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Part 5 Distribution Decisions marketing 16e Hult | Pride | Ferrell
© 2012 South-Western, a part of Cengage Learning : Supply-Chain Management and Marketing Channels 15: Retailing, Wholesaling, and Direct Marketing
© 2012 South-Western, a part of Cengage Learning 14-3 Learning Objectives To describe the foundations of supply-chain management To explore the role and significance of marketing channels and supply chains To identify types of marketing channels To understand factors that influence marketing channel selection 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 supply- chain management To explore legal issues in channel management
© 2012 South-Western, a part of Cengage Learning 14-4 Foundations of the Supply Chain Supply Chain All the activities associated with the flow and transformation of product from raw materials through to the end consumer Operations Management The total set of managerial activities used by an organization to transform resource inputs into products Logistics Management Planning, implementing and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption Supply Management The processes that enable the progress of value from raw materials to final customer and back to redesign and final disposition
© 2012 South-Western, a part of Cengage Learning 14-5 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
© 2012 South-Western, a part of Cengage Learning 14-6 Key Tasks in Supply Chain Management
© 2012 South-Western, a part of Cengage Learning 14-7 Supply Chain Management Issues Technology Information technology has created almost seamless distribution processes Information sharing has reduced costs 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 to a market orientation
© 2012 South-Western, a part of Cengage Learning 14-8 The Role of Marketing Channels in Supply Chains Marketing Channel (Channel of Distribution, Distribution Channel) A group of individuals and organizations that direct the flow of products from producers to customers within the supply chain Marketing Intermediaries Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangement or through the purchase and reselling of products
© 2012 South-Western, a part of Cengage Learning 14-9 Discussion Question Which marketing channels does Dunkin’ Donuts use for its packaged coffee?Dunkin’ Donuts
© 2012 South-Western, a part of Cengage Learning Marketing Channel Activities Performed by Intermediaries
© 2012 South-Western, a part of Cengage Learning The Significance of Marketing Channels Marketing channel decisions influence the rest of the marketing mix Channel decisions determine: A product’s market presence Buyer’s accessibility to the product Effective marketing channels required for organizational success Entail long-term commitments among a variety of firms Difficult to change/undo marketing channel decisions
© 2012 South-Western, a part of Cengage Learning Firms to Know: Pepsi Beverages Company Pepsi Beverages Company Formed from the merger of Pepsi Bottling Group and PepsiAmericas Focus on the North American beverages market Received the Supply Chain Innovation Award from the Council of Supply Chain Management Professionals Utilized technology to reduce the labor required for in-store delivery Improved quality, service and return on investment
© 2012 South-Western, a part of Cengage Learning Marketing Channels Create Utility Time Utility Having products available when the customer wants them Place Utility Making products available in locations where customers wish to purchase them Possession Utility Customers have access to the product to use now or store for future use Form Utility Formed by assembling, preparing, or otherwise refining the product to suit customer needs
© 2012 South-Western, a part of Cengage Learning Marketing Channels Facilitate Exchange Efficiencies
© 2012 South-Western, a part of Cengage Learning Typical Marketing Channels for Consumer Products
© 2012 South-Western, a part of Cengage Learning Think About It: Banana RepublicBanana Republic Banana Republic has retail stores across the country, as well as offers sales through its website Banana Republic and The Gap recently began offering sales in Europe through their websites What distribution channels do you think Banana Republic utilizes to sell its goods?
© 2012 South-Western, a part of Cengage Learning Typical Marketing Channels for Business Products
© 2012 South-Western, a part of Cengage Learning Think About It The Internet and smartphones have created new distribution channels Magazines and newspapers sell content via smartphone and iPad apps How does this change the distribution system for print media? From a marketers perspective, what are potential problems with selling books, magazines, and newspaper via apps? potential problems
© 2012 South-Western, a part of Cengage Learning Channels for Business Products Industrial Distributor: An independent business that takes title to 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: An independent businessperson who sells complementary products and is compensated by commissions Does not acquire title or take possession
© 2012 South-Western, a part of Cengage Learning Multiple Marketing Channels and Channel Alliances Dual Distribution The use of two or more marketing channels to distribute the same product to the same target market Strategic Channel Alliance The products of one organization are distributed through the marketing channels of another
© 2012 South-Western, a part of Cengage Learning Selecting Marketing Channels
© 2012 South-Western, a part of Cengage Learning Selecting Marketing Channels continued Customer Characteristics Consumer market or business market? Business customers often prefer to deal directly with producers; are more likely to buy complex products and in large quantities Product Attributes Complex/Expensive or standardized? Durable or Fragile?
