1. Principles of Marketing12
Principles of Marketing
Marketing Channels and Supply Chain Management

2. Learning Objectives
After studying this chapter, you should be able to:
Explain how companies use marketing 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 integrated supply chain management
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3. Supply Chains and the Value Delivery Network
Supply Chain Partners
Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service
Downstream partners include the marketing channels or distribution channels that look toward the customer
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4. Supply Chains and the Value Delivery Network
Supply Chain Views
Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity
Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer and the firm responds to these needs by organizing a chain of resources and activities with the goal of creating customer value
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5. Supply Chains and the Value Delivery Network
The value delivery network is the firm’s suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system
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6. Supply Chains and the Value Delivery Network
Marketing Channel Questions
What is the nature of marketing channels and why are they important?
How do channel firms interact and organize to do the work of the channel?
What role do physical distribution and supply chain management play in attracting customers?
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7. The Nature and Importance of Marketing Channels
Marketing Channel Defined
Marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the consumer or business users
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8. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them
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9. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Producers use intermediaries because they create greater efficiency in making goods available to target markets.
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10. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations
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11. The Nature and Importance of Marketing Channels
How Channel Members Add Value
From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers
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12. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Information refers to the gathering and distributing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange
Promotion refers to the development and spreading persuasive communications about an offer
Contacts refers to finding and communicating with prospective buyers
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13. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging
Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred
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14. The Nature and Importance of Marketing Channels
How Channel Members Add Value
Physical distribution refers to transporting and storing goods
Financing refers to acquiring and using funds to cover the costs or carrying out the channel work
Risk taking refers to assuming the risks of carrying out the channel work
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15. The Nature and Importance of Marketing Channels
Number of Channel Members
Channel level refers to each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer
Direct marketing channel has no intermediary levels; the company sells directly to consumers
Indirect marketing channels contain one or more intermediaries
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16. The Nature and Importance of Marketing Channels
Number of Channel Members
Connected by types of flows:
Physical flow of products
Flow of ownership
Payment flow
Information flow
Promotion flow
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17. Channel Behavior and Organization
Marketing channel consists of firms that have partnered for their common good with each member playing a specialized role
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18. Channel Behavior and Organization*
Channel conflict refers to disagreement over goals, roles, and rewards by channel members
Horizontal conflict
Vertical conflict
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19. Channel Behavior and Organization
Horizontal conflict is conflict among members at the same channel level
Vertical conflict is conflict between different levels of the same channel
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20. Channel Behavior and Organization
Conventional Distribution Systems
Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits and there is little control over the other members and no formal means for assigning roles and resolving conflict.
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21. Channel Behavior and Organization
Vertical Marketing Systems
Vertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of:
Corporate marketing systems
Contractual marketing systems
Administered marketing systems
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22. Channel Behavior and Organization
Vertical Marketing Systems
Corporate vertical marketing system integrates successive stages of production and distribution under single ownership
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23. Channel Behavior and Organization
Vertical Marketing Systems
Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organization.
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24. Channel Behavior and Organization
Vertical Marketing Systems
Franchise organization links several stages in the production distribution process
Manufacturer-sponsored retailer franchise system
Manufacturer-sponsored wholesaler franchise system
Service firm-sponsored retailer franchise system
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25. Channel Behavior and Organization
Vertical Marketing Systems
Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power.
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26. Channel Behavior and Organization
Horizontal Marketing Systems
Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone.
