Principles of Marketing: Marketing Channels and Supply Chain Management

12
Principles of Marketing
Marketing Channels and

Supply Chain Management
Learning Objectives
After studying this chapter, you should be able to:
1.
Explain how companies use marketing channels and
discuss the functions these channels perform
2.
Discuss how channel members interact and how
they organize to perform the work of the channel
3.
Identify the major channel alternatives open to a
company
4.
Explain how companies select, motivate, and
evaluate channel members
5.
Discuss the nature and importance of marketing
logistics and integrated supply chain management
12-2
Chapter Outline
1.
2.
3.
4.
5.
6.
7.
Supply Chains and the Value Delivery

Network
The Nature and Importance of Marketing
Channels
Channel Behavior and Organization
Channel Design Decisions
Channel Management Decisions
Public Policy and Distribution Decisions
Marketing Logistics and Supply Chain
Management
12-3
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
12-4
Supply Chains and

Supply Chain Views
Supply chain make and sell view includes the firms
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
12-5
Supply Chains and

Value Delivery Network
The value delivery network is the firms
suppliers, distributors, and ultimately
customers who partner with each other to
improve the performance of the entire
system
12-6
Supply Chains and

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?
12-7
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
12-8

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
12-9

Marketing Channels
Producers use intermediaries because
they create greater efficiency in
making goods available to target
markets.
12-10

Marketing Channels
Intermediaries offer the firm more than it can
achieve on its own through their contacts,
experience, specialization, and scale of
operations
12-11

Marketing Channels
From an economic view, intermediaries
transform the assortment of products
into assortments wanted by consumers
12-12

Marketing Channels
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
12-13

Marketing Channels
Matching refers to shaping and fitting the
offer to the buyers 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
12-14

Marketing Channels
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
12-15

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
12-16

Marketing Channels
Number of Channel Members
Connected by types of flows:
Physical flow of products
Flow of ownership
Payment flow
Information flow
Promotion flow
12-17

Channel Behavior
Marketing channel consists of firms that have
partnered for their common good with each
member playing a specialized role
12-18

Channel Behavior
Channel conflict refers to disagreement over
goals, roles, and rewards by channel
members
Horizontal conflict
Vertical conflict
12-19

Channel Behavior
Horizontal conflict is conflict among
members at the same channel level
Vertical conflict is conflict between different
levels of the same channel
12-20

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.
12-21

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

12-22

Corporate vertical marketing system
integrates successive stages of production
and distribution under single ownership
12-23

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.
12-24

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
12-25

Administered vertical marketing
system has a few dominant channel
members without common ownership.
Leadership comes from size and power.
12-26

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.
12-27

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
12-28

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
12-29

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
12-30

Analyzing Consumer Needs
Designing a channel system requires:
Analyzing consumer needs
Setting channel objectives
Identifying major channel alternatives
Evaluation
12-31

Analyzing Consumer Needs
Designing a marketing channel starts with
finding out what target customers want
from the channel
12-32

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
12-33

Setting Channel Objectives
Objectives are influenced by:
Nature of the company
Marketing intermediaries
Competitors
Environment
12-34

Identifying Major Alternatives
In terms of:
Types of intermediaries
Number of intermediaries
Responsibilities of each channel member
12-35

Types of intermediaries refers to channel
members available to carry out channel
work. Examples include:
Company sales force
Manufacturers agency
Industrial distributors
12-36

Company sales force strategies
Expand direct sales force
Assign outside salespeople to territories
Develop a separate sales force
Telesales
12-37

Manufacturers agencies are independent
firms whose sales forces handle related
products from many companies in different
regions or industries
12-38

Industrial distributors
Find distributors in different regions or

industries
Exclusive distribution
Margin opportunities
Training
Support
12-39

Number of marketing intermediaries to use at
each level
Strategies:
Intensive distribution
Exclusive distribution
Selective distribution
12-40

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
12-41

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
12-42

Selective distribution is a strategy when a
producer uses more than one but fewer
than all of the intermediaries willing to carry
the producers products
Televisions
Appliances
12-43

Responsibilities of Channel Members
Producers and intermediaries need to agree on:
Price policies
Conditions of sale
Territorial rights
Services provided by each party
12-44

Evaluating the Major Alternatives
Each alternative should be evaluated against:
Economic criteria
Control
Adaptive criteria
12-45

Evaluating the Major Alternatives
Economic criteria compares the likely sales costs and
profitability of different channel members
Control refers to channel members control over the
marketing of the product
Adaptive criteria refers to the ability to remain

flexible to adapt to environmental changes
12-46

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
12-47

Channel management involves:
Selecting channel members
Managing channel members
Motivating channel members
Evaluating channel members
12-48

