Transcript Ch. 13

Marketing Channels and
Supply Chain Management
Chapter 13
Objectives
Know why companies use distribution
channels and understand the functions
that these channels perform.
Learn how channel members interact
and how they organize to perform the
work of the channel.
Know the major channel alternatives that
are open to a company.
13- 1
Objectives
Comprehend how companies manage
(select, motivate, and evaluate) channel
members.
Understand the nature and importance
of marketing logistics and integrated
supply chain management.
13- 2
c
Caterpillar
Dominates world’s
markets for heavy
construction and
mining equipment.
Independent
dealers are key to
success
Dealer network is
linked via
computers
Caterpillar stresses
dealer profitability,
extraordinary dealer
support, personal
relationships, dealer
performance and full,
honest, and frequent
communications
13- 3
What is a Distribution Channel?
Your idea of distribution
channels
A set of interdependent
organizations (intermediaries)
involved in the process of
making a product or service
available for use or consumption
by the End-User.
13- 4
Why are Marketing Intermediaries
Used?
Greater efficiency in making goods
available to target markets.
Offer the firm more than it can achieve
on it’s own through the intermediaries:
 Contacts
 Experience
 Specialization
 Scale of operation
Match supply and demand.
13- 5
Figure 13-1:
How Channel Members
Add Value
13- 6
Nature & Importance of
Marketing Channels
How Channel Members
Add Value to You
 Intermediaries
 Require
fewer contacts to
move the product to the
final purchaser.
 Help match product
assortment demand
with supply.
 Help bridge major time,
place, and possession gaps
13- 7
Distribution Channel Functions
• All
Use Up Scarce Resources
• All May Often Be Performed Better Through Specialization
• All Can Often Be Shifted Among Channel Members
Risk Taking
Information
Financing
Promotion
Physical
Distribution
Contact
Negotiation
Matching
13- 8
Distribution Channels
Manufacturer
Flow
Wholesaler
physical
information
Jobber
promotion
payment
Retailer
Consumer
ownership
Figure 13-3:
Conventional Versus Vertical
Marketing System
13- 10
Types of Vertical Marketing Systems
Greater
Corporate
Common Ownership at Different
Levels of the Channel
Degree
of
Direct
Control
Contractual
Contractual Agreement Among
Channel Members
Administered
Lesser
Leadership is Assumed by One or
a Few Dominant Members
13- 11
Vertical Marketing Systems
Vertical
Marketing
Systems (VMS)
Corporate
VMS
Wholesaler
Sponsored
Voluntary Chain
ManufacturerSponsored
Retailer
Franchise System
Contractual
VMS
Retailer
Cooperatives
ManufacturerSponsored
Wholesaler
Franchise System
Administered
VMS
Franchise
Organizations
Service-FirmSponsored
Franchise System
13- 12
Recent Changes
Downstream Channel + Upstream
Channel
 Value Delivery Network
 The network made up of the company,
suppliers, distributors, and ultimately
customers who “partner” with each
other to improve the performance of the
entire system.
13- 13
Channel Behavior and
Organization
Horizontal
Marketing Systems
Nestle and General Mills work together to
market cereal outside of North America
 Two or more
companies at one
level join together to
follow a new
marketing
opportunity.
13- 14
In building its
value delivery
network, Palm
manages a whole
community of
suppliers,
assemblers,
resellers and
complementors
who must work
effectively
together.
13- 15
Figure 13-4:
Multichannel Distribution
System
13- 16
Channel Behavior and
Organization
Multichannel
Distribution Systems
 Also called hybrid
marketing channels
 Occurs when a firm uses
two or more marketing
channels
 Hybrid marketing has
many advantages
13- 17
Channel Behavior and
Organization
Changing Channel Organization
 Disintermediation has hurt many
established companies
13- 18
Channel Behavior and
Organization
Disintermediation:
Traditional brick and
mortar travel agencies
face competition from
online travel agencies,
airlines, and reverse
auction web sites such
as Priceline.
See how
Sunflower
Travel has
tried to adapt
13- 19
Channel Design Decisions*
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Responsibilities of Channel Members
Evaluating the Major Alternatives
Selecting the Best Alternative
13- 20
Three Evaluative
Criteria
Economic Criteria
Control Criteria
Adaptability Criteria
13- 21
Types of Middleman
Company Salesforce
 Assign own salespeople to
territory
Manufacturer's Agency
 Hire an independent firm with
salespeople
(Industrial) Distributors
 find distributors to buy and carry
your product
Number of Channel Levels
 The number of intermediary levels
indicates the length of a
marketing channel.
 Direct Channels
 Indirect Channels
 Producers lose more control and
face greater channel complexity
as additional channel levels are
added.
13- 23
Figure 13-2a:
Consumer
Marketing Channels
13- 24
Figure 13-2b:
Business
Marketing Channels
13- 25
Intensity of distribution
many
few
Intensive Distribution
 stock products in as many outlets as
possible
Selective Distribution
 select a number of dealers from those
willing to carry product
Exclusive Distribution
 give limited number of dealers exclusive
rights to distribute
Channel Design Decisions
Step 1: Analyzing
Consumer Needs
 Cost and feasibility
of meeting needs
must be considered
13- 27
Channel Design Decisions
Step 2:
Setting Channel Objectives
 Set channel objectives in terms of
targeted level of customer service
 Many factors influence channel
objectives
13- 28
GEICO’s channel objectives led them to sell
direct via telephone and the Web in order to
serve those who are looking to save money.
Geico
13- 29
Channel Design Decisions
Step 3:
Identifying Major Alternatives
 Types of
Intermediaries



