Transcript Types of Marketing Channels

Copyright © 2005 Pearson Education Canada Inc.
Marketing Channels and
Supply Chain Management
•Chapter 13
•Powerpoint slides
•Extendit! version
•Instructor name
•Course name
•School name
•Date
Principles of Marketing: 6th Canadian Edition
Learning Objectives
13.2
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• After studying this chapter, you should be able to:
– Explain why companies use distribution channels and discuss
the functions that 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 and importance of
physical distribution
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
Opening Vignette: Caterpillar
13.3
• Fifty year old company, selling over 300 products, $26 billion annually
• Has 27% market share of global construction business, nearly double
that of nearest competitors Komatsu and Deere combined
• Distributes its products only through independent dealer network
• Key success factors: high quality products, innovation, flexible,
efficient, and lean manufacturing, and highly responsive to customers
• Partnership with dealers based on:
– Dealer profitability
– Extraordinary dealer support
– Communications
– Dealer performance
– Personal relationships
• Their distribution system is a
sustainable competitive advantage
Principles of Marketing: 6th Canadian Edition
Important Terminology
13.4
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• Marketing (distribution) channel: set of interdependent
organizations involved in making a product available for use or
consumption; from the producer down
• Supply chain: includes upstream
supplier partners, as well as
downstream channel partners
– Make and sell view
• Value-delivery network: all
those who partner with each other to
improve the performance of the supply
chain system; including the company,
suppliers, distributors, and even,
customers
– Sense and respond view
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
Using Marketing Intermediaries
13.5
• Intermediaries reduce the number of contacts needed to cover a market
• Add value by transforming assortments made by producers into
assortments desired by consumers
• Help to complete transactions:
– Information
– Promotion
Figure 13.1
– Contact
– Matching
– Negotiation
• Fulfill completed transactions:
– Physical distribution
– Financing
– Risk taking
Principles of Marketing: 6th Canadian Edition
Consumer Marketing Channels
13.6
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• Channel level: layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer
– Direct: no intermediary levels
– Indirect: containing one or more intermediary levels
Figure 13.2
• Flows between
levels:
•
•
•
•
•
Physical
Ownership
Payment
Information
Promotion
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
Channel Behaviour
13.7
• While distribution channels are made up of companies, they are still
run by people, trying to get along with other people
• Channel conflict: disagreements between marketing channel
members on goals and roles-who should do what and for what rewards
– Horizontal conflict: between firms on the same channel level
(dealers complaining of undue competition)
– Vertical conflict: between
firms on different levels of
the channel (Air Canada and
agents)
• Some conflict encourages
healthy competition which
produces innovation and better
performance
• Too much conflict becomes
dysfunctional
Principles of Marketing: 6th Canadian Edition
Types of Marketing Channels
13.8
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• Conventional distribution channel:
– One or more independent producers, wholesalers, and retailers
– Each seeking to maximize its own profits
Figure 13.4
– How they go about doing this will differ
• Vertical marketing system (VMS):
– Producers, wholesalers, and retailers
– Act as a unified system
– One channel member owns, has
contracts with, or has so much power
that they all cooperate
– Benefits should include greater control,
less conflict, and economies of scale due
to the size of the system
Principles of Marketing: 6th Canadian Edition
Types of Marketing Channels (continued)
13.9
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– Example of VMS: Franchise organization:
• A contractual VMS in which a franchiser links several stages in
the production-distribution process
• Franchises dominate the Canadian
retail industry; 40% of retail is spent
at a franchise
• More about franchising in Chapter 14
Figure 13.4
• Horizontal marketing system:
– Airline industry alliances
– Two or more companies at one level
join together to follow a new
marketing opportunity
– May be temporary or permanent
Principles of Marketing: 6th Canadian Edition
Types of Marketing Channels (continued)
13.10
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• Multichannel distribution system: a single firm sets up two
or more marketing channels to reach one or more customer segments
– Allows for reaching customers from different directions
– Examples ; The Bay and IBM
• Changing Channel Organisation - Disintermediation:
– Displacement of traditional resellers by new types of
intermediaries or by selling direct; a potential downside to
multichannel systems (Airline companies, financial institutions)
Figure 13.5
– But - Someone needs to
perform the distribution
function and value added
activities that consumers
are looking for
– The most efficient should
do the job
Principles of Marketing: 6th Canadian Edition
