1. Part 4 PRODUCT AND PRICE DECISIONS

2. 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

3. Chapter 13 Marketing Channels and Supply-Chain Management
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258

4. 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 supply-chain management
To explore legal issues in channel management

5. BUSINESS VALUE & FOCUS: IS Perspective
IS/E-BUSINESS
Customer
centric
SCM
CRM
BPR
ERP
Demands
Products
Value
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
Who are the customers?
Where are the customers?
Their purchasing habits
How to reach them?
HOW TO REACH THEM?
IT/INTERNET/E-BUSINESS
SCM: Supply Chain Mgt.
CRM: Customer Relationship Mgt.
BPR: Business Process Reengineering
ERP: Enterprise Resources Planning
Business Models & Strategies

6. CRM Applications
Customer Relationship Management (CRM) systems store data in a single database and link CRM processes to one another.

7. 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

8. Foundations of the Supply Chain
Decisions and activities involved in making products available to customers when and where they want to purchase them
Distribution
Activities associated with the flow and transformation of products from raw materials through to the end customer
Supply chain
Total set of managerial activities used by an organization to transform resource inputs into ______, _______, or both
Operations management
goods
services

9. Foundations of the Supply Chain
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 customers’ _______ and ______
Logistics management
needs
wants
Processes that enable the progress of value from raw material to final customer and back to redesign and final disposition
Supply management
Set of approaches used to integrate the functions of operations, logistics, supply, and marketing channel management
Supply chain management

10. Supply Chain Management – Technology Issues
Information technology has created almost seamless distribution processes
Information _________ 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 ________ orientation
sharing
market

11. Role of Marketing Channels in Supply Chains
Marketing channel: Group of individuals and organizations that direct the _____ of products 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
flow

12. 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

13. CRM Applications
Customer Relationship Management (CRM) systems store data in a single database and link CRM processes to one another.

14. Table 13.1 - Marketing Activities Performed by Intermediaries

15. 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?
Entail ____-term commitments among a variety of firms (e.g., suppliers, logistics providers, and operations firms) and ________ to change/undo marketing channel decisions
long
difficult

16. 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
__________ 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
Possession

17. Marketing Channels Facilitate Exchange ___________
Efficiencies
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

18. Figure 13.1 - Efficiency in Exchanges Provided by an Intermediary

19. Figure 13.2 - Typical Marketing Channels for Consumer Products
Nabisco (Wheat Thins crackers)
Food Brokers
Supermarkets, vending-machine, convenience stores
Direct Marketing (Internet)
Larger retailers
Most of consumer products
Eg., Food Industry (Nabisco)

20. 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 _____ to customers
value

21. Figure 13.3 - Typical Marketing Channels for Business Products
Direct channel (>50% of business products, esp. expensive equipment)
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

22. 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

23. 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
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

24. Multiple Marketing Channels and Channel (Strategic) Alliances
Use of two or more marketing channels to distribute the same products to the same target market
Dual distribution
Products of one organization are distributed through the marketing channels of another
Strategic channel alliance
____________: 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.
Co-opetition

25. Figure 13.4 - Selecting Marketing Channels
Target market
income, gender
Expensive & perishable
Short channel
Less expensive
Long channel
Fragile
Ineffective intermediaries
Reconsider channel choice
Size
Larger (more channels)
Smaller (less channels
Government regulation
Modify existing channel
Competitive market
Keep cost low
Efficient channel

26. Intensity of Market Coverage
Uses all available outlets for distributing a product
Appropriate for most convenience products
Multiple channels may be used
____________ distribution
Uses only some available outlets to distribute a product
Appropriate for shopping products
Desirable when a special effort is important to customers
_________ 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
Intensive
Selective
Exclusive

27. Intensity of Market Coverage

28. Strategic Issues in Marketing Channels
Supply-chain decision cut across all functional areas of business
Strategic issues
Competitive priorities in marketing channels
Channel leadership, cooperation, and conflict
Channel Integration
Responsibilities, rewards, sanctions
Vertical vs. horizontal channel integration

29. 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

30. 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

31. Channel Leadership Channel captain (leader) Channel power
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 captain (leader)
How to attain desired objectives?
Channel power
The channel captain must possess channel power, the ability to influence another channel member’s goal achievement.
Retailer: Walmart  supply chain  manufacturers  distribution channels  customers
Small retailers (Yes) when they gain strong customer loyalty in local or regional markets.
Q: Can small retailers assume leadership roles?
Yes, when they gain strong customer loyalty in local or regional markets.

32. 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

33. 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

34. 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 _____ 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.
single

35. 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

36. 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

37. Physical Distribution in Supply-Chain Management
Physical distribution (logistics): Activities used to move products from producers to consumers and other end users
_____________ - Contracting of physical distribution tasks to third parties
Most distribution activities can be outsourced to firms with expertise in specific areas
___________ (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
Outsourcing
Technology

38. Goals of Physical Distribution
Right Goods
Right Place
Right Price
Right Time
Right Quantity
Right Support System
Cycle Time

39. Figure 13.5 - Proportional Cost of Each Physical Distribution Function

40. 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

41. 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
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
Reorder point =
(order lead time x usage rate) + _______ stock
safety

42. RE-ORDER POINT Reorder point =
(order lead time x usage rate) + _______ stock
safety
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.

43. 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

44. 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

45. 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

46. Types of Warehouses Private Public ________ warehouses
Company-operated facilities for storing and shipping products
________ warehouses
Storage space and related physical distribution facilities that can be leased by companies
Field public warehouses
Bonded storage
_______ warehouses
Large, centralized warehouses that focus on _______ rather than storing goods
Distribution centers
Private
Public
moving

47. 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

48. Table 13.2 - Characteristics and Ratings of Transportation Modes by Selection Criteria

49. Coordinating 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)
Intermodal transportation
Combine shipments from several firms (outsourcees) into efficient lot sizes
Freight forwarders - outsourcing agencies
Freight transportation firms (outsourcers) that provide several modes of shipment
Megacarriers
As the range of transportation alternatives expands, carriers also put greater emphasis on customer _______ in order to gain a competitive advantage.
service

50. Legal Issues in Channel Management
The numerous federal, state, and local laws governing distribution channel management in the US are based on 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
protecting
Dual distribution: Use of two or more marketing channels to distribute the same products to the same target market

51. 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

52. 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

53. 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

54. Summary Organizations 1960s Employees 2022 (control/around)
Organizations were the exoskeleton around employees.
1960s
Organizations
Employees
Organizations
In the 1960s, organizations were the exoskeleton around employees.
By 2022, they will be endoskeleton, supporting the work of people on the exterior.
(support/empower)
Organizations will be endoskeleton, supporting the work of people on the exterior..
2022

55. Video Case 13.1
Taza Cultivates Channel Relationships with Chocolate

56. 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.

57. 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.

58. 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).

59. 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.