Part 5: Distribution Decisions

13. Marketing Channels and Supply Chain Management 14. Direct Marketing and Marketing Resellers: Retailers and Wholesalers

Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter 13
Marketing Channels and Supply Chain Management

Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter Objectives
1. Describe the types of marketing channels and roles they play in marketing strategy. 2. Outline the major channel strategy decisions. 3. Describe the concepts of channel management, conflict, and cooperation. 4. Identify and describe the different vertical marketing systems. 5. Explain the roles of logistics and supply-chain management in an overall distribution strategy. 6. Identify the major components of a physical distribution system. 7. Compare the major modes of transportation. 8. Discuss how transportation intermediaries and combined transportation modes can improve physical distribution. 9. Identify and briefly describe the different types of warehousing.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

13-3

The Role of Marketing Channels in Marketing Strategy  Channels provide the means by which the firm moves the goods and services it produces to ultimate users Facilitate the exchange process by cutting the number of contacts necessary Adjust for discrepancies in the market¶s assortment of goods and services via sorting Standardize exchange transactions Facilitate searches by both buyers and sellers Copyright © 2006 by South-Western. Inc. a division of Thomson Learning. 13-4 . All rights reserved.

along with ownership title. also called a jobber or distributor Copyright © 2006 by South-Western. also called a distribution channel  Marketing intermediary wholesaler or retailer intermediary: that operates between producers and consumers or business users. from producers to consumer or business user. All rights reserved. Inc. 13-5 . also called a middleman  Wholesaler marketing intermediary that takes Wholesaler: title to goods and then distributes these goods further.Types of Marketing Channels  Marketing channel system of marketing channel: institutions that promotes the physical flow of goods and services. a division of Thomson Learning.

a division of Thomson Learning. 13-6 . All rights reserved. Types of Marketing Channels Consumer Goods Copyright © 2006 by South-Western. Inc.

a division of Thomson Learning. Types of Marketing Channels Business Goods Services Copyright © 2006 by South-Western. All rights reserved. 13-7 . Inc.

13-8 . Inc. All rights reserved. Direct Selling Direct channel marketing channel channel: that moves goods directly from a producer to ultimate user Direct selling strategy designed to selling: establish direct sales contract between producer and final user Copyright © 2006 by South-Western. a division of Thomson Learning.

a division of Thomson Learning. 13-9 . Inc. Channels Using Marketing Intermediaries Producer to wholesaler to retailer to consumer Producer to wholesaler to business user Producer to agent to wholesaler to retailer to consumer Producer to agent to wholesaler to business user Producer to agent to business user Copyright © 2006 by South-Western. All rights reserved.

 Dual Distribution Network that moves Distribution: products to a firm¶s target market through more than one marketing channel  Reverse Channels Channels designed to Channels: return goods to their producers Copyright © 2006 by South-Western. 13-10 . All rights reserved. a division of Thomson Learning. Inc.

Inc. All rights reserved. a division of Thomson Learning. 13-11 .Channel Strategy Decisions  Selection of a Marketing Channel  Factors which impact the selection of a marketing channel include: Market factors Product factors Organizational factors Competitive factors Copyright © 2006 by South-Western.

. Factors influencing Marketing Channel Strategies Characteristics of Short Channels Market factors Business users Geographically concentrated Extensive technical knowledge and regular servicing required Large orders Product factors Perishable Complex Expensive Characteristics of Long Channels Consumers Geographically diverse Little technical knowledge and regular servicing not required Small orders Durable Standardized Inexpensive 13-12 Copyright © 2006 by South-Western. Inc. a division of Thomson Learning. All rights reserved.

a division of Thomson Learning.Characteristics of Short Channels Producer factors Manufacturer has adequate resources to perform channel functions Broad product line Limited product line Competitive factors Manufacturing feels satisfied with marketing intermediaries¶ performance in promoting products Characteristics of Long Channels Manufacturer lacks adequate resources to perform channel functions Channel control important Channel control not important Manufacturer feels dissatisfied with marketing intermediaries¶ performance in promoting products Copyright © 2006 by South-Western. Inc. 13-13 . All rights reserved.

13-14 . a division of Thomson Learning. Determining Distribution Intensity Distribution intensity: number of intermediaries through which a manufacturer distributes its goods Copyright © 2006 by South-Western. All rights reserved. Inc.

Inc. a division of Thomson Learning. Intensive distribution channel policy in distribution: which a manufacturer of a convenience product attempts to saturate the market  Selective distribution channel policy in distribution: which a firm chooses only a limited number of retailers to handle its product line  Exclusive distribution channel policy in distribution: which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area Copyright © 2006 by South-Western. All rights reserved. 13-15 .

 Legal problems of exclusive distribution Exclusive-dealing agreement: arrangement between manufacturer and e-marketing intermediary that prohibits the intermediary from handling competing product lines Closed sales territories: exclusive geographic selling region of a distributor Tying agreement: Arrangement that requires a marketing intermediary to carry items other than those they want to sell Copyright © 2006 by South-Western. Inc. 13-16 . All rights reserved. a division of Thomson Learning.

13-17 . All rights reserved. Inc. Who Should Perform Channel Functions? Fundamental principle that governs channel decisions Channel members can shift responsibilities for the performance of certain marketing functions. but they cannot eliminate central functions Copyright © 2006 by South-Western. a division of Thomson Learning.

.Channel Management and Leadership  Channel Captain a dominant and controlling Captain: member of a marketing channel  Channel Conflict Horizontal Conflict Most often. a division of Thomson Learning. horizontal conflict causes sparks between different types of marketing intermediaries that handle similar products Sometimes results from disagreements among channel members at the same level 13-18 Copyright © 2006 by South-Western. All rights reserved. Inc.

a division of Thomson Learning. All rights reserved.S. Inc. market in competition with that firm¶s own domestic output Viewed by producers as undesired competition Copyright © 2006 by South-Western. 13-19 .Vertical Conflict Channel members at different levels find many reasons for disputes Example: when retailers develop private brands to compete with producers¶ brands or when producers establish their own retail outlets or WWW Sites The Gray Market Grey Good: product made abroad under license from a U. firm and then sold in the U.S.

is the desired antidote to channel conflict It is Best achieved when all channel members regard themselves as components of the same organization Copyright © 2006 by South-Western. achieved via effective cooperation among channel members. Inc. 13-20 . Achieving Channel Cooperation Channel Cooperation. All rights reserved. a division of Thomson Learning.

Vertical Marketing Systems  Vertical marketing system (VMS): planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration Backward integration Copyright © 2006 by South-Western. All rights reserved. 13-21 . Inc. a division of Thomson Learning.

13-22 . All rights reserved. Administered marketing system VMS system: that achieves channel coordination when a dominant channel member exercises its power  Corporate marketing system a VMS in system: which a single owner operates at each stage in its marketing channel Copyright © 2006 by South-Western. a division of Thomson Learning. Inc.

All rights reserved. a division of Thomson Learning. Contractual marketing system VMS that system: coordinates channel activities through formal agreements among channel members like: Wholesaler-Sponsored Voluntary Chains Retail Cooperatives Franchises Copyright © 2006 by South-Western. 13-23 . Inc.

13