Transcript Distribution Channels and Logistics Management

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.
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Objectives
Comprehend how companies
select, motivate, and evaluate
channel members.
Understand the nature and
importance of marketing logistics
and integrated supply chain
management.
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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
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Definition
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.
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In building its
value delivery
network, Palm
manages a whole
community of
suppliers,
assemblers,
resellers and
complementors
who must work
effectively
together.
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Nature & Importance of
Marketing Channels
Channel choices affect
other decisions in the
marketing mix
A strong distribution
system can be a
competitive advantage
Channel decisions involve
long-term commitments to
other firms
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Figure 13-1:
How Channel Members
Add Value
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Nature & Importance of
Marketing Channels
How Channel Members
Add Value
 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
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Nature & Importance of
Marketing Channels
Key Functions Performed
by Channel Members
Information
Promotion
Contact
Matching
Negotiation
Physical
Distribution
Financing
Risk taking
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Figure 13-2a:
Consumer
Marketing Channels
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Figure 13-2b:
Business
Marketing Channels
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Nature & Importance of
Marketing Channels
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.
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L.L. Bean sells direct via the Internet,
telephone, and mail catalogs
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Nature & Importance of
Marketing Channels
Channel Members Are Connected
Via A Variety of Flows
Physical
Information
Flow
Flow
Payment
Promotion
Flow
Flow
Flow of Ownership
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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

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Figure 13-3:
Conventional Versus Vertical
Marketing System
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Channel Behavior and
Organization
Vertical Marketing Systems
 Corporate VMS
 Contractual VMS



Manufacturer-sponsored
retailer franchise system
Manufacturer-sponsored
wholesaler franchise system
Service-firm-sponsored
retailer franchise system
 Administered VMS
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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.
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Figure 13-4:
Multichannel Distribution
System
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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
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Channel Behavior and
Organization
Changing Channel Organization
 Disintermediation has hurt many
established companies
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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
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Channel Design Decisions
Step 1: Analyzing
Consumer Needs
 Cost and feasibility
of meeting needs
must be considered
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Channel Design Decisions
Step 2:
Setting Channel Objectives
 Set channel objectives in terms of
targeted level of customer service
 Many factors influence channel
objectives
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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
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Channel Design Decisions
Step 3:
Identifying Major Alternatives
 Types of
Intermediaries



Company sales
force
Manufacturer’s
agency
Industrial
distributors
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Manufacturer’s Agencies
In-Depth
Manufacturer’s Agents:
Compensation:
Also called reps, agents,
manufacturers’
representatives, sales
agencies or even brokers.
Work on commission and
pay their own expenses.
What Do They Do?
Act as outsourced providers
of field sales services to
multiple manufacturers of
complementary products.
Employment Terms:
Contractual agreement to
be the exclusive “agent” of
the manufacturers they
represent in a given
territory, market, or for
specific accounts.
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Manufacturer’s Agencies
In-Depth
Benefits: Reps’ View
 Manufacturer’s agents
can leverage their time
so that sales for multiple
manufacturers can be
made to the same
customer, often during
the same sales call.
 Multiple products means
reps can offer the best
product to suit needs
Benefits: Firm’s View
 Sales costs vary
predictably with sales
 Lower sales, turnover,
and training costs
 Increased sales;
experienced sales force
 Flexibility; immediate
access to markets
 Enables systems sales
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Discussion Question
What are the key
disadvantages that a
producer firm might
face when relying on
manufacturer’s
agents?
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Channel Design Decisions
Step 3:
Identifying Major Alternatives
 Number of marketing intermediaries
Intensive distribution
 Selective distribution
 Exclusive distribution

 Responsibilities of channel members
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Channel Design Decisions
Step 4: Evaluating
Major Alternatives
 Economic criteria

Sales, costs,
profitability
 Control issues
 Adaptive criteria
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Channel Design Decisions
Designing International
Distribution Channels
 Global marketers usually
adapt their channel strategies
to structures that exist within
foreign countries
 Key challenges:
 Channels may be complex
or hard to penetrate
 Channels may be
scattered, inefficient, or
totally lacking
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Channel Management
Decisions
Selecting Channel
Members
 Identify characteristics that
distinguish the best channel
members
Managing and Motivating
Channel Members
 Partner relationship
management (PRM) is key
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Channel Management
Decisions
Evaluating Channel
Members
 Performance
should be checked
against standards
 Channel members
should be rewarded
or replaced as
dictated by
performance
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Public Policy and
Distribution Decisions
Exclusive distribution
 Only certain outlets are
allowed to carry a firm’s
products
Exclusive dealing
 Exclusive territorial
agreements
 Tying agreements
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Marketing Logistics and
Supply Chain Management
Marketing Logistics
 Outbound distribution
 Inbound distribution
 Reverse distribution
 Involves the entire supply chain
management system
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Figure 13-5:
Supply Chain
Management
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Marketing Logistics and
Supply Chain Management
Why Greater Emphasis is Being Placed
on Logistics:
 Offers firms a competitive advantage
 Can yield cost savings
 Greater product variety requires improved
logistics
 Improvements in distribution efficiency are
possible due to information technology
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Marketing Logistics and
Supply Chain Management
Goals of the Logistics System
 No system can both maximize
customer service and minimize
costs.
 Firms must first weigh the
benefits of higher service
against the costs.
 State goals in terms of a targeted
level of customer service at the least cost.
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Marketing Logistics and
Supply Chain Management
Major Logistics Functions




Warehousing
Inventory Management
Transportation
Logistics Information Management
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Marketing Logistics and Supply
Chain Management
Transportation Carrier Options
Truck
Rail
Water
Pipeline
Air
Internet
Intermodal transportation is becoming
more common
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BusinessNow
Celarix Video Clip
Arranging
transportation
for goods can
be challenging
Click the picture above to play video
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Marketing Logistics and
Supply Chain Management
Integrated Logistics
Management
 Cross-functional
teamwork inside the
company is critical
 Logistics
partnerships are also
built through shared
projects
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Many companies
use sophisticated,
system-wide supply
chain management
software, such as
that which is
available from
Oracle and other
software providers.
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Discussion Question
Western Publishing
Group partnered with
Toys “R” Us to create
mini-bookstore sections
within each store.
Can you think of other
examples of similar
logistics partnerships?
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Marketing Logistics and
Supply Chain Management
 Outsourcing of
logistic firms to
third party firms is
becoming more
common
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