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
12-49

Selecting intermediaries that are sales agents
involves evaluating:
Number and character of other lines carried
Size and quality of sales force
12-50

Selecting intermediaries that are retail stores
that want exclusive or selective distribution
involves evaluating:
Stores customers
Locations
Growth potential
12-51

Managing and Motivating Channel Members
Partner relationship management (PRM) and
supply chain management (SCM) software
are used to forge long-term partnerships
with channel members and to recruit, train,
organize, manage, motivate, and evaluate
channel members
12-52
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 competitors
products
12-53

Decisions
Benefits of exclusive distribution include:
Seller obtains more loyal and dependable

dealers
Dealers obtain a steady and stronger seller

support
12-54

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
12-55
Marketing Logistics and

Nature and importance of logistics

management in the supply chain
Goals of the logistics system
Major logistics functions
Need for integrated supply chain
management
12-56

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
12-57

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
12-58

Supply chain management is the process of
managing upstream and downstream valueadded flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers
12-59

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
12-60

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
12-61

Major Logistics Functions
Warehousing
Inventory management
Transportation
Logistics information management
12-62

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
12-63

Storage warehouses are designed to store
goods, not move them
Distribution centers are designed to move
goods, not store them
12-64

Inventory management balances carrying
too little and too much inventory
Just-in-time logistics systems
RFID
12-65

Just-in-time logistics systems allow producers and
retailers to carry small amounts of inventories of
parts or merchandise
RFID (radio frequency identification devices) are small
transmitter chips embedded in or placed on
products or packages to provide greater inventory
control
12-66

Transportation affects the pricing of products,
delivery performance, and condition of the goods
when they arrive
Truck
Rail
Water
Pipeline
Air
Internet
12-67

Intermodal transportation combines two or
more modes of transportation
Piggyback uses rail and truck
Fishyback uses water and truck
Airtruck uses air and truck

12-68

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)

12-69

Integrated Logistics Management
Integrated logistics management is the
recognition that providing customer service
and trimming distribution costs require
teamwork internally and externally
Cross-functional teamwork inside the

company
Building partner relationships

12-70

Cross-functional teamwork inside the
company refers to the inter-relationship of
different departments within the company to
achieve the goals of integrated supply chain
management
12-71

Building partner relationships refers to the
understanding that one companys
distribution is another companys supply
system
12-72

Third-party logistics is the outsourcing of logistics
functions to third-party logistics providers (3PLs)
Provide logistics functions more efficiently
Provide logistics functions at lower cost
Allow the company to focus on its core business
Are more knowledgeable of complex logistics
12-73
PowerPoint created by:

Ronald Heimler
Dowling College, MBA

Georgetown University, BS Business
Administration
Adjunct Professor, LIM College, NY
Adjunct Professor, Long Island University,
NY
Lecturer, California Polytechnic State
University, Pomona, CA
President, Walter Heimler, Inc.

Principles of Marketing: Marketing Channels and Supply Chain Management

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12

Marketing Channels and

Supply Chains and the Value Delivery

Supply Chains and

Supply Chains and

Supply Chains and

Supply Chains and

What is the nature of marketing channels

The Nature and Importance of

The Nature and Importance of

Channel members add value by bridging the

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

The Nature and Importance of

Financing refers to acquiring and using funds to cover

The Nature and Importance of

The Nature and Importance of

Physical flow of products

Channel Behavior and Organization

Channel Behavior and Organization

Channel Behavior and Organization

Channel Behavior and Organization

Channel Behavior and Organization

Corporate marketing systems

Contractual marketing systems

Administered marketing systems

Channel Behavior and Organization

Channel Behavior and Organization

Channel Behavior and Organization

Manufacturer-sponsored retailer franchise system

Channel Behavior and Organization

Channel Behavior and Organization

Channel Behavior and Organization

Hybrid marketing channels exist when a

Channel Behavior and Organization

Increased sales and market coverage

Channel Behavior and Organization

Channel Design Decisions

Analyzing consumer needs

Setting channel objectives

Identifying major channel alternatives

Channel Design Decisions

Channel Design Decisions

Targeted levels of customer service

What segments to serve

Best channels to sue

Minimizing the cost of meeting customer

Channel Design Decisions

Nature of the company

Channel Design Decisions

Responsibilities of each channel member

Channel Design Decisions

Company sales force

Channel Design Decisions

Expand direct sales force

Assign outside salespeople to territories

Develop a separate sales force

Channel Design Decisions

Channel Design Decisions

Find distributors in different regions or