Transcript here - Pearson Canada

Chapter 12
Distribution
Channels
and Supply Chain
Management
Copyright © 2008 Pearson Education Canada
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Case Study
Caterpillar
• Dominates world’s
markets for heavy
construction and mining
equipment.
• Independent dealers are
key to success
• Dealer network is linked
via computers
Copyright © 2008 Pearson Education Canada
• Caterpillar stresses
dealer profitability,
extraordinary dealer
support, personal
relationships, dealer
performance and full,
honest, and frequent
communications
12-3
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-4
Principles of Marketing, Seventh Canadian Edition
Supply Chains and the Value
Delivery Network
• A supply chain consists of upstream and
downstream partners
• Marketers have traditionally focused on the
downstream side
– Supply chain – make-and-sell view
– Demand chain – sense-and-respond-view
• 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.
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Nature & Importance of
Distribution Channels
• Marketing channel
– Set of interdependent organizations involved
in the process of making a product or service
available for use or consumption by the
consumer or business user.
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Nature & Importance of
Marketing Channels
• Channel choices affect other decisions in
the marketing mix
– Pricing, marketing communications
• A strong distribution system can be a
competitive advantage
• Channel decisions involve long-term
commitments to other firms
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Nature & Importance of
Marketing Channels
• How Channel Members Add Value
– Fewer contacts.
– Match product assortment demand with supply.
– Bridge, time, place, and possession gaps that separate
products from users.
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
How Channel Members Add Value
• Channel members add value by bridging
the major time, place, and possession
gaps.
• Key functions:
–
–
–
–
–
Information
Promotion
Contact
Matching
Negotiation
Copyright © 2008 Pearson Education Canada
–
–
–
–
12-9
Physical Distribution
Financing
Risk taking
Environmental
sustainability
Principles of Marketing, Seventh Canadian Edition
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.
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Channel Members are Connected
Via a Variety of Flows
• Physical Flow
• Payment Flow
• Information Flow
• Promotion Flow
• Flow of Ownership
Copyright © 2008 Pearson Education Canada
12-11
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-12
Principles of Marketing, Seventh Canadian Edition
Channel Behaviour 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
Copyright © 2008 Pearson Education Canada
12-13
Principles of Marketing, Seventh Canadian Edition
Channel Behaviour and
Organization
• Conventional Distribution Channels
– Consist of one or more independent channel
members
– Each seeking to maximize its own profits
– Often result in poor performance
• Vertical Marketing Systems
– 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
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Channel Behaviour and
Organization
• Vertical Market System
(VMS)
• Integrates successive
stages of production and
distribution under single
ownership – channel
ownership is established
through common
ownership
• Coordination and conflict
through regular
organizational channels
– Corporate VMS
– Contractual VMS
– Administered VMS
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Channel Behaviour and
Organization
• Vertical Market System
(VMS)
• Individual firms who join
through contracts
• Franchise organizations
– Corporate VMS
– Contractual VMS
– Administered VMS
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– Manufacturer-sponsored
retailer franchise system
– Manufacturer-sponsored
wholesaler franchise
system
– Service-firm-sponsored
retailer franchise system
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Principles of Marketing, Seventh Canadian Edition
Channel Behaviour and
Organization
• Vertical Market
System (VMS)
• Leadership through
the size and power of
dominant channel
members
• Leadership could be
manufacturer or
retailer
– Corporate VMS
– Contractual VMS
– Administered VMS
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Channel Behaviour and
Organization
• Horizontal Marketing Systems
– Companies at the same level work together with
channel members
• Multichannel Distribution Systems
– Also called hybrid marketing channels
– Occurs when a firm uses two or more marketing
channels
• Changing Channel Organization
– Disintermediation
Copyright © 2008 Pearson Education Canada
12-18
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-19
Principles of Marketing, Seventh Canadian Edition
Channel Design Decisions
• Step 1: Analyzing Consumer Needs
– Cost and feasibility of meeting needs must be
considered
• Step 2: Setting Channel Objectives
– Set channel objectives in terms of targeted level of
customer service
– Many factors influence channel objectives
