Transcript Marketing channels and logistics networks

Kotler, Brown, Burton, Deans, Armstrong
Marketing 8e
Chapter 13:
Marketing channels and logistics networks
Chapter Objectives
1.
2.
3.
4.
Marketing logistics
networks.
Goals of marketing
logistics networks and the
main decision areas.
Marketing channels and
why intermediaries used.
Marketing channel
behaviour and
organisation.
5.
6.
7.
Channel design decisions
and channel objectives
and constraints.
Major channel
alternatives.
Selection, motivation and
evaluation of channel
members.
The nature of marketing logistics network
management
• Marketing logistics network refers to the system of
efficiently and effectively making and getting goods and
services to end-users. It is the end-users, or consumers,
who pull products through the network.
• At the upstream or input end of such networks are the
many suppliers of raw materials and components.
• In between, lie the conversion operations of the
manufacturer, the service provider and the experiential
provider.
Manufactured goods marketing
logistics network
Flows in marketing logistics networks
• Marketing logistics networks involve bidirectional flows of information, materials or
service content, title, payment and/or credit.
• Information systems play a critical role in
managing marketing logistics networks.
• Marketing logistics networks decisions,
including those related to marketing
channels, are among the most important in
management today.
Marketing logistics network management
• Marketing logistics network management involves
several activities—including sales forecasting,
production, inventory, distribution, and customers.
• Marketing logistics management: Managing the
network of players providing customer fulfilment
ranging from providers of inputs (raw materials,
components and capital equipment) and extending to
conversion operations, and including marketing channel
intermediaries and those involved in physical
movement of product.
Marketing logistics objectives
• Many organisations state their marketing
logistics objective as ‘getting the right goods
to the right places at the right time for the
least cost.’
• This objective does not provide practical
guidance, as no market-oriented logistics
system can simultaneously maximise
customer service and minimise logistics costs.
Marketing logistics objectives
• Cross-functional teams
– Logistics coordination takes a number of forms and may
require different methods to ensure that an integrated
system is in place.
• Building channel partnerships
– The members of a marketing logistics network are
inexorably linked. One member’s distribution network is
another’s supply network and channel partnerships may
take many forms.
• Third-party
– Most marketing organisations perform their own logistics
functions whilst some outsource this role to other
companies such as Fedex or DHL.
Marketing logistics network trade-offs
and marketing mix elements
Trade-offs
Marketing logistics decisions (1)
• Management seeks an optimal result in terms of
achieving a customer service level acceptable to the
customer at a cost that gives an optimal profit and cash
flow result to the company.
• Several decisions are involved:
– Cycle-time reduction—computer-aided design, computer-aided
manufacturing and just-in-time techniques have helped in
reducing manufacturing time, inventory levels, re-work levels
and other costs.
– Conversion operations location decisions—placing the operation
close to raw materials makes economic sense.
Marketing logistics decisions (2)
– Manufacturing and operations process decisions:
• The choice of manufacturing process may not be an option
for many firms. Most operations are a mixture of process
types.
– Order-processing decisions:
• Conversion operations and/or distribution of finished goods
begin with a customer order by people on a retail floor or
order department which can be placed in a variety of ways –
email, mail, telephone, fax, internet or EDI.
– Warehousing decisions:
• All companies must store their goods while they wait to be
sold. A storage function is needed because production and
consumption cycles rarely match.
Marketing logistics decisions (3)
– Inventory decisions:
• Inventory usually refers to finished goods stored as a buffer
or warehoused between production and intermediaries such
as wholesalers and retailers. The reduction of inventory
saves costs.
– Transport decisions:
• Marketers are involved in transport decisions as the choice
of carriers affects the pricing of products, delivery
performance and condition of goods when they arrive.
The nature of marketing channels
• A marketing channel is a set of
interdependent organisations involved in
the process of making a product or service
available to users.
• Why are marketing intermediaries used?
– A major part of any marketing logistics network
is the intermediaries used to bring the goods
and services to the marketplace. These
intermediaries are connected so as to form a
marketing channel.
– There can be cost benefits to using
intermediaries, especially when producers lack
resources.
