Transcript Chapter 3 Effects of IT on Strategy and Competition

Part 4
PRODUCT AND PRICE
DECISIONS
Dr. Chen, Principle of Marketing
10: Product, Branding, and
Packing Concepts
11: Business Markets and Buying
Behavior
12: Developing and Managing
Prices
13: Marketing Channels and
Supply-Chain Management
14: Retailing, Direct Marketing,
and Wholesaling
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Chapter 13
Marketing Channels and
Supply-Chain Management
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258
[email protected]
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Learning Objectives
 To describe the foundations of supply-chain
management
 To explore the role and significance of marketing
channels and supply chains
 To identify the intensity of market coverage
 To examine strategic issues in marketing channels,
including leadership, cooperation, and conflict
 To examine physical distribution as a part of supplychain management
 To explore legal issues in channel management
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BUSINESS VALUE & FOCUS:
IS Perspective
IS/E-BUSINESS
•SCM
•CRM
•BPR
•ERP
Customer
centric
Who are the customers?
Where are the customers?
Their purchasing habits
How to reach them?
SCM: Supply Chain Mgt.
CRM: Customer Relationship Mgt.
BPR: Business Process Reengineering
ERP: Enterprise Resources Planning
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Demands
Products
Value
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
Business Models & Strategies
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CRM Applications

Customer Relationship Management (CRM) systems store data
in a single database and link CRM processes to one another.
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Supply-Chain Management
 A set of approaches used to integrate the
functions of operations management, logistics
management, supply management and marketing
channel management so products are produced
and distributed in the right quantities, the right
locations and at the right time


The goal is to achieve optimal levels of efficiency and
service
The supply chain includes all entities that facilitate
product distribution and benefit from cooperative
efforts
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Foundations of the Supply Chain
Distribution
• Decisions and activities involved in making products
available to customers when and where they want to
purchase them
Supply chain
• Activities associated with the flow and transformation of
products from raw materials through to the end customer
Operations management
• Total set of managerial activities used by an organization to
goods _______,
services or both
transform resource inputs into ______,
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Foundations of the Supply Chain
Logistics management
• Planning, implementing, and controlling the efficient and
effective flow and storage of products and information from
the point of origin to consumption in order to meet
needs and ______
wants
customers’ _______
Supply management
• Processes that enable the progress of value from raw material
to final customer and back to redesign and final disposition
Supply chain management
• Set of approaches used to integrate the functions of operations,
logistics, supply, and marketing channel management
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Supply Chain Management – Technology Issues
 Technology
 Information technology has created almost seamless
distribution processes
sharing has reduced costs
 Information _________
 Increased speed, flexibility, and cooperation
 Technology has improved service
 Increasing number of innovative goods
 Increased involvement of firms in management supply
chain
 Effective supply-chain management is closely linked
market orientation
to a ________
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Role of Marketing Channels in Supply Chains
 Marketing channel: Group of individuals and
flow of products
organizations that direct the _____
from producers to customers within the supply
chain
 Primary role is to make products available at
the right time at the right place in the right
quantities.
 Providing customer satisfaction should be the
driving force behind marketing channel
decisions
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Role of Marketing Channels in Supply Chains
(cont.)
 Marketing intermediaries: Link producers to
other intermediaries or to ultimate consumers
through contractual arrangements or through the
purchase and resale of products
 Play
key roles in customer relationship management
(CRM)
Through distribution activities and maintaining databases
and information systems
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CRM Applications

Customer Relationship Management (CRM) systems store data
in a single database and link CRM processes to one another.
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Table 13.1 - Marketing Activities Performed by Intermediaries
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The Significance of Marketing Channels
 Marketing channel decisions influence the rest of the
marketing mix (product, promotion, and pricing)
 Channel decisions determine a product’s:


Market presence
Accessibility
 Effective marketing channels required for organizational
success
 Marketing channel decisions have strategic significance

