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Chapter 13 Marketing Channels and Supply Chain Management.

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1 Chapter 13 Marketing Channels and Supply Chain Management

2 13-2 Chapter Objectives 1.Describe the types of marketing channels and roles they play in marketing strategy. 2.Outline the major channel strategy decisions. 3.Describe the concepts of channel management, conflict, and cooperation. 4.Identify and describe the different vertical marketing systems. 5.Explain the roles of logistics and supply-chain management in an overall distribution strategy. 6.Identify the major components of a physical distribution system. 7.Compare the major modes of transportation. 8.Discuss how transportation intermediaries and combined transportation modes can improve physical distribution. 9.Identify and briefly describe the different types of warehousing.

3 13-3 The Role of Marketing Channels in Marketing Strategy Channels provide the means by which the firm moves the goods and services it produces to ultimate users Facilitate the exchange process by cutting the number of contacts necessary Adjust for discrepancies in the market’s assortment of goods and services via sorting Standardize exchange transactions Facilitate searches by both buyers and sellers

4 13-4 Types of Marketing Channels Marketing channel Marketing channel: system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel Marketing intermediary Marketing intermediary: wholesaler or retailer that operates between producers and consumers or business users; also called a middleman Wholesaler Wholesaler: marketing intermediary that takes title to goods and then distributes these goods further; also called a jobber or distributor

5 13-5 U.S. FoodService U.S. FoodService A wholesaler [called a distributor in the industry] is a marketing intermediary

6 13-6 Types of Marketing Channels Types of Marketing Channels Consumer Goods

7 13-7 Types of Marketing Channels Types of Marketing Channels Business Goods Services

8 13-8 Direct Selling Direct Selling Direct channel Direct channel: marketing channel that moves goods directly from a producer to ultimate user Direct selling Direct selling: strategy designed to establish direct sales contract between producer and final user

9 13-9 Dell Dell A direct seller of computers

10 13-10 Channels Using Marketing Intermediaries Channels Using Marketing Intermediaries Producer to wholesaler to retailer to consumer Producer to wholesaler to business user Producer to agent to wholesaler to retailer to consumer Producer to agent to wholesaler to business user Producer to agent to business user

11 13-11 Dual Distribution Dual Distribution: Network that moves products to a firm’s target market through more than one marketing channel IBM’s direct marketing channel ( for a product also sold through other channels.

12 13-12 Reverse Channels Reverse Channels: Channels designed to return goods to their producers

13 13-13 Channel Strategy Decisions Selection of a Marketing Channel Factors which impact the selection of a marketing channel include: Market factors Product factors Organizational factors Competitive factors

14 13-14 Factors influencing Marketing Channel Strategies Characteristics of Short Channels Characteristics of Long Channels Market factors Business usersConsumers Geographically concentratedGeographically diverse Extensive technical knowledge and regular servicing required Little technical knowledge and regular servicing not required Large ordersSmall orders Product factors PerishableDurable ComplexStandardized ExpensiveInexpensive

15 13-15 Characteristics of Short Channels Characteristics of Long Channels Producer factors Manufacturer has adequate resources to perform channel functions Manufacturer lacks adequate resources to perform channel functions Broad product lineChannel control important Limited product lineChannel control not important Competitive factors Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products

16 13-16 Short Marketing Channels: Characteristics of Perishable Products

17 13-17 Long Marketing Channels: Characteristics of Products with Low unit Costs

18 13-18 Determining Distribution Intensity Determining Distribution Intensity Distribution intensity: number of intermediaries through which a manufacturer distributes its goods

19 13-19 Intensive distribution Intensive distribution: channel policy in which a manufacturer of a convenience product attempts to saturate the market Wrigley’s uses an Intensive distribution strategy for its products

20 13-20 Selective distribution Selective distribution: channel policy in which a firm chooses only a limited number of retailers to handle its product line

21 13-21 Exclusive distribution Exclusive distribution: channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area This Redken hair care product made only available at its NYC outlet

22 13-22 Legal problems of exclusive distribution Legal problems of exclusive distribution Exclusive-dealing agreement: arrangement between manufacturer and e-marketing intermediary that prohibits the intermediary from handling competing product lines Closed sales territories: exclusive geographic selling region of a distributor Tying agreement: Arrangement that requires a marketing intermediary to carry items other than those they want to sell

23 13-23 Who Should Perform Channel Functions? Who Should Perform Channel Functions? Fundamental principle that governs channel decisions Channel members can shift responsibilities for the performance of certain marketing functions, but they cannot eliminate central functions

24 13-24 Channel Management and Leadership Channel Captain Channel Captain: a dominant and controlling member of a marketing channel An example of channel leadership

