Marketing Channels and

Supply Chain
Management

Chapter 13
 Objectives
Know why companies use distribution
channels and understand the functions
that these channels perform.
Learn how channel members interact
and how they organize to perform the
work of the channel.
Know the major channel alternatives
that are open to a company.

13- 2
 Objectives

Comprehend how companies manage

(select, motivate, and evaluate) channel
members.

Understand the nature and importance

of marketing logistics and integrated
supply chain management.

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 Caterpillar
c

Dominates world’s
markets for heavy Caterpillar stresses dealer
construction and mining profitability, extraordinary
equipment. dealer support, personal
Independent dealers are relationships, dealer
key to success performance and full,
Dealer network is linked honest, and frequent
via computers communications

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What
What is
is a
a Distribution
Distribution
Channel?
Channel?
Your idea of distribution
channels
A set of interdependent
organizations (intermediaries)
involved in the process of
making a product or service
available for use or consumption
by the End-User.

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 Why
Why are are Marketing
Marketing
Intermediaries
Intermediaries
Greater efficiencyUsed?
Used?
in making goods available
to target markets.
Offer the firm more than it can achieve on it’s
own through the intermediaries:
 Contacts
 Experience
 Specialization
 Scale of operation
Match supply and demand.

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 Figure 13-1:
How Channel Members
Add Value

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Nature & Importance of
Marketing Channels

How Channel Members

Add Value to You
 Intermediaries
 Require fewer contacts to
move the product to the
final purchaser.
 Help match product
assortment demand
with supply.
 Help bridge major time,
place, and possession gaps
13- 8
 Distribution
Distribution Channel
Channel
• All Use Up Scarce Functions
Functions
Resources
• All May Often Be Performed Better Through Specialization
• All Can Often Be Shifted Among Channel Members

Risk
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
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Distribution
Channels
Manufacturer
Flow
Wholesaler physical
information
Jobber promotion
payment
ownership
Retailer

Consumer
 Figure 13-3:
Conventional Versus
Vertical
Marketing System

13- 11
 Types
Types of
of Vertical
Vertical Marketing
Marketing
Greater Systems
Systems
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Degree
Degree Contractual
of Contractual
of Contractual
Contractual Agreement
Agreement Among
Among
Direct
Direct Channel
Channel Members
Members
Control
Control

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
Lesser aa Few
Few Dominant
Dominant Members
Members

13- 12
 Vertical
Vertical Marketing
Marketing
Systems
Systems
Vertical
Vertical
Marketing
Marketing
Systems
Systems (VMS)
(VMS)

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
Wholesaler Franchise
Retailer
Retailer Franchise
Sponsored
Sponsored Organizations
Cooperatives
Cooperatives Organizations
Voluntary
VoluntaryChain
Chain

Manufacturer-
Manufacturer- Manufacturer-
Manufacturer-
Sponsored Service-Firm-
Service-Firm-
Sponsored Sponsored
Sponsored
Retailer Sponsored
Sponsored
Retailer Wholesaler
Wholesaler
Franchise Franchise
FranchiseSystem
System
FranchiseSystem
System Franchise
FranchiseSystem
System
13- 13
 Recent Changes
Downstream Channel + Upstream
Channel
 Value Delivery Network
 The network made up of the company,
suppliers, distributors, and ultimately
customers who “partner” with each
other to improve the performance of the
entire system.

13- 14
 Channel Behavior and
Organization

Horizontal Marketing
Systems
 Two or more
companies at one
level join together to
follow a new
marketing
opportunity.
Nestle and General Mills work together to
market cereal outside of North America

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In building its
value delivery
network, Palm
manages a whole
community of
suppliers,
assemblers,
resellers and
complementors
who must work
effectively
together.

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 Figure 13-4:
Multichannel Distribution
System

13- 17
Channel Behavior and
Organization

Multichannel
Distribution Systems
 Also called hybrid
marketing channels
 Occurs when a firm uses
two or more marketing
channels
 Hybrid marketing has
many advantages
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Channel Behavior and
Organization

Changing Channel Organization

 Disintermediation has hurt many
established companies

13- 19
 Channel Behavior and
Organization

Disintermediation:
Traditional brick and
mortar travel agencies
face competition from
online travel agencies,
airlines, and reverse
auction web sites such
as Priceline.
See how
Sunflower
Travel has
tried to adapt

13- 20
Channel
Channel Design
Design Decisions*
Decisions*

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Responsibilities
Responsibilities of
of Channel
Channel Members
Members

