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Marketing Channels Marketing Channels and Supply Chain and Supply Chain

Management Management



Objectives Know why companies use distributionKnow why companies use distribution

channels and understand the functionschannels and understand the functionsthat these channels perform.that these channels perform.

Learn how channel members interactLearn how channel members interactand how they organize to perform theand how they organize to perform the

work of the channel.work of the channel. Know the major channel alternativesKnow the major channel alternatives

that are open to a company.that are open to a company.



Objectives Comprehend how companies select,Comprehend how companies select,

motivate, and evaluate channelmotivate, and evaluate channelmembers.members.

Understand the nature andUnderstand the nature and

importance of marketing logisticsimportance of marketing logistics

and integrated supply chainand integrated supply chain

management.management.



Dominates world¶sDominates world¶smarkets for heavymarkets for heavy

construction andconstruction and

mining equipment.mining equipment.

IndependentIndependentdealers are key todealers are key to

successsuccess

Dealer network isDealer network is

linked vialinked via

Caterpillar stressesCaterpillar stressesdealer profitability,dealer profitability,

extraordinary dealer extraordinary dealer

support, personalsupport, personal

relationships, dealer relationships, dealer performance andperformance and

full, honest, andfull, honest, and

frequentfrequent

communicationscommunications

Caterpillar Caterpillar

Case Study



Definit ion

Value Delivery NetworkValue Delivery Network

The network made up of theThe network made up of thecompany, suppliers, distributors, andcompany, suppliers, distributors, and

ultimately customers who ³partner´ultimately customers who ³partner´

with each other to improve thewith each other to improve theperformance of the entire system.performance of the entire system.



Channel choices affect other decisionsChannel choices affect other decisionsin the marketing mixin the marketing mix

Pricing, Marketing communicationsPricing, Marketing communications

A strong distribution system can be a A strong distribution system can be a

competitive advantagecompetitive advantage

Channel decisions involve longChannel decisions involve long--termtermcommitments to other firmscommitments to other firms

Natur e & Imp ort ance of

M arket ing Channel s



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How Channel Members Add ValueHow Channel Members Add Value Intermediaries require fewer contacts toIntermediaries require fewer contacts to

move the product to the final purchaser.move the product to the final purchaser.

Intermediaries help match productIntermediaries help match product

assortment demand with supply.assortment demand with supply. Intermediaries help bridge major time,Intermediaries help bridge major time,

place, and possession gaps that separateplace, and possession gaps that separateproducts from those who would use them.products from those who would use them.

Natu re & Imp ort ance of




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Key Functions Performed byKey Functions Performed by

Channel MembersChannel Members



InformationInformation

PromotionPromotion ContactContact

MatchingMatching

NegotiationNegotiation

Physical DistributionPhysical Distribution FinancingFinancing

Risk takingRisk taking



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Number of Channel LevelsNumber of Channel Levels

The number of intermediary levelsThe number of intermediary levelsindicates the length of a marketingindicates the length of a marketing

channel.channel.

Direct ChannelsDirect Channels

Indirect ChannelsIndirect Channels

Producers lose more control and faceProducers lose more control and face

greater channel complexity as additionalgreater channel complexity as additional

channel levels are added.channel levels are added.





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Channel Members Are ConnectedChannel Members Are Connected

Via A Variety of FlowsVia A Variety of Flows



Physical FlowPhysical Flow

Payment FlowPayment Flow

Information FlowInformation Flow

Promotion FlowPromotion Flow

Flow of OwnershipFlow of Ownership



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Channel ConflictChannel Conflict Occurs when channel members disagreeOccurs when channel members disagree

on roles, activities, or rewards.on roles, activities, or rewards.

Types of Conflict:Types of Conflict:

Horiz ontal c onflict:Horiz ontal c onflict: occurs among firms at theoccurs among firms at the

same channel level same channel level

Vertical c onflict:Vertical c onflict: occurs among firms at occurs among firms at

different channel levelsdifferent channel levels

Channel Behavior and

Organizat ion



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Vertical Marketing SystemsVertical Marketing Systems

Corporate VMSCorporate VMS Contractual VMSContractual VMS

M anufacturer M anufacturer--sponsored retailer franchisesponsored retailer franchise

systemsystem

M anufacturer M anufacturer--sponsored wholesaler franchisesponsored wholesaler franchisesystemsystem

ServiceService--firmfirm--sponsored retailer franchisesponsored retailer franchise

systemsystem

Administered VMS Administered VMS


Organizat ion



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Multichannel Distribution SystemsMultichannel Distribution Systems Also called hybrid marketing channels Also called hybrid marketing channels