Why?
long
Entail ____-term
commitments among a variety of firms
(e.g., suppliers, logistics providers, and operations firms)
and ________
difficult to change/undo marketing channel decisions
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Marketing Channels
Create Utility
 Time utility - Making products available when
the customer wants them
 Place utility - Making products available in
locations where customers wish to purchase
them
Possession utility - Customer has access to the
 __________
product to use or to store for future use
 Form utility - Assembling, preparing, or
otherwise refining the product to suit customer
needs
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Marketing Channels Facilitate
Efficiencies
Exchange ___________
 Marketing intermediaries can reduce the costs of
exchanges by performing certain services or
functions efficiently
 Intermediaries are specialists in facilitating
exchanges

Access to and control over important resources used in
the proper functioning of marketing channels
 Critics accuse wholesalers of being inefficient and
parasitic

While eliminating wholesalers may lower customer
prices it does not eliminate the need for the services the
wholesalers provide
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Figure 13.1 - Efficiency in Exchanges Provided by an Intermediary
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Figure 13.2 - Typical Marketing Channels for Consumer Products
Nabisco
(Wheat Thins
crackers)
Food Brokers
Supermarkets,
vendingmachine,
convenience
stores
Direct
Marketing
(Internet)
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Larger
retailers
Most of
consumer
products
Eg., Food
Industry
(Nabisco)
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Channels for
Consumer Products
 A long channel may be the most efficient
distribution channel for some consumer goods



When several channel intermediaries perform
specialized functions, cost may be lower than
when one channel member tries to perform them
all
Firms that specialize in certain elements of
producing a product or moving it through the
channel are more effective and efficient at
performing specialized tasks
Results in cost efficiencies and added value
_____ to
customers
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Figure 13.3 - Typical Marketing Channels for Business Products
Direct channel
(>50% of business
products, esp.
expensive
equipment)
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Indus. distri. takes
title to products and
carries inventories
and most effective
when a product has
broad market appeal
Agent does not
acquire title to the
products and usually
does not take
possession
When producer
wishes to cover a
large geographic
area
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Channels for Business Products
 Industrial distributor: Independent business
organization that takes title to industrial products
and carries inventories
 Usually sells standardized items, although some carry a
wide variety of items
 Cost effective when a product has broad market appeal, is
easily stocked and serviced, is sold in small quantities and is
needed on demand
 Manufacturers’ agent - Independent
businessperson who sells complementary products
from several producers in assigned territories and
is compensated through commissions
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Channels for Business Products
 Advantages of
industrial distributor
 Perform
required
selling activities in
local markets at a
lower cost to a
manufacturer
 Provide customers with
credit services
 Pass on market
information to
producers
 Reduce producers’
capital requirements
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 Disadvantages of
industrial distributor
 Difficult to control
 Not dependable to
promote brand
 Less likely to handle items
that need specialized
facilities or extra selling
efforts
 Lack specialized
knowledge necessary to
sell and service technical
products
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Multiple Marketing Channels and
Channel (Strategic) Alliances
Dual distribution
• Use of two or more marketing channels to distribute the
same products to the same target market
Strategic channel alliance
• Products of one organization are distributed through the
marketing channels of another
 Co-opetition
____________: a new strategy whereby companies cooperate and
compete at the same time with companies in their value net.
 Co-opetition is the strategy for creating the best possible outcome
for a business by optimally combining competition and cooperation.
 e.g, Covisint and General Motors, Ford, and DaimlerChrysler.
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Figure 13.4 - Selecting Marketing Channels
o Ineffective intermediaries
 Reconsider channel choice
o Target market
 income, gender
o Expensive & perishable
 Short channel
o Less expensive
 Long channel
o Fragile
 Short channel
o Size
 Larger (more channels
 Smaller (less channels
o Government regulation
 Modify existing channel
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o Competitive market
 Keep cost low
 Efficient channel
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Intensity of Market Coverage
Intensive
____________
distribution
• Uses all available outlets for distributing a product
• Appropriate for most convenience products
• Multiple channels may be used
_________
Selective distribution
• Uses only some available outlets to distribute a product
• Appropriate for shopping products
• Desirable when a special effort is important to customers
_________
Exclusive distribution
• Uses a single outlet in a fairly large geographic area to distribute
a product
• Suitable for products purchased infrequently, consumed over a
long period of time, or requiring service and information
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Intensity of Market Coverage
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Strategic Issues in Marketing Channels
Competitive priorities
in marketing channels
Strategic issues
Channel leadership,
cooperation, and
conflict
Channel Integration
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Supply-chain
decision cut
across all
functional areas
of business
Responsibilities,
rewards,
sanctions
Vertical vs.
horizontal
channel
integration
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Competitive Priorities in Marketing
Channels
 Supply chains can provide a competitive
advantage for many marketers
 Supply chain decisions cut across all functional
areas of a business
 Effective and efficient supply chain can sustain
a business in a variety of competitive
environments
 Inefficient
supply chains can lead to increased costs
 Integrated supply chains lead to a holistic view of
the supply chain
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Channel Leadership, Cooperation, and
Conflict
 Each channel member performs a specific role
in the distribution system
 Agrees
to accept rights, responsibilities, rewards,
and sanctions for nonconformity
 Channel partnerships can facilitate effective
supply-chain management
 Channel cooperation reduces wasted resources
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Channel Leadership
Channel captain (leader)
• Single leader who controls marketing channels
• May be a producer, wholesaler, or retailer (Walmart)
• Channel captains may establish channel policies and
coordinate development of the marketing mix.
Channel power
• How to attain desired objectives?
The channel captain must possess channel
power, the ability to influence another channel
member’s goal achievement.
Q: Can small retailers assume leadership roles?
Yes, when they gain strong customer loyalty in local or regional markets.
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Channel Cooperation
 Enables retailers, wholesalers, suppliers and
logistics providers to:
Speed up inventory replenishment
 Improve customer service
 Cut the costs of bringing products to customers

