c hapter 12 marketing channels and supply chain management

CCHAPTER HAPTER 1212

Marketing Channels Marketing Channels and Supply Chain and Supply Chain

ManagementManagement

Copyright 2007, Prentice-Hall Inc. 10-2

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.

Roadmap: Previewing the Concepts


Background Caterpillar dominates the

world’s markets for heavy construction and mining equipment.

Independent dealers are key to success, providing customer service, market intelligence, and more.

Distribution system is a competitive advantage.

Building Partnerships Distribution system is built

on a base of mutual trust and shared dreams.

Caterpillar stresses dealer profitability; extraordinary dealer support; personal relationships; dealer performance; and full, honest, and frequent communications.

CATERPILLARCATERPILLAR – The Vital Role of – The Vital Role of DealersDealers


Supply Chains, Distribution Channels, and Value Delivery

Networks Supply Chains

– Producing & making products available to buyers requires building relationships with “upstream” and “downstream” supply chain partners.

Value Delivery Networks– Partnering among the company, suppliers,

distributors, and customers improves the performance of the whole system.

Distribution Channel: – Set of interdependent organizations involved in

making a product or service available for use or consumption by the consumer or business user.


Innovative DistributionCalyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, cutting a week or more off the time it takes flowers to reach consumers via conventional retail channels.

Marketing in Action


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

How Channel Members Add Value


Figure 10-1How Distributors Reduce the Number of

Channel Transactions


Transaction Fulfilling:– Physical

distribution– Financing– Risk taking

Transaction Completing:– Information– Promotion– Contact– Matching– Negotiation

Key Channel Functions


Figure 10-2Consumer and Business Marketing Channels


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.

Channel Behavior


Channel Conflict

Goodyear’s conflicts with its independent dealers have caused hard feelings and flattened the firm’s replacement tire sales.

Marketing in Action


Branded goods using the Wolfgang Puck, T.G. I. Friday’s, Taco Bell, Emeril’s, and Starbuck’s names are now being sold in grocery stores.Look at the items at right. Which stands the greatest risk of causing channel conflict? Why?

Let’s Talk!


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.

Vertical Marketing System


Figure 10-3Conventional Marketing Channel Vs. Vertical

Marketing System


Corporate VMS– Corporation owns production and distribution.– Coordination and conflict through regular

organizational channels. Contractual VMS

– Individual firms who join through contracts.– Includes franchise organizations.

Administered VMS– Leadership through the size and power of

dominant channel members.– Leadership could be manufacturer or retailer.

Types of Vertical Marketing Systems


Franchise Organizations

Manufacturer-Sponsored Retailer Franchise– Ford and its independent

franchised dealers Manufacturer-Sponsored

Wholesaler Franchise– Coca-Cola’s licensed bottlers

Service-Firm Sponsored Retailer Franchise– McDonald’s, Avis, and

Holiday Inn

What type of franchises are illustrated above?

http://www.franchise.org/


Horizontal Marketing System– Two or more companies at one level join

together to follow a new marketing opportunity.

Multichannel Distribution System– Occurs when a single firm sets up two or

more marketing channels to reach one or more customer segments.

– Also called hybrid marketing system.

Innovations in Marketing Systems


Figure 10-4Marketing Channels


Disintermediation

Occurs when product and service Occurs when product and service producers cut out intermediaries producers cut out intermediaries and go directly to final buyers, or and go directly to final buyers, or

when radically new types of when radically new types of channel intermediaries displace channel intermediaries displace

traditional ones.traditional ones.

The Internet has made the disintermediation of many traditional retailers possible.


Disintermediation

Black & Decker chose to avoid disintermediation by not using the Internet to sell their products, but rather direct consumers to stores that carry the firm’s products.

Marketing in Action


Analyzing Consumer Needs– Firm must balance needs against costs

and consumer price preferences. Setting Channel Objectives

– State objectives in terms of targeted levels of customer service.

Identifying Major Alternatives Evaluating the Major Alternatives

Channel Design Decisions


Types of Intermediaries– Company sales force

Employed directly by the firm in outside sales or insides sales capacity.

– Manufacturer’s agency Independent firms whose sales people

handle several companyies’ products simultaneously

– Industrial distributors

Identifying Major Alternatives


Number of intermediaries– Intensive distribution

Stocking the product in as many outlets as possible.

– Exclusive distribution Granting a limited number of outlets the

exclusive right to sell a firm’s brands in their territory.

– Selective distribution The use of more than one, but fewer than all

outlets that are willing to carry a product.



Selective Distribution

Maytag uses selective distribution like many furniture and appliance manufacturers.

The “Where to Buy” page on their Web site assists buyers in finding stores that carry the Maytag brand.

Marketing in Action

http://www.maytag.com


Let’s Talk!

The Roomba by iRobot is a self-propelled vacuum cleaner that avoids falling off of stairs, vacuums along walls and furniture, and recharges itself. Prices range from $150 - $399.

How many intermediaries would be appropriate for this product? Why?


Channel Member Responsibilities:– The terms and responsibilities of

intermediaries must be agreed upon by the producer and intermediary.

Agreements should cover:– Pricing policies– Conditions of sale– Territorial rights and territorial boundaries– Specific services to be performed



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.

Evaluating the Major Alternatives


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.

International Channel Decisions


Channel Management Decisions

Selecting channel members– Many factors should

be considered. Managing and

motivating channel members– Partner relationship

management Evaluating channel

members

GE’s CustomerNet is a partner relationship management tool that offers dealers 24/7 access to GE’s prices and product availability.


Public Policy and Distribution Decisions

Exclusive distribution

Exclusive dealing Exclusive

territorial agreements

Tying agreements

If Xerox required every business who bought or leased their copiers to also buy their brand of paper, it would be a tying agreement.


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

Marketing Logistics


Figure 10-5Supply Chain Management


Goals of the Logistics System:– Deliver a targeted level of customer service at the

least cost. Major Logistics Functions:

– Warehousing– Inventory

management – Transportation– Logistics

information management

Goals of the Logistics System andMajor Logistics Functions

Hasbro recognizes the importance of superior logistics. Learn more by watching the snippet.

Video Snippet


Warehousing

How many, what types, and where?

Storage warehouses

Distribution centers

Automated warehouses

Some warehouses automate the storage and retrieval of palletized loads.


Inventory Management

Must strike a balance between too much and too little inventory.

Just-in-time logistics systems

RFID or Smart Tag technology

RFID technology could make the entire distribution chain automated, resulting in significant cost savings.


RFID – The Wave of the FutureKey benefits of RFID include fewer sales lost due to stock-outs and reduced labor costs.

RFID Systems highlights these facts in their ad, and suggests in a different ad execution that retailers will soon mandate supplier use of RFID. Learn more:

Marketing in Action

www.rfidsystemsinc.com/


Transportation

Trucks Railroads Water carriers Pipelines Air Internet Intermodal

transportation


Intermodal Transportation

Intermodal transportation combines two or more modes of transportation. Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water and rail; Airship = air and water.

Marketing in Action


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

Integrated Logistics Management


Third-Party Logistics

UPS’s Supply Chain Solution Group can help a firm shorten its supply chain and convert the supply chain into a strategic asset.

Marketing in Action


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.

Rest Area: Reviewing the Concepts

c hapter 12 marketing channels and supply chain management

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