Reducing channel transactions
Marketing channel functions
• Information—gathering and
distributing info
• Promotion—develop and
communicate offer
• Contact—finding &
communicating with
prospects
• Matching—shaping the offer
to match the buyer’s needs
• Negotiation—agree on
price and other offer terms
• Physical distribution—
transporting & storage
• Financing—acquiring &
using funds to do channel
tasks
• Risk taking—carrying out
channel tasks
You can eliminate a channel member (or level) but you cannot
eliminate the functions—someone has to do the task
Channel alternatives
Consumer marketing channel levels
• Channel 1 is a direct marketing channel.
• Channel 2 contains one intermediary level,
typically a retailer.
• Channel 3 contains two intermediary levels,
typically a wholesaler and a retailer.
• Channel 4 three intermediary levels—jobber
handles very small retailers
For B2B markets three alternatives generally apply
More levels = less control for the producer
Channels in the service sector
• Channels are not limited to just physical goods.
Utilities, such as electricity, involve the use of
middlemen (the electricity company) to sell the
product to you, the consumer.
• Other examples include government organisations,
such as education and health delivery systems.
Channel behaviour and organisation
• A marketing channel consists of dissimilar
organisations that have combined together for their
common good.
• Due to the very nature of a channel, conflict is likely
to arise between members.
• There can be vertical conflict, which is conflict
between different levels of the same channel or
horizontal conflict, between firms at the same level
of the channel.
Channel organisation
• Historically marketing channels were a loose
collection of independent firms—little concern for
overall channel performance, lacked strong
leadership, conflict and poor performance
• Vertical marketing network (VMN):
– A distribution channel structure in which
producers, wholesalers and retailers act as a
unified network—either one channel member
owns the others, has contracts with them, or
wields so much power that they all cooperate.
Conventional channel vs VMN
Major types of vertical marketing networks
Single
ownership
Contracts between
independent firms
Power lies with one
firm
Channel design decisions
• In designing a channel, manufacturers struggle
between what will work and what is ideal and
what is practical.
• Designing a channel network calls for
analysing consumer service needs, setting the
channel objectives and constraints, identifying
the major channel alternatives and evaluating
them.
Analysing consumer service needs
• Like most things in marketing, designing a
channel begins with the customer.
• Marketing channels can be thought of as
customer value delivery networks in which
each channel member adds value for the
customer.
• Designing marketing channels starts with
finding out what values consumers in various
target segments want from the channel.
Setting channel objectives and constraints
• Channel objectives should be stated in terms of the desired
service level of target consumers.
• The company should decide which segments to serve and
the best channels to use in each case.
• Company channel objectives are also influenced by the
nature of its products, company policies, intermediaries,
competitors and environment.
• Competitors’ channels need to be considered.
• Environmental factors such as economic decisions, etc.
affect channel design decisions.
Identifying the major alternatives
• A firm needs to identify the types of
intermediaries available—these might include
the following:
– Company sales force
– Manufacturer’s agency
– Industrial distributors
Number of marketing intermediaries
• Intensive distribution
– Product in as many outlets as possible—fast
moving consumer goods (FMCG)
• Exclusive distribution
– Limited number of outlets have exclusive
rights—luxury items—producer hopes for
stronger selling support and greater control
• Selective distribution
– A middle position—TVs, furniture, cameras
Evaluating the major alternatives
• Economic criteria—sales figures and costs.
• Control criteria—the agent may concentrate on the
customers who buy the largest volume of goods from its
entire mix of companies rather than those most
interested in a particular company’s goods.
• Adaptive criteria—each channel involves some long term
commitment and loss of flexibility
– A long term commitment should be superior to alternatives on
economic or control grounds.
Designing international marketing channels
• Each country has its own unique distribution network.
• Channel systems can vary greatly from country to
country.
• The distribution system may be complex and difficult to
penetrate, such as in Japan.
• Distribution systems in developing countries may be
scattered and inefficient.
• Countries with large populations may have very small
actual markets.
Channel management decisions
• Selecting channel members— • Evaluating channel
business experience, lines
members—sales, inventory
carried, growth & profit
levels, customer service,
record, reputation
cooperation in training &
promotional programs—
• Motivating channel
provide rewards
members—continuous effort,
higher margins, special deals, • Efficient customer
cooperative advertising, sales
response—‘automatic’
contests
supply of goods
Summary
• Marketing organisations are paying attention
to marketing logistics network management.
• This involves coordinating the activities of the
entire chain to achieve cost savings and deliver
added value to customers.
• The major functions include effective and
efficient conversion operations, order
processing, warehousing, inventory
management and transportation.