 Ways to improve channel cooperation
Marketing channel should be viewed as a unified supply
chain
 Members should work toward common objectives
 Channel member tasks must be clearly defined

 How to accomplish this goal? (one word)

TRUST
_______
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Channel Conflict
 Channel conflict occurs when:
 Self-interest
creates misunderstanding about role
expectations of channel members
 Communication is poor between channel members
 Intermediaries overemphasize competing products
or diversify into product lines traditionally handled
by other intermediaries
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Channel Integration
 Channel members either:
Combine and control activities
 Pass them to another channel member
 Channel functions may be transferred between intermediaries,
producers, and customers
 Vertical channel integration

A single
_____ channel member coordinates or manages all
activities to maximize efficiencies, resulting in an effective
and low-cost distribution system that does not duplicate
service.

Horizontal channel integration
An organization may integrate horizontally by merging with
other organizations at the same level in the marketing channel.
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Vertical Channel Integration
 Combines two or more stages of the channel under one
management


Participants coordinated efforts to reach a desired target
market
Often effective against competition because of increased
bargaining power and shared information and responsibilities
 Vertical marketing system (VMS): Single channel
member coordinates all activities to maximize
efficiencies



Corporate VMS - Combines all stages of the marketing
channel under a single owner
Administered VMS - Informal coordination achieves a high
level of interorganizational management
Contractual VMS - Members are linked by legal agreements
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Horizontal Channel Integration
 Combining organizations at the same level of
operation under one management
 Creates
economies of scale
 Large size may:
Decrease flexibility
Increase coordination problems
Require additional research and planning
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Physical Distribution in Supply-Chain Management
 Physical distribution (logistics): Activities used to
move products from producers to consumers and other
end users
Outsourcing - Contracting of physical distribution
 _____________
tasks to third parties

Most distribution activities can be outsourced to firms with
expertise in specific areas
Technology (e.g., CRM and Database) plays a large
 ___________
role in physical distribution considerations within
marketing channels
 Cycle time: Time needed to complete a process