© 2012 South-Western, a part of Cengage Learning Selecting Marketing Channels continued Type of Organization Large or small? Large firms are often in a better position to have more distribution centers, which reduce delivery times Smaller firms may be in a better position to serve smaller-scale regional needs Degree of Competition High or low? Highly competitive markets require companies to keep costs and prices low
© 2012 South-Western, a part of Cengage Learning Selecting Marketing Channels continued Environmental Forces Economic considerations will force organizations to make compromises Technology may help a firm modify/improve its channel strategy Government regulations and trade agreements can affect channel strategy Characteristics of Intermediaries If an intermediary is not adequately promoting an organization’s products, it may reconsider channel choices
© 2012 South-Western, a part of Cengage Learning Intensity of Market Coverage Intensive Uses all available outlets to distribute a product For most convenience products Multiple channels may be used Selective Uses only some available outlets to distribute a product For shopping products Desirable when a special effort is important to customers Exclusive Uses a single outlet in a fairly large geographic area For products purchased infrequently, consumed over a long period of time, or requiring service and information Only authorized dealers are used
© 2012 South-Western, a part of Cengage Learning Discussion Question Wrigley’s Doublemint gum is a classic choice for gum lovers What intensity of coverage is most common for the distribution of a convenience product like chewing gum?
© 2012 South-Western, a part of Cengage Learning Intensity of Market Coverage continued
© 2012 South-Western, a part of Cengage Learning Discussion Question What level of intensity of market coverage would you select for products sold by the following brands? Montblanc Carhartt Reebok Chanel
© 2012 South-Western, a part of Cengage Learning Strategic Issues in Marketing Channels Channel Integration Channel Leadership, Coordination, and Conflict Competitive Priorities Strategic Issues
© 2012 South-Western, a part of Cengage Learning 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 An 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
© 2012 South-Western, a part of Cengage Learning Channel Leadership Channel Captain (Channel Leader) The dominant leader of a marketing channel or a supply chain May be a producer, wholesaler, or retailer Channel Power The ability of one channel member to influence other channel members’ goal achievements
© 2012 South-Western, a part of Cengage Learning Channel Cooperation Cooperation is vital if each channel member is to gain something from the others Enables retailers, wholesalers, suppliers and logistics providers to: Speed up inventory replenishment Improve customer service Cut the costs of bringing products to customers A marketing channel should be viewed as a unified supply chain Members should work toward common objectives Channel member tasks must be clearly defined
© 2012 South-Western, a part of Cengage Learning Channel Conflicts Channel conflict occurs when: Self-interest creates misunderstanding about role expectations of channel members Communication is poor between channel members There is increased use of multiple channels has increased the chance for miscommunication and conflict
© 2012 South-Western, a part of Cengage Learning Vertical Channel Integration Combines two or more stages of the marketing 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 Systems (VMSs): A single channel member coordinates or manages channel activities to achieve low-cost distribution aimed at satisfying target market customers Takes on corporate, administered, or contractual forms
© 2012 South-Western, a part of Cengage Learning Horizontal Channel Integration Combines organizations at the same level of operation under one management Creates economies of scale Not the best method for improving distribution Large size may decrease flexibility, increase coordination problems and require additional research and planning
© 2012 South-Western, a part of Cengage Learning Physical Distribution in Supply- Chain Management Physical Distribution (Logistics) Activities used to move products from producers to consumers and other end users Outsourcing The contracting of physical distribution tasks to third parties Most distribution activities can be outsourced to firms with expertise in specific areas Cycle Time The time needed to complete a process
© 2012 South-Western, a part of Cengage Learning Goals of Physical Distribution Right Goods Right Place Right Price Right Time Right Quantity Right Support System Cycle Time
