Marketing Channels and Supply Chain Management Chapter 11 Marketing Channels and Supply Chain Management

Road Map: Previewing the Concepts Explain why companies use distribution channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and supply chain management.

What is a Distribution Channel? Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

Why are Marketing Intermediaries Used? The use of intermediaries results from their greater efficiency in making goods available to target markets. Offers the firm more than it can achieve on its own through the intermediaries: Contacts, Experience, Specialization, Scale of operation. Purpose: match supply from producers to demand from consumers.

A Distributor Reduces the Number of Channel Transactions (Fig. 11-1)

Distribution Channel Functions These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively. Risk Taking Information Financing Promotion Physical Distribution Contact Negotiation Matching

Interactive Student Assignments List and briefly discuss the marketing channel functions that are involved in completing and fulfilling transactions. Which functions apply most in each of the following situations? A retailer puts in a rush re-order for a needed Christmas item that is in short supply. An Internet marketer seeks ways to identify and contact its market. The distribution channel moves goods and services from producers to consumers. It overcomes the major time, place, and possession gaps that separate goods and services from those who would use them. Members of the marketing channel perform many key functions. Some help to complete transactions: (a) Information--gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange. (b) Promotion--developing and spreading persuasive communications about an offer. (c) Contact--finding and communicating with prospective buyers. (d) Matching--shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging. (e) Negotiation--reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Others help to fulfill the completed transaction: (a) Physical distribution--transporting an storing goods. (b) Financing--acquiring and using funds to cover the costs of the channel work. (c) Risk taking--assuming the risks of carrying out the channel work. Students should analyze the above areas and use them in making choices for the designated problem situations. Suggestions for solution would include (but are not exclusive to): (a) A fulfilling transaction--physical distribution. (b) A completion transaction--information, contact, and matching.

Number of Channel Levels (Fig. 11-2)

Channel Behavior & Organization 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. When this doesn’t happen, conflict occurs: Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer. Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer. Each channel member’s role must be specified and conflict must be managed.

Conventional Distribution Channel Vs. a Vertical Marketing System (Fig

Types of Vertical Marketing Systems Corporate VMS Common Ownership at Different Levels of the Channel i.e. Sears Types of Vertical Marketing Systems Contractual VMS Contractual Agreements Among Channel Members i.e Western Auto Administered VMS Leadership is Assumed by One or a Few Dominant Members i.e. Kraft Degree of Direct Control

Types of Vertical Marketing Systems Systems (VMS) Contractual VMS Retailer Cooperatives Franchise Organizations Wholesaler Sponsored Voluntary Chain Service-Firm- Sponsored Retailer Franchise System Manufacturer- Sponsored Wholesaler Administered VMS Corporate VMS

Innovations in Marketing Systems Horizontal Marketing System Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. Example: Banks in Grocery Stores Hybrid Marketing System A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Example: Retailers, Catalogs, and Sales Force

Hybrid Marketing Channel (Fig. 11-4)

Changing Channel Organization A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones.

Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Channel Design Decisions Evaluating the Major Alternatives Designing International Distribution Channels Responsibilities of Intermediaries Types of Intermediaries Number of Intermediaries

Number of Marketing Intermediaries Intensive Distribution Selective Distribution Exclusive Distribution

Discussion Question Decide which distribution strategy--intensive, selective, or exclusive--is used for the following products, and why: Piaget watches, Acura automobiles, Snickers candy bars. Piaget watches are priced as high as $500,000, so they require exclusive distribution in order to support the image and customer service required. Acura and most other car dealers use selective distribution to ensure that dealers will put a strong effort into selling the car. As a convenience good, Snickers candy bars, the best selling candy bar in America, are available practically everywhere. Distribution channels influence and are influenced by a product's positioning. For example, a Whitman Sampler contains much the same product as a box of Godiva chocolates, but Godiva products are sold at a premium price in selected department stores and at "Godiva Chocolatiers," whereas inexpensive Whitman candies are sold in drugstores and grocery stores everywhere.

Channel Management Decisions Selecting Channel Members Channel Management Decisions Motivating Channel Members Evaluating Channel Members FEEDBACK

Marketing Logistics and Supply Chain Management Involves getting the right product to the right customers in the right place at the right time. Marketing logistics addresses: Outbound distribution, Inbound distribution, Reverse distribution, Entire supply chain management.

Supply Chain Management (Fig. 11-5)

Goals of the Logistics System Higher Distribution Costs; Higher Customer Service Levels Goal: To Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales Lower Distribution Costs; Lower Customer Service Levels

Major Logistics Functions Order Processing Received Processed Shipped Costs Minimize Costs of Attaining Logistics Objectives Logistics Functions Warehousing Storage Distribution Automated Transportation Rail, Truck, Water, Pipeline, Air, Intermodal Inventory When to order How much to order Just-in-time

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 Water Low cost for shipping bulky, low-value, non-perishable goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or distance markets have to be reached

Integrated Logistics Management Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations. Involves: Cross-functional teamwork inside the company Building channel partnerships Third-party logistics

Toys “R” Us Partner Western Publishing Group partners with Toys “R” Us to create mini-bookstore sections – called Books “R” Us –within each store. This helps to build channel partnerships that benefit both companies.

Rest Stop: Reviewing the Concept Explain why companies use distribution channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and supply chain management.