1. Ch. 14: Channel Relationships and Supply Chains

2. Rationale for Channel Design
Channels Can Create Efficiency
Direct: V x C
transactions
Via Reseller:
V + C transactions V1 V2 V3 V4 C1 C2 C3 C4 V1 V2 V3 V4 C1 C2 C3 C4 RS
V = Vendors; C=Customers; RS=Reseller

3. Marketing Channels & Economic Utility
Form
Time
Place
Possession

4. Marketing Channels & Economic Utility: Form
The usable quantity or mode of the product most preferred by the customer

5. Marketing Channels & Economic Utility: Time
The availability of the product when the customer needs it

6. Marketing Channels & Economic Utility: Place
“Locational Convenience,” the availability of the product where the customer needs it

7. Marketing Channels & Economic Utility: Possession
Methodology by which the customer obtains ownership or the right to use of the product or service

8. Marketing Channel Flows Supplier to Customer
Exhibit 14-2a
Manufacturers/Suppliers
Sales and Marketing Flows
Product & Ownership Flows
Ancillary Members of the Channel (Facilitating Agencies)
Missionary Sellers/Field Marketing
Install, Train, & Service Flows
Transportation
Direct Sellers
Financing
Specialized Installation & Service Providers
Distributors
Promotion
Manufacturers’ Representatives
Value-added Resellers
Insurance
Real estate/ Storage
End Users
This Exhibit is not intended to imply that all channels contain all flows shown or that all possible flows are shown here.

9. Marketing Channel Flows Customer to Supplier Manufacturers/Suppliers
Exhibit 14-2b
Manufacturers/Suppliers
Missionary Sellers/Field Marketing
Specialized Installation & Service Providers
Financial Institutions
Direct Sellers
Distributors
Manufacturers’ Representatives
Value-added Resellers
Payment Flows
Customer and Market Information Flows
End Users
This Exhibit is not intended to imply that all channels contain all flows shown or that all possible flows are shown here.

10. “Backward” Vertical Integration
Henry Ford developed his own iron ore mining operation, steel mills, glass factories, tire manufacturing, and so on

11. “Forward” Vertical Integration
Apple owns its own retail channels

12. Vertical Integration Advantages Economies of Scale Complete Control
Reliability and Availability
Disadvantages
Lack of Flexibility
Significant Investment
Slow to Innovate (Myopia)

13. Functional Spin-Off Alternative to Vertical Integration
Ancillary services are provided most efficiently by experts in each service
a basic application of the principle of division of labor

14. MARKETING/ DISTRIBUTION
A Value Network
Exhibit 14-5
MARKETING/ DISTRIBUTION
CHANNEL
CUSTOMER
SUPPLIER
OFFERING
SUPPLY CHAIN
SUPPLIER PARTNERS

15. Value Networks
“Fast Vertical Integration” create a lot of the advantages without the disadvantages
Greater flexibility
Lower initial investment
Fast response to market

16. Distributors Serve Buyers and Sellers
Exhibit 14-4
Buyer Benefits
Seller Benefits
Buy and hold inventory.
Provide fast delivery.
Combine supplier outputs (reduce discrepancy of assortment).
Provide market segment-based product assortment.
Share credit risk.
Provide local credit.
Share selling risk.
Provide product information.
Forecast market needs.
Assist in buying decisions.
Provide market information.
Anticipate needs.

17. Business Logistics
The management of movement, sorting, and storage of goods  an important tactical function

18. Supply Chain Management
Creation of value for customers through effective and efficient flow of materials, components, finished goods, and services
Extends from raw materials through to end use customers

19. Physical Distribution Concept
System design aimed at minimizing costs while maintaining a given level of customer service through the simultaneous management of three elements
Inventory
Transportation
Warehousing

20. Physical Distribution Concept: Inventory Management
Often largest cost associated with logistics system
Inventory implies carrying and finance charges and costs of storage and creating assortment
Tools to manage include, JIT inventory and manufacturing methods and facility location, and so on
Lower inventory quantities lead to lower costs but can result in more costly transportation needs and/or stockouts

21. Physical Distribution Concept: Transportation
Tradeoff of speed versus cost
Slower transportation implies larger safety stocks
If transportation costs are minimized with out regard necessary inventory levels, carrying costs increase

22. Physical Distribution Concept: Warehousing
Two primary functions of warehousing
Product flow/movement (associated with the creation of assortment) (Distribution Centers)
Product storage (Warehouses)

23. Logistics of a Competitive Edge
As technology and product advantages become more fleeting, efficient supply chains have become a competitive advantage
Best designs match “the way a customer buys” in that the marketing channel is differentially invisible to the customer

24. Differentially Invisible
Customer should not be required to adapt to the vendor
The process should be invisible

25. Channel Design – Dual Distribution
Different market segments require different channel design
Example: Goodyear Tires
Manufacturer
Multi-brand Distributor
Logistics Provider
Large Customer – Direct Channel
Integrated Retailers
Independent Retailers
Goodyear may or may not use the same distributor/logistics provider as the independent stores.
Auto Manufacturers – GM, Ford, Honda, etc.
Goodyear Sponsored/ Franchised Dealers
Sears, Wheel Works, etc.