• Nature of the company (size/financial position) and its
products
• Marketing intermediaries
• Competition
• Marketing environment
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Channel Design Decisions
• Step 3: Identifying Major Alternatives
– Types of intermediaries
• Company sales force, manufacturer’s agency,
industrial distributors
– Number of marketing intermediaries
• Intensive, selective, and exclusive distribution
– Responsibilities of channel members
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Principles of Marketing, Seventh Canadian Edition
Channel Design Decisions
• Step 4: Evaluating Major Alternatives
– Economic criteria
– Control issues
– Adaptive criteria
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Principles of Marketing, Seventh Canadian Edition
Channel Design Decisions
• Designing International Distribution
Channels
– Global marketers usually adapt their channel
strategies to structures that exist within
foreign countries
– Key challenges:
• May be complex or hard to penetrate
• May be scattered, inefficient, or totally lacking
Copyright © 2008 Pearson Education Canada
12-23
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-24
Principles of Marketing, Seventh Canadian Edition
Channel Management Decisions
• Selecting channel
members
• Managing and
motivating channel
members
• Evaluating channel
members
Copyright © 2008 Pearson Education Canada
• Which characteristics
are important?
– Years in business
– Lines carried
– Growth and profit
record
– Cooperativeness and
reputation
– Type of customer
– Location
12-25
Principles of Marketing, Seventh Canadian Edition
Channel Management Decisions
• Selecting channel
members
• Managing and
motivating channel
members
• Evaluating channel
members
Copyright © 2008 Pearson Education Canada
• Partner relationship
management (PRM)
for long-term
partnerships
• Software available to
coordinate members
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Principles of Marketing, Seventh Canadian Edition
Channel Management Decisions
• Selecting channel
members
• Managing and
motivating channel
members
• Evaluating channel
members
Copyright © 2008 Pearson Education Canada
• Check channel
performance of:
–
–
–
–
Sales
Inventory
Customer delivery
Promotion and
training
– Customer service
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Principles of Marketing, Seventh Canadian Edition
Public Policy and
Distribution Decisions
• 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
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Public Policy and
Distribution Decisions
• 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
Copyright © 2008 Pearson Education Canada
12-29
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-30
Principles of Marketing, Seventh Canadian Edition
Marketing Logistics and Supply
Chain Management
• Marketing logistics (physical distribution).
– Tasks involved in planning, implementing,
and controlling the physical flow of materials,
final goods and related information
• Supply chain management.
– Managing upstream and downstream valueadded flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Marketing Logistics and Supply
Chain Management
• Marketing Logistics
–
–
–
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Outbound distribution
Inbound distribution
Reverse distribution
Involves the entire supply chain management
system
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
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
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Marketing Logistics and Supply
Chain Management
• Goals of the Logistics System
– No system can both maximize customer
service and minimize costs.
– The goal of marketing logistics should be to
provide a targeted level of customer service at
the least cost.
– Firms must first weigh the benefits of higher
service against the costs.
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Marketing Logistics and Supply
Chain Management
• Major Logistics Functions
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–
–
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Warehousing
Inventory Management
Transportation
Logistics Information Management
Copyright © 2008 Pearson Education Canada
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Principles of Marketing, Seventh Canadian Edition
Marketing Logistics and Supply
Chain Management
Transportation Carrier Options
• Truck
• Rail
• Water
• Pipeline
• Air
• Internet
Intermodal transportation
is becoming more common
Copyright © 2008 Pearson Education Canada
12-36
Principles of Marketing, Seventh Canadian Edition
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
– Outsourcing of logistics firms to third-party
firms is becoming more common
Copyright © 2008 Pearson Education Canada
12-37
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution channels and
discuss the functions that these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a
company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada
12-38
Principles of Marketing, Seventh Canadian Edition