Occurs when a firm uses two or moreOccurs when a firm uses two or more

marketing channelsmarketing channels

Hybrid marketing has many advantagesHybrid marketing has many advantages

Changing Channel OrganizationChanging Channel Organization

DisintermediationDisintermediation


Organizat ion



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Step 1:Step 1: Analyzing Consumer Needs Analyzing Consumer Needs Cost and feasibility of meeting needsCost and feasibility of meeting needs

must be consideredmust be considered

Step 2:Step 2: Setting Channel ObjectivesSetting Channel Objectives

Set channel objectives in terms of Set channel objectives in terms of

targeted level of customer servicetargeted level of customer service

Many factors influence channel objectivesMany factors influence channel objectives

Channel Design

Decisions



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Step 3:Step 3: Identifying Major AlternativesIdentifying Major Alternatives

Types of intermediariesTypes of intermediaries C ompany sales f orce, manufacturer¶sC ompany sales f orce, manufacturer¶s

agency, industrial distribut orsagency, industrial distribut ors

Number of marketing intermediariesNumber of marketing intermediaries

Intensive, selective, and exclusiveIntensive, selective, and exclusive

distributi ondistributi on

Responsibilities of channel membersResponsibilities of channel members

Channel Design

Decisions



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Designing International DistributionDesigning International Distribution

ChannelsChannels Global marketers usually adapt their Global marketers usually adapt their

channel strategies to structures that existchannel strategies to structures that exist

within foreign countrieswithin foreign countries

Key challenges:Key challenges:

M ay be c omplex or hard t o penetrateM ay be c omplex or hard t o penetrate

M ay be scattered, inefficient, or t otally M ay be scattered, inefficient, or t otally

lacking lacking

Channel Design

Decisions



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Selecting Channel MembersSelecting Channel Members

Identify characteristics that distinguish the bestIdentify characteristics that distinguish the bestchannel memberschannel members

Managing and Motivating Channel MembersManaging and Motivating Channel Members Partner relationship management (PRM) is keyPartner relationship management (PRM) is key

Evaluating Channel MembersEvaluating Channel Members Performance should be checked againstPerformance should be checked against

standardsstandards

Channel members should be rewarded or Channel members should be rewarded or replaced as dictated by performancereplaced as dictated by performance

Channel M anagem ent

Decisions



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E

xclusive distributionE

xclusive distribution Only certain outlets are allowed to carry aOnly certain outlets are allowed to carry a

firm¶s productsfirm¶s products

Exclusive dealingExclusive dealing

Exclusive territorial agreementsExclusive territorial agreements

Tying agreementsTying agreements

Publ ic Pol icy and

Dist ribut ion Decisions



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Why Greater Emphasis is BeingWhy Greater Emphasis is Being

Placed on Logistics:Placed on Logistics: Offers firms a competitive advantageOffers firms a competitive advantage

Can yield cost savingsCan yield cost savings

Greater product variety requires improved

Greater product variety requires improvedlogisticslogistics

Improvements in distribution efficiencyImprovements in distribution efficiencyare possible due to informationare possible due to informationtechnologytechnology

Market ing Logist ics and

S uppl y Chain Managem ent



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G

oals of the Logistics SystemG

oals of the Logistics System No system can both maximize customer No system can both maximize customer

service and minimize costs.service and minimize costs.

Firms must first weigh the benefits of Firms must first weigh the benefits of

higher service against the costs.higher service against the costs.

State goals in terms of a targeted level of State goals in terms of a targeted level of

customer service at the least cost.customer service at the least cost.





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Major Logistics FunctionsMajor Logistics Functions WarehousingWarehousing

Inventory ManagementInventory Management

TransportationTransportation

Logistics Information ManagementLogistics Information Management





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Transportation Carrier OptionsTransportation Carrier Options



TruckTruck

RailRail

Water Water

PipelinePipeline

Air Air

InternetInternet

Intermodal transportati on is bec oming Intermodal transportati on is bec oming

more c ommonmore c ommon



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Integrated Logistics ManagementIntegrated Logistics Management CrossCross--functional teamwork inside thefunctional teamwork inside the

company is criticalcompany is critical

Logistics partnerships are also builtLogistics partnerships are also built

through shared projectsthrough shared projects

Outsourcing of logistics firms to thirdOutsourcing of logistics firms to third--

party firms is becoming more commonparty firms is becoming more common



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