26. Channel Design – Multi-Distribution
Customers within a segment with similar needs will expect locational convenience
Example: Honda Automobiles
Manufacturer
Dealer/Retailer
Dealer/Retailer
Dealer/Retailer
Dealer/Retailer
Number of dealers with same channel design relates to the desired intensity of distribution.

27. Channel Design Reduce the Discrepancy of Assortment
Channels convert manufacturers’ product lines to product assortments desired by particular market segments

28. When to Use Distributors
Favoring
Product requires local stock.
Product line is small, unable to support direct sales.
Product is somewhat generic.
Product has low unit value.
Product is near end of PLC.
Customers are widely dispersed.
Local repackaging, sizing, or fabrication is required.
Market has many small-volume buyers.
Product requires extensive sales effort directed at buying professionals.
Start-up venture or established company is entering a new market.
Competition Uses distributors.
Customers prefer distributors.
Not Favoring
Product is highly customized.
Product is new or innovative.
Product is technically sophisticated.
Significant missionary selling is required.
Manufacturer requires control over product application.
Large buyers are geographically concentrated.
Exhibit 14-6

29. Selecting and Caring for Distributors
Determine right distributor for your marketing plan
Ask customers who they recommend
Train and support them well, at both your facilities and theirs
Make calls on them
Make calls with them

30. Bases of Power in Marketing Channels
“Soft” Bases of Power
Expertise
Information
Identification
“Hard” Bases of Power
Reward
Coercion
Legitimate

31. Control and Cooperation in Vertical Marketing Systems
Exhibit 14-7
Increasing centralized control
Contractual systems
Corporate vertical marketing systems(CVMS)
Administered systems
Conventional Systems
Horizontal Sprawl
Value Networks
Value Networks are almost totally dependent on relationships that create cooperation and win-win scenarios. The assembled team creates a solution to a particular customer need. The team will be unified in the approach at that customer, but there is not necessarily any agreement to participate together beyond the immediate collaboration. Today’s may be part of a competing network tomorrow.
Conventional systems, not a vertical channel patterns, are similar to administered channels but without agreement on goals. Intermediaries are independent businesses with concerns only for their own operations.
CVMS were likely developed when there were no other channel alternatives. In a CVMS all functions and flows are performed by (or contracted by) the integrator. CVMS have the greatest degree of centralized control but less flexibility. Many Goodyear tire dealers are forms of a forward integrated CVMS; Sears is a backward integrated CVMS.
Contractual systems include wholesaler and retailer sponsored voluntary chains, and franchise Systems. Ace and Tru-Value Hardware and IGA are voluntary chains. New car dealers and fast food restaurants (e.g., McDonalds, Burger King) are franchises.
By most traditional views, administered marketing systems are the closest to conventional systems. Independent intermediaries agree on goals related to a particular administrative leader’s market segment while maintaining disparate goals associated with their own operations.
Horizontal Sprawl is a term applied to the Japanese keiretsu channel pattern. A keiretsu is a group of loosely associated companies that may have many ties at the ownership and management level. A keiretsu is often a complete supply chain with many buyers, sellers, and ancillary service providers. There is significant sharing of goals, risks, and benefits among members of the chain.
Mutual Goals
Increasing Voluntary Cooperation
Directed Goals

32. Control and Cooperation in Vertical Marketing Systems
Exhibit 14-7
Increasing centralized control
Contractual systems
Corporate Vertical Marketing Systems
Conventional Systems
Value
Networks
Administered Systems
Horizontal Sprawl / Keiretsu
Mutual Goals
Directed Goals
Increasing Voluntary Cooperation

33. Web Opportunities for B2B Marketers
Better and faster channel flows  market data more readily available
Faster communications provides rapid ordering and order tracking
Reduced transaction costs through online processing and tracking
Product information available at the customers’ convenience

34. New Channel Types
Affiliates - link on a web site that refers to a product or service supplier’s site
Hubs – Intermediate that brings buyers and sellers together in a market