Setting Channel Objectives
13.11
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• Channel objectives influenced by:
– To determine the type of channel system it wants
– Nature of the company (size/financial position, experience0 and its
products (ensure expediency of delivery)
– Competition (going direct and not through the same intermediaries as
competitors - Betonel)
• Types of
– Marketing environment
• Identifying major
alternatives:
– Types of intermediaries
– Number of intermediaries
– Responsibilities of each
channel member
intermediaries:
– Company sales
force
– Manufacturer’s
agency
– Industrial
distributors
Principles of Marketing: 6th Canadian Edition
13.12
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Number of Intermediaries
• Also known as intensity of distribution
• Intensity chosen should match how consumers buy the product
Intensive
distribution
As many outlets
as possible
Convenience
goods
Selective
distribution
More than one, but
not all outlets
Shopping
goods
Exclusive
distribution
One outlet per
market area
Specialty
goods
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
Channel Management Decisions
13.13
• Selecting channel members: companies will vary in their ability to
attract qualified intermediaries
– Criteria: Channel member history, reputation, financial position,
location, cooperativeness, future growth potential, other product
lines carried, and facility
• Managing & motivating:
– Partner relationship
management (for long-term
relationship)
– Programs, contests, sales
incentives (trips for best
retailers)
– Cooperative advertising
(common advertising)
– Product/sales training
(ensures quality of sales
people)
• Evaluating channel
members:
• Performance standards
for sales, market share,
customer service levels,
inventory carried, and
participation in company
programs
Principles of Marketing: 6th Canadian Edition
Public Policy and Distribution Decisions
13.14
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• Exclusive dealing: sellers cannot demand exclusivity for their
product from resellers if it can be proven that it will lessen
competition or create a monopoly
• Exclusive territories: sellers may grant exclusive territories, but
may have trouble demanding that resellers deal only within that
exclusive territory
• Tying agreements:
– Demanding that resellers buy
and/or stock all products within
a product line, as a condition of
doing business
– Not illegal but a source of much
channel conflict
Principles of Marketing: 6th Canadian Edition
Public Policy and Distribution Decisions
13.15
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• Dealers’ rights: producers are free to select dealers, but are
limited in their ability to terminate dealers; they must show cause,
and cannot drop dealers who refuse to participate in doubtful legal
arrangements
• Sources of supply: ethical concerns
over supply sources from countries with
human rights violations or use the proceeds
to fund armed conflict
• Purchasing and shelving policies:
– The payment of monies for the right to
be a supplier (bribery)
– Slotting allowances: payments to
retailers for shelf space
– Payments to retailers to force them to
sell the sellers products (generics)
Principles of Marketing: 6th Canadian Edition
13.16
Supply Chain Management
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• Marketing logistics (physical distribution): planning,
implementing, and controlling the physical flow of materials, final
goods and related information
• Supply chain management (a more complete view of
distribution): managing upstream and downstream value-added
flows of materials, final goods, and related information among
suppliers, the company, resellers, and final consumers
Figure 13.6
Principles of Marketing: 6th Canadian Edition
Supply Chain Management (continued)
13.17
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• Goal: provide a targeted level of customer service at the least cost
– Providing customer service costs money; maximizing service
levels at the lowest cost does not go together
• Major logistics functions:
– Warehousing: deciding how many and what type of storage and
distribution centres are needed to move the products
• Distribution centre: a large, highly automated warehouse designed
to receive goods from suppliers, take orders, fill them efficiently, and
deliver goods to customers as quickly as possible
Figure 13.6
Principles of Marketing: 6th Canadian Edition
Supply Chain Management (continued)
13.18
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• Major logistics functions:
– Inventory management: the challenge is to balance customer
needs with the cost of carrying inventory; ideally the company
carries just enough inventory to meet the demands of customers
– Transportation: speed costs money, how fast do you need it?
• Size and weight will determine the possible choices, but cost
and urgency will likely influence the ultimate choice
• Choice of rail, trucks, water, pipeline, air, and the Internet
Figure 13.6
Principles of Marketing: 6th Canadian Edition
In Conclusion…
13.19
Copyright © 2005 Pearson Education Canada Inc.
• The learning objectives for this chapter were:
– Explain why companies use distribution channels and discuss
the functions that 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 and importance of
physical distribution
Principles of Marketing: 6th Canadian Edition