Important goal of physical distribution
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Goals of Physical Distribution
Right
Goods
Cycle
Time
Right
Support
System
Right
Place
Goals of
Physical
Distribution
Right
Quantity
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Right
Price
Right
Time
Figure 13.5 - Proportional Cost of Each Physical
Distribution Function
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Order Processing
 Receipt and transmission of sales order
information
 Order
entry - Begins when customers place orders
 Order handling - Product availability and customer
credit-worthiness is verified; order assembly occurs
 Order delivery - Delivery is scheduled with carrier
 Electronic data interchange (EDI): Computer
technology to integrate order processing with
production, inventory, accounting, and
transportation
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Inventory Management
 Developing and maintaining adequate assortments of
products to meet customers’ needs






Stockouts - Shortages of products
Reorder point - Inventory level that signals the need to place a
new order
Reorder point =
safety stock
(order lead time x usage rate) + _______
Order lead time - Average time lapse between placing the
order and receiving it
Usage rate - Rate at which inventory is used/sold
Safety stock - Extra inventory a firm keeps
Just-in-time (JIT)
 An inventory-management approach in which supplies
arrive just when needed for production or resale
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RE-ORDER POINT
Reorder point =
safety stock
(order lead time x usage rate) + _______
If order lead time is 10 days, usage rate is 3 units per
day, and safety stock is 20 units. The reorder point is:
Reorder point = (10 * 3) + 20 = 50 units
A lead time is the latency between the initiation and execution of a
process. For example, the lead time between the placement of an order
and delivery of a new car from a manufacturer may be anywhere from 2
weeks to 6 months. In industry, lead time reduction is an important part
of lean manufacturing.
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Materials Handling
 Physical handling of tangible goods, supplies,
and resources
 Efficient materials handling can:
 Reduce
costs
 Decrease number of times a good is handled
 Improve customer service, increasing satisfaction
 Radio frequency identification (RFID) - Radio
waves used to track materials using scanners
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Materials Handling
 Common methods used in materials handling
 Unit
loading - One or more boxes are placed on a
pallet or skid
 Containerization - Consolidating many items into a
single, large container that is sealed at its point of
origin and opened at its destination
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Warehousing
 Design and operation of facilities for storing
and moving goods
 Creates
time utility
 Helps stabilize prices and the availability of
seasonal items
 Choice of warehouse is an important strategic
consideration
 Correct
warehouse can reduce transportation and
inventory costs and improve customer service
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Types of Warehouses
Private warehouses
________
• Company-operated facilities for storing and shipping
products
Public warehouses
_______
• Storage space and related physical distribution facilities that
can be leased by companies
• Field public warehouses
• Bonded storage
Distribution centers
moving rather
• Large, centralized warehouses that focus on _______
than storing goods
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Transportation
 Movement of products from where they are made to
intermediaries and end users

The most expensive physical distribution function
Transportation
Mode
Railroads
Heavy, bulky freight; long distances over land
Trucks
The most flexible schedules and routes; more expensive and
vulnerable to weather; size and weight restrictions
Pipelines
Most automated; dependable; contents subject to shrinkage
Waterways
Cheapest method; heavy, low-value nonperishables; markets
must be accessible by water
Airways
Fastest and most expensive; high-value, low-bulk, or
perishable goods
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Table 13.2 - Characteristics and Ratings of
Transportation Modes by Selection Criteria
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Coordinating Transportation
Intermodal transportation
• Two or more transportation modes are used in combination
• Containerization – uniform size:
• Piggyback (truck and rail)
• Fishyback (truck and water)
• Birdyback (truck and air)
Freight forwarders - outsourcing agencies
• Combine shipments from several firms (outsourcees) into
efficient lot sizes
Megacarriers
• Freight transportation firms (outsourcers) that provide
several modes of shipment
As the range of transportation alternatives expands, carriers also put greater
emphasis on customer service
_______ in order to gain a competitive advantage.
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Legal Issues in Channel Management
 The numerous federal, state, and local laws governing
distribution channel management in the US are based on
protecting
the principle that the public is best served by _________
competition and free trade.
 Dual distribution