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27. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments
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28. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Advantages
Increased sales and market coverage
New opportunities to tailor products and services to specific needs of diverse customer segments
Challenges
Hard to control
Create channel conflict
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29. Channel Behavior and Organization
Changing Channel Organization
Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones
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30. Channel Design Decisions
Analyzing Consumer Needs
Designing a channel system requires:
Analyzing consumer needs
Setting channel objectives
Identifying major channel alternatives
Evaluation
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31. Channel Design Decisions
Analyzing Consumer Needs
Designing a marketing channel starts with finding out what target customers want from the channel
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32. Channel Design Decisions
Setting Channel Objectives
In terms of:
Targeted levels of customer service
What segments to serve
Best channels to sue
Minimizing the cost of meeting customer service requirements
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33. Channel Design Decisions
Setting Channel Objectives
Objectives are influenced by:
Nature of the company
Marketing intermediaries
Competitors
Environment
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34. Channel Design Decisions
Identifying Major Alternatives
In terms of:
Types of intermediaries
Number of intermediaries
Responsibilities of each channel member
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35. Channel Design Decisions
Identifying Major Alternatives
Types of intermediaries refers to channel members available to carry out channel work. Examples include:
Company sales force
Manufacturer’s agency
Industrial distributors
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36. Channel Design Decisions
Identifying Major Alternatives
Company sales force strategies
Expand direct sales force
Assign outside salespeople to territories
Develop a separate sales force
Telesales
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37. Channel Design Decisions
Identifying Major Alternatives
Manufacturer’s agencies are independent firms whose sales forces handle related products from many companies in different regions or industries
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38. Channel Design Decisions
Identifying Major Alternatives
Industrial distributors
Find distributors in different regions or industries
Exclusive distribution
Margin opportunities
Training
Support
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39. Channel Design Decisions
Identifying Major Alternatives
Number of marketing intermediaries to use at each level
Strategies:
Intensive distribution
Exclusive distribution
Selective distribution
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40. Channel Design Decisions
Identifying Major Alternatives
Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible
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41. Channel Design Decisions
Identifying Major Alternatives
Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories
Luxury automobiles
High-end apparel
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42. Channel Design Decisions
Identifying Major Alternatives
Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products
Televisions
Appliances
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43. Channel Design Decisions
Responsibilities of Channel Members
Producers and intermediaries need to agree on:
Price policies
Conditions of sale
Territorial rights
Services provided by each party
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44. Channel Design Decisions
Designing International Distribution Channels
Channel systems can vary from country to country
Must be able to adapt channel strategies to the existing structures within each country
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45. Channel Management Decisions
Channel management involves:
Selecting channel members
Managing channel members
Motivating channel members
Evaluating channel members
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46. Channel Management Decisions
Selecting Channel Members
Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members
Years in business
Lines carried
Profit record
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47. Channel Management Decisions
Selecting Channel Members
Selecting intermediaries that are sales agents involves evaluating:
Number and character of other lines carried
Size and quality of sales force
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48. Channel Management Decisions*
Selecting Channel Members
Selecting intermediaries that are retail stores that want exclusive or selective distribution involves evaluating:
Store’s customers
Locations
Growth potential
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49. Public Policy and Distribution Decisions
Exclusive distribution is when the seller allows only certain outlets to carry its products
Exclusive dealing is when the seller requires that the sellers not handle competitor’s products
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50. Public Policy and Distribution Decisions
Benefits of exclusive distribution include:
Seller obtains more loyal and dependable dealers
Dealers obtain a steady and stronger seller support
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51. Public Policy and Distribution Decisions
Exclusive territorial agreement refers to an agreement where the producer may agree not to sell to other dealers in a given area or the buyer may agree to sell only in its own territory
Tying agreements, while not necessarily illegal as long as they do not substantially lessen competition, are agreements where there is a strong brand that producers sometimes sell to dealers only if the dealers will take some or all of the rest of the line
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52. Marketing Logistics and Supply Chain Management
Nature and importance of logistics management in the supply chain
Goals of the logistics system
Major logistics functions
Need for integrated supply chain management
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53. Marketing Logistics and Supply Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics (physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit
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54. Marketing Logistics and Supply Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics involves:
Outbound distribution: Moving products from the factory to resellers and consumers
Inbound distribution: Moving products and materials from suppliers to the factory
Reverse distribution: Moving broken, unwanted, or excess products returned by consumers or resellers
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55. Marketing Logistics and Supply Chain Management
Nature and Importance of Marketing Logistics
Supply chain management is the process of managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers
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56. Marketing Logistics and Supply Chain Management
Nature and Importance of Marketing Logistics
Importance of logistics
Competitive advantage by giving customers better service at lower prices
Cost savings to the company and its customers
Product variety requires improved logistics
Information technology has created opportunities for distribution efficiency
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57. Marketing Logistics and Supply Chain Management
Goals of the Logistics System
To provide a targeted level of customer service at the least cost with the objective to maximize profit, not sales
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58. Marketing Logistics and Supply Chain Management
Major Logistics Functions
Warehousing
Inventory management
Transportation
Logistics information management
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59. Marketing Logistics and Supply Chain Management
Major Logistics Functions
Warehousing is the storage function that overcomes differences in need quantities and timing, ensuring that the products are available when customers are ready to buy them
Storage warehouses
Distribution centers
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60. Marketing Logistics and Supply Chain Management
Major Logistics Functions
Inventory management balances carrying too little and too much inventory
Just-in-time logistics systems
RFID
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61. Marketing Logistics and Supply Chain Management
Major Logistics Functions
Transportation affects the pricing of products, delivery performance, and condition of the goods when they arrive
Truck
Rail
Water
Pipeline
Air
Internet
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62. Marketing Logistics and Supply Chain Management
Logistics Information Management
Logistics information management is the management of the flow of information, including customer orders, billing, inventory levels, and customer data
EDI (electronic data interchange)
VMI (vendor-managed inventory)
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