Distribution Channels and Logistics Management PRINCIPLES OF MARKETING Chapter 12 Distribution Channels and Logistics Management

Distribution Channels A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption. Channel decisions affect other marketing decisions involve long-term commitments

Role of Intermediaries Greater efficiency in making goods available to target markets. Intermediaries provide Contacts Experience Specialization Scale of operation Match supply and demand.

Channel Functions Information Promotion Contact Matching Negotiation Distribution Channel Functions This CTR relates to the material on pp. 354-355. Channel Functions Information Promotion Contact Matching Negotiation Physical Distribution Financing Risk taking Distribution Channel Functions Information. This function involves gathering and distributing marketing research and intelligence about the environment for planning purposes. Discussion Note: The use of scanner technology has dramatically changed this function in the last few years. Promotion. This involves developing and spreading persuasive communications about an offer. Contact. Contact involves finding and communicating with prospective buyers. Matching. This function consists of shaping and fitting the offer to the buyer’s needs by manufacturing, grading, assembling, and packaging. Negotiation. This involves reaching an agreement on price and other terms. Physical Distribution. This function consists of the transporting and storing of goods. Financing. This function addresses the acquiring and using of funds to cover the costs of channel work. Risk Taking. This function assumes the risk of carrying out the channel work. Discussion Note: Students often assume business is risk-free. You might expand upon the link between risk and value-added services as the justification for profits.

Channel Levels Manufacturer Wholesaler Retailer Consumer Distribution Channel Functions This CTR relates to the material on pp. 354-355. Channel Levels Distribution Channel Functions Information. This function involves gathering and distributing marketing research and intelligence about the environment for planning purposes. Discussion Note: The use of scanner technology has dramatically changed this function in the last few years. Promotion. This involves developing and spreading persuasive communications about an offer. Contact. Contact involves finding and communicating with prospective buyers. Matching. This function consists of shaping and fitting the offer to the buyer’s needs by manufacturing, grading, assembling, and packaging. Negotiation. This involves reaching an agreement on price and other terms. Physical Distribution. This function consists of the transporting and storing of goods. Financing. This function addresses the acquiring and using of funds to cover the costs of channel work. Risk Taking. This function assumes the risk of carrying out the channel work. Discussion Note: Students often assume business is risk-free. You might expand upon the link between risk and value-added services as the justification for profits. Manufacturer Wholesaler Retailer Consumer

Channel Behavior and Conflict The channel will be most effective when: each member is assigned tasks it can do best. all members cooperate to attain overall channel goals and satisfy the target market. Focus on individual goals leads to conflict Horizontal Conflict occurs among firms at the same level of the channel. Vertical Conflict occurs between different levels of the same channel.

Vertical Marketing Systems Corporate common ownership at different channel levels Contractual contractual agreement among channel members Administered leadership assumed by dominant members

Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System Two or more companies at one channel level join together to increase coverage Example:Banks in Grocery Stores A single firm sets up two or more marketing channels to increase coverage Example:Retailers, Catalogs, and Sales Force

Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Channel Design Decisions This CTR relates to the material on pp. 364-368. Channel Design Decisions Identifying Major Alternatives Identifying Major Alternatives Number of Channel Members Intensive Distribution. This approach utilizes as many outlets as possible and is especially appropriate for convenience goods and common raw materials. Exclusive Distribution. This approach consists of a very limited number of outlets hold all the rights to distribute a product line. This strategy is appropriate for many high prestige goods. Distributor selling effort is usually very strong. Selective Distribution. This approach uses more than one outlet per market but less than all available outlets. This strategy gains good market coverage and gains better than average selling effort. Teaching Tip: Ask students to name their favorite store for: gifts, computer supplies, sporting goods, hobbies. Many will name selective distribution outlets. Evaluating the Major Alternatives Intensive Distribution Selective Distribution Exclusive Distribution

Channel Management Decisions Selecting Channel Management Decisions This CTR relates to the material on pp. 369-370. Channel Management Decisions Motivating Channel Management Decisions Selecting Channel Members. Choosing middlemen will vary in difficulty be product and producer. Very large and well known companies often have more qualified middlemen seeking to carry their products than the company can effectively use. Some new products will be resisted by existing channels and may require adopting new channel members to carry the line. Motivating Channel Members. Channel members must be motivated to perform. Positive motivators come from high margins, special deals, premiums, cooperative advertising allowances, display allowances, and sales contests. Negative motivators may include threatening margins, delaying delivery, or ending the relationship. Long term cooperation is enhanced by distribution programming which involves building a planned, professionally managed, VMS that meets al channel member needs. Evaluating Channel Members. Assessing channel members requires regular measurement of performance against established criteria such as sales quotas, inventory levels, customer delivery time, training, and overall customer service for each channel member. Effective channel management rewards superior performance and seeks to improve substandard performance in a cooperative professional partnership. Channel member replacement should be used as a last resort with sincere efforts to improve performance have not succeeded. FEEDBACK Evaluating

Logistics Involves entire supply chain Increasing importance of logistics effective logistics is becoming a key to winning and keeping customers. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. information technology has created opportunities for major gains in distribution efficiency.

Goals of Logistics system Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales. Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels

Logistics Functions Order Processing Warehousing Inventory Management Transportation Design system to minimize costs of attaining objectives

Transportation Modes Rail Truck Water Pipeline Air This CTR relates to the material on pp. 375-377. Transportation Modes Rail Nation’s largest carrier, cost-effective for shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Transportation Rail. Rail is the largest carrier mode with 37% of the total cargo shipped. Rail is especially cost effective for large amounts of bulk products shipped over long distances. Truck. Trucks account for some 25% of the total cargo shipped. Trucks are the largest movers of within city shipping. Truck are highly flexible in routing and scheduling. Trucks are an efficient short-haul mode. Water. Water is very inexpensive for shipping high bulk nonperishable goods but is also the slowest transportation mode. Pipeline. Pipelines are specialized modes for such goods as oil and natural gas. Pipelines are usually owned by companies that also own the raw materials being piped. Air. Air is the most expensive mode of transportation but also the quickest. Extremely perishable goods, high-value, low-bulk, and time-sensitive goods often require air transport. Containerization Containerization consists of putting goods in boxes or trailers that are designed for easy transfer between two transportation modes. Key forms include: Piggyback describes the use of rail and trucks. Fishyback refers to the use of water and trucks. Tranship involves water and rail. Airtruck combines air and trucks. Water Low cost for shipping bulky, low-value goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or to ship high-value, low-bulk items

Integrated Logistics Management Cross-Functional Teamwork inside the Company Integrated Logistics Management Building Channel Partnerships Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations. Third-Party Logistics