Viewed as a threat to competition
Producers that have outlets should use prices that do not
severely undercut independent retailers’ prices
 Restricted sales territories

Courts have conflicting opinions on restricting intermediaries
to certain sales territories
Exclusive territories can promote competition among
dealers handling different brands
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Legal Issues in Channel Management
 Tying agreement: Supplier furnishes a product to a channel
member with the stipulation that the channel member
purchases other products


Full-line forcing - Supplier requires that channel members
purchase the supplier’s entire line to obtain any of the
supplier’s products
Accepted when the supplier is the only one able to provide
products of a certain quality
 Exclusive dealing: Manufacturer forbids an intermediary to
carry products of competing manufacturers

Considered legal if:
Deal blocks competitors from less than 15% of the market
Sales volume is small and the producer is smaller than the
retailer
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Dr. Chen, Principle of Marketing
Legal Issues in
Channel Management
 Refusal to deal
 Producers
have the right to choose channel
members
 Suppliers cannot legally refuse to deal with
wholesalers or dealers
These wholesalers or dealers resist policies that are
anticompetitive or in restraint of trade
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THE CONNECTED CORPORATION:
THE FUTURE OF ERP
 Data points where SCM, CRM, and ERP integrate.
 Lines between SCM, CRM, and ERP will continue to blur



Internet – continue to help organizations integrate data and
process across functional departments
Interface – customizable employee browsers
Wireless technology – support a mobile workforce
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Summary
Organizations
(control/around)
1960s
Organizations
Employees
Organizations
were the
exoskeleton
around
employees.
Organizations
Employees
(support/empower)Organizations
2022
Organizations
Employees
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will be
endoskeleton,
supporting the
work of people
on the exterior..
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Video Case 13.1
 TAZA CULTIVATES CHANNEL
RELATIONSHIPS WITH
CHOCOLATE
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 Summary

 Taza Chocolate is a small manufacturer of stone-ground
organic chocolate made in the classic Mexican tradition.
The company markets most of its products through U.S.
retailers, wholesalers, and distributors. Individual customers
around the world can also buy Taza chocolate directly from
the Taza website, and local customers can visit the
company’s food truck or factory. The case presents the
different marketing challenges that come with each form of
distribution. Taza also seeks to build positive relationships
across the entire supply chain.
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 1. Which distribution channels does Taza use, and why are
they appropriate for this company?

 Taza markets most of its products through U.S. retailers,
wholesalers, and distributors. Individual customers around
the world can also buy Taza chocolate bars, baking squares,
chocolate-covered nuts, and other specialty items directly
from the Taza website.
 If they live in Somerville, Massachusetts, they might even
find a Taza employee riding a “chococycle,” selling
products and distributing samples at an upscale food truck
festival or a weekend market festival. Selling to distributors
and retailers helps the company to sell a high volume of
product, while selling to individuals helps them to make
personal connections and reach a different set of customers.
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 2. In what ways does Taza benefit from selling directly to
some consumers? What are some potential problems of
selling directly to consumers?

 Selling directly to consumers helps the company to reach
people who aren’t near a retailer or who want a specific
product. Selling directly to consumers also helps to forge
relationships. However, it is less efficient to ship directly to
individuals and complicated to control the chocolate’s
quality (i.e., melting).
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 3. In what ways are Taza’s distribution efforts influenced
by the fact that its products are organic?

 Taza seeks to make personal connections with all the
certified organic growers who supply its ingredients. High
quality ingredients are important to the company, so Taza
believes that direct relationships with farmers ensure the
best product.
 Dealing directly with suppliers allows Taza to meet its
social responsibility goals while ensuring the kind of quality
that commands a premium price.
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