25 13-25 Channel Conflict Channel Conflict Horizontal Conflict  Most often, horizontal conflict causes sparks between different types of marketing intermediaries that handle similar products  Sometimes results from disagreements among channel members at the same level

26 13-26 Vertical Conflict Vertical Conflict  Channel members at different levels find many reasons for disputes  Example: when retailers develop private brands to compete with producers’ brands or when producers establish their own retail outlets or WWW Sites The Grey Market The Grey Market  Grey Good: product made abroad under license from a U.S. firm and then sold in the U.S. market in competition with that firm’s own domestic output [prescriptions]  Viewed by producers as undesired competition

27 13-27 Achieving Channel Cooperation Achieving Channel Cooperation Channel Cooperation, achieved via effective cooperation among channel members, is the desired antidote to channel conflict It is Best achieved when all channel members regard themselves as components of the same organization

28 13-28 Vertical Marketing Systems Vertical marketing system Vertical marketing system (VMS): planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration – manufacturer owns their retailers [T-Mobile] Backward integration – distributor buys a manufacturing company [Sysco]

29 13-29 Administered marketing system Administered marketing system: VMS that achieves channel coordination when a dominant channel member exercises its power Example: Goodyear sells tires through independently owned dealers, but controls the stock that the dealers carry

30 13-30 Contractual marketing system Contractual marketing system: VMS that coordinates channel activities through formal agreements among channel members like: Wholesaler-Sponsored Voluntary Chains [IGA Grocery Stores] Retail Cooperatives [Ace Hardware] Franchises  Subway Franchises An example of a contractual marketing system

31 13-31 Snap-on Snap-on A franchise marketer of hand tools

32 13-32 Logistics and Supply Chain Management Supply (value) chain Supply (value) chain: sequence of suppliers that contributes to the creation and delivery of a good or service Upstream management Downstream management

33 13-33 Figure 13.6 Figure 13.6 The Supply Chain of a Manufacturing Company

34 13-34 Ryder Ryder A member of the supply chain, helps firms control their delivery costs

35 13-35 Radio Frequency Identification (RFID) Radio Frequency Identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance Enterprise Resource Planning Enterprise Resource Planning Software system that consolidates data among a firm’s units

36 13-36 Logistical Cost Control Logistical Cost Control Third party (contract) logistics firm: company that specializes in handling logistics activities for other firms Penske A third party logistics firm

37 13-37 Physical Distribution A company’s physical distribution system contains the following elements: Customer Service Transportation Inventory Control Protective packaging and materials handling Order Processing Warehousing

38 13-38 Figure 13.7 Allocation of Physical Distribution Expenditures

39 13-39 Transportation Transportation Classes of Carriers Classes of Carriers  Common carriers move freight via all modes of transportation for the general public  Contract carriers do not serve the general public  Private carriers do not offer services for hire, but provide transportation services solely for internally generated freight

40 13-40 Major Modes of Transportation Major Modes of Transportation Railroads Motor Carriers Water Carriers Pipelines Air Freight Freight Forwarders and Supplemental Carriers Intermodal Coordination

41 13-41 Comparison of Transport Modes Comparison of Transport Modes ModeSpeedDepend- ability in Meeting Schedules Frequency of Shipments Availabil- ity in Different Locations Flexibility in Handling Cost RailAverage Low HighAverage WaterVery slowAverageVery lowLimitedVery highVery low TruckFastHigh Very extensive AverageHigh PipelineSlowHigh Very limited Very lowLow AirVery fastHighAverage LowVery high

42 13-42 Containerized Shipping: Increasing Efficiency in the Supply Chain

43 13-43 Warehousing Warehousing Storage warehouse – long term [frozen raw ingredients] Distribution warehouse – shorter term [finished products] Automated Warehouse Technology Automated Warehouse Technology  Distribution costs can be cut and customer service improved by automating warehouse systems

44 13-44 Warehouse Locations Warehouse Locations  Major logistics decision involving the number and location(s) of storage facilities  Two cost categories influence the choice: Warehousing and materials- handling costs Delivery costs from warehouse to customers

45 13-45 Inventory Control Systems Inventory Control Systems Important since firms need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Just-in-time (JIT) production Vendor-managed inventory (VMI) Order Processing Order Processing Stockout: order for a product that is unavailable for shipment or sale

46 13-46 Protective Packaging and Materials Handling Protective Packaging and Materials Handling Materials Handling: set of activities that move production inputs and other goods within plants, warehouses, and transportation terminals  Unitizing: process of combining individual materials into large loads for easy handling [pallet loads]  Containerization: process of combining several unitized loads into a single, well-protected load

47 13-47 End of Chapter Thirteen

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