© 2012 South-Western, a part of Cengage Learning Proportional Cost of Each Physical Distribution Function as a % of Total Distribution Cost
© 2012 South-Western, a part of Cengage Learning Order Processing The 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 a carrier Electronic Data Interchange (EDI): A computerized means of integrating order processing with production, inventory, accounting and transportation
© 2012 South-Western, a part of Cengage Learning Inventory Management Developing and maintaining adequate assortment of products to meet customers’ needs Stockouts: Shortages of products that can result in loss of customers Reorder Point: The inventory level that signals the need to place a new order Order Lead Time: The average time lapse between placing the order and receiving it Usage Rate: The rate at which inventory is used/sold Safety Stock: The extra inventory a firm keeps Just-in-Time (JIT): An inventory-management approach in which supplies arrive just when needed for production or resale
© 2012 South-Western, a part of Cengage Learning Materials Handling The physical handling of tangible goods, supplies and resources Also involves transportation from points of production to points of consumption Efficient materials handling can reduce costs, the number of times a good is handled, improve customer service and increase customer satisfaction Radio Frequency ID: Radio waves are used to track materials using scanners
© 2012 South-Western, a part of Cengage Learning Warehousing The design and operation of facilities for storing and moving goods Creates time utility Helps stabilize prices and the availability of seasonal items The choice of warehouse is an important strategic consideration The correct warehouse can reduce transportation and inventory costs and improve customer service
© 2012 South-Western, a part of Cengage Learning 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 Distribution Centers Large, centralized warehouses that focus on moving rather than storing goods
© 2012 South-Western, a part of Cengage Learning Transportation The 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 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 Pipelines Most automated; dependable; contents subject to shrinkage
© 2012 South-Western, a part of Cengage Learning Characteristics and Ratings of Transportation Modes by Selection Criteria
© 2012 South-Western, a part of Cengage Learning Coordinating Transportation Intermodal Transportation Two or more transportation modes are used in combination Containerization: piggyback (truck and rail), fishyback (truck and water), birdyback (truck and air) modes Freight Forwarders Organizations that consolidate shipments from several firms into efficient lot sizes Megacarriers Freight transportation companies that offer several shipment methods
© 2012 South-Western, a part of Cengage Learning Legal Issues in Channel Management Dual Distribution Runs the risk of being viewed as anti-competitive Restricted Sales Territories Courts have conflicting opinions on restricting intermediaries to certain sales territories Tying Agreement A supplier furnishes a product to a channel member with the stipulation that the channel member purchases other products Courts only accept tying agreements when the supplier is the only one able to provide products of a certain quality and the intermediary can also carry competing products
© 2012 South-Western, a part of Cengage Learning Legal Issues in Channel Management continued Exclusive Dealing A manufacturer forbids an intermediary to carry products of competing manufacturers Only considered legal if the deal blocks competitors from less than 15% of the market, the sales volume is small and the producer is smaller than the retailer Refusal to Deal Producers have the right to choose channel members Suppliers cannot legally refuse to do business with certain wholesalers because of their policies resist anticompetitive actions
© 2012 South-Western, a part of Cengage Learning Important Terms DistributionDual distribution Supply chainStrategic channel alliance Operations managementIntensive distribution Logistics managementSelective distribution Supply managementExclusive distribution Supply-chain managementChannel captain Marketing channelChannel power Marketing intermediaries Vertical channel integration Industrial distributorVertical marketing systems
© 2012 South-Western, a part of Cengage Learning Important Terms continued Horizontal channel integrationPrivate warehouses Physical distributionPublic warehouses OutsourcingDistribution centers Cycle timeTransportation Order processingIntermodal transportation Electronic data interchange (EDI) Freight forwarders Inventory management Megacarriers Just-in-time (JIT) Tying agreement Materials handlingExclusive dealing Warehousing
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