

products Geographical location

and size of market

Product factors Security needs Special handling

requirements Product life cycle Perishable nature of

the product Sensitivity to fashion

obsolescence


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CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE

Producer factors Level of financial,

managerial and marketing resources

Breadth and depth of product line(s)

Level of control desired over pricing, image and customer support

Level of distribution intensity desired

Intensive

Selective

Exclusive


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CHANNEL RELATIONSHIPS

A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members. Channel power Channel control Channel leadership Channel conflict and cooperation Channel partnering

In the end, a channel is only as strong as its weakest link!


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LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Logistics = the process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption

Supply chain = the connected chain of all of the business entities, both internal and external, that perform or support the logistics function.

Supply chain management = integrates and coordinates the logistics and supply chain into a seamless process


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SUPPLY CHAIN MANAGEMENT INCLUDES... Management of the movement of information Movement of raw materials and parts from their

source to production site(s) Flow within and between manufacturing,

warehouses and distribution centers Forecasting demand and scheduling production Planning and coordinating the physical distribution

of finished goods to intermediaries and final buyers

Maintain the strategic partnerships of the chain


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BENEFITS OF SUPPLY CHAIN MANAGEMENT

Reduced costs of inventories, transportation, warehousing and packaging

Improved service levels Time based delivery Made-to-order merchandise Enhanced revenues Increased profits Improved positioning and

market share

0

10

20

30

40

50

60

70

80

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

US

Them


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BALANCING LOGISTICS SERVICE AND COST: THE TOTAL COST APPROACH

The art of effective and efficient logistics management is the balancing of the service levels desired by each member of the chain, and the associated costs of providing those services

Pre-ticketingJIT deliveryDrop ShipEtc.


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INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team

Sourcing and procurement

of raw materials and

supplies

Production scheduling

Order processing and

customer service

Inventory control systems

Warehousing and

materials-management

Transportation

Log

isti

cs I

nfo

rmat

ion

Sys

tem

SupplyChainTeam


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supplies



customer service


Warehousing and


Transportation

•Reduce costs through negotiation

•Enhanced vendor relations

•Information integration


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supplies



customer service


Warehousing and


Transportation

• Manufacturing customer “pull” environment

• Mass customization and built-to-order

• Individual orders electronically linked to manufacturing equipment


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supplies



customer service


Warehousing and


Transportation

• Advanced order processing system

• Excellent internal and external information exchange

• Electronic Data Interchange systems

• Efficient Consumer Response processes


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supplies



customer service


Warehousing and


Transportation

• Inventory control system• Materials requirement planning• Distribution resource planning

• Continuous replenishment• Vendor managed inventory• Efficient consumer response


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supplies



customer service


Warehousing and


Transportation

• Automated storage and retrieval systems• Materials handling system

• Receiving goods• Identify, sort and label• Place in temporary storage areas• Recall, selecting, picking, palletization


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supplies



customer service


Warehousing and


Transportation

• True cost

• Transit time

• Reliability

• Capability

• Accessibility

• Traceability

• Flexibility


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TRENDS IN LOGISTICS

Automation Outsourcing logistics functions Electronic distribution Service distribution

Focuses include:Minimizing wait timesManaging service capacity Improving delivery through new distribution

channels


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INTERNATIONAL SUPPLY CHAINS

One important dimension of channels of distribution omitted from the chapter is the discussion of international channels


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HOW ARE INTERNATIONAL CHANNELS DIFFERENT FROM DOMESTIC CHANNELS?

Political and legal constraints and regulations multiply The flow of documentation is more complex and extensive Channels tend to be longer and slower The more developed the nation, the more levels of

distribution usually exist Power within a channel moves downward as a country

becomes economically developed Some foreign middlemen are less risk oriented, poorly

financed and may not respect contractual agreements Language, culture, and geographic distances make smooth

channel relationships more difficult

© 2001 south-western college publishing1 chapter ten marketing channels and logistics decisions...

Documents

number of channel members

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smaller quantities

movement of products

large quantities

form of wholesalers

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heterogeneous supply