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives

Selecting
Selecting the
the Best
Best Alternative
Alternative
13- 21
Three Evaluative
Criteria

Economic Criteria

Control Criteria

Adaptability Criteria
13- 22
 Types of
Middleman
Company Salesforce
 Assign own salespeople to territory
Manufacturer's Agency
 Hire an independent firm with salespeople
(Industrial) Distributors
 find distributors to buy and carry your
product
Number of Channel Levels
 The number of intermediary
levels indicates the length of a
marketing channel.
 Direct Channels
 Indirect Channels
 Producers lose more control and
face greater channel complexity
as additional channel levels are
added.
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 Figure 13-2a:
Consumer
Marketing Channels

13- 25
 Figure 13-2b:
Business
Marketing Channels

13- 26
 Intensity of
Intensivedistribution
Distribution
many
 stock products in as many outlets as
possible
Selective Distribution
 select a number of dealers from those
willing to carry product
Exclusive Distribution
 give limited number of dealers exclusive
rights to distribute
few
 Channel Design
Decisions
Step 1: Analyzing
Consumer Needs
 Cost and feasibility
of meeting needs
must be considered

13- 28
 Channel Design
Decisions
Step 2:
Setting Channel Objectives
 Set channel objectives in terms of
targeted level of customer service
 Many factors influence channel
objectives

13- 29
GEICO’s channel objectives led them to sell
direct via telephone and the Web in order to
serve those who are looking to save money.

Geico

13- 30
 Channel Design
Decisions
Step 3:
Identifying Major Alternatives
 Types of
Intermediaries
 Company sales
force
 Manufacturer’s
agency
 Industrial
distributors

13- 31
 Channel Design
Decisions
Step 3:
Identifying Major Alternatives
 Number of marketing intermediaries
 Intensive distribution
 Selective distribution
 Exclusive distribution

 Responsibilities of channel members

13- 32
 Channel Design
Decisions
Step 4: Evaluating
Major Alternatives
 Economic criteria
 Sales, costs,
profitability
 Control issues
 Adaptive criteria

13- 33
Channel
Channel Management
Management
Decisions
Decisions
Selecting
Selecting

FEEDBACK
Motivating
Motivating

Evaluating
Evaluating

13- 34
 Distributor
Selection Criteria
Financial Health

Sales and Market factors

 Knowledge of the market
 Market coverage
 Number and quality of sales
personnel

Previous Success (or Enthusiasm for

the product)

13- 35
Channel Management
Decisions
Evaluating Channel
Members
 Performance
should be checked
against standards
 Channel members
should be rewarded
or replaced as
dictated by
performance

13- 36
Channel Behavior and
Organization

Channel Conflict
 Occurs when channel members
disagree on roles, activities, or
rewards.
 Types of Conflict:
 Horizontal conflict: occurs among
firms at the same channel level
 Vertical conflict: occurs among firms
at different channel levels
13- 37
 Physical
Distribution
Market
planning, implementing, and
Logistics
controlling the physical
flow of materials and final
goods from point of origin
to the end user.
Marketing Logistics and
Supply Chain
Management

Marketing Logistics
 Outbound distribution
 Inbound distribution
 Reverse distribution
 Involves the entire supply chain
management system

13- 39
 Figure 13-5:
Supply Chain
Management

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Thought for the Day
supply chain distribution accounts for
50 cents of every dollar spent

promotion accounts for only 2 cents!

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.

Lower Distribution
Costs;
Lower Customer
Service Levels 13- 42
 Logistics
Logistics
Systems
Systems
Costs
Costs Order
OrderProcessing
Processing
Minimize
MinimizeCosts
Costsofof Submitted
Submitted
Attaining
AttainingLogistics
Logistics Processed
Processed
Objectives
Objectives Shipped
Shipped

Logistics

Transportation Functions Warehousing

Warehousing
Water, Truck, Storage
Storage
Rail, Distribution
Distribution
Pipeline & Air

Inventory
Inventory
When
Whento toorder
order
How
Howmuch
muchto toorder
order
Just-in-time
Just-in-time

13- 43
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcestotomarkets
markets
Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
13- 44
Choosing
Choosing Transportation
Transportation
Modes
Modes
Checklist for Choosing
Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.

13- 45
 BusinessNow

Celarix Video Clip

Arranging
transportation
for goods can
be challenging
Click the picture above to play video

13- 46
 Integrated
Integrated Logistics
Logistics
Management
Management
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside
the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics

13- 47
Many companies
use sophisticated,
system-wide supply
chain management
software, such as
that which is
available from
Oracle and other
software providers.

13- 48