Company sales
force
Manufacturer’s
agency
Industrial
distributors
13- 30
Channel Design Decisions
Step 3:
Identifying Major Alternatives
 Number of marketing intermediaries
Intensive distribution
 Selective distribution
 Exclusive distribution

 Responsibilities of channel members
13- 31
Channel Design Decisions
Step 4: Evaluating
Major Alternatives
 Economic criteria

Sales, costs,
profitability
 Control issues
 Adaptive criteria
13- 32
Channel Management Decisions
Motivating
FEEDBACK
Selecting
Evaluating
13- 33
Distributor Selection
Criteria
Financial Health
Sales and Market factors
 Knowledge of the market
 Market coverage
 Number and quality of sales
personnel
Previous Success (or Enthusiasm for
the product)
13- 34
Channel Management
Decisions
Evaluating Channel
Members
 Performance
should be checked
against standards
 Channel members
should be rewarded
or replaced as
dictated by
performance
13- 35
Channel Behavior and
Organization
Channel Conflict
 Occurs when channel members
disagree on roles, activities, or
rewards.
 Types of Conflict:
Horizontal conflict: occurs among
firms at the same channel level
 Vertical conflict: occurs among firms
at different channel levels

13- 36
Physical Distribution
Market Logistics
planning, implementing, and
controlling the physical flow of
materials and final goods from point
of origin to the end user.
Marketing Logistics and
Supply Chain Management
Marketing Logistics
 Outbound distribution
 Inbound distribution
 Reverse distribution
 Involves the entire supply chain
management system
13- 38
Figure 13-5:
Supply Chain
Management
13- 39
Thought for the Day
supply chain distribution accounts for
50 cents of every dollar spent
promotion accounts for only 2 cents!
Goals of the Logistics
System
Higher Distribution Costs;
Higher Customer Service
Levels
Goal:
To Provide a Targeted Level of Customer Service
at the Least Cost.
Lower Distribution Costs;
Lower Customer Service
Levels
13- 41
Logistics Systems
Costs
Order Processing
Minimize Costs of
Attaining Logistics
Objectives
Submitted
Processed
Shipped
Logistics
Transportation
Functions
Warehousing
Storage
Distribution
Water, Truck,
Rail,
Pipeline & Air
Inventory
When to order
How much to order
Just-in-time
13- 42
Transportation Modes
Rail
Nation’s largest carrier, cost-effective
for shipping bulk products, piggyback
Truck
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value
goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
Air
High cost, ideal when speed is needed or to
ship high-value, low-bulk items
13- 43
Choosing Transportation
Modes
Checklist for Choosing
Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.
13- 44
BusinessNow
Celarix Video Clip
Arranging
transportation
for goods can
be challenging
Click the picture above to play video
13- 45
Integrated Logistics Management
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork, Both Inside the Company and Among All
the Marketing Channel Organizations.
Cross-Functional Teamwork inside
the Company
Building Channel Partnerships
Third-Party Logistics
13- 46
Many companies
use sophisticated,
system-wide supply
chain management
software, such as
that which is
available from
Oracle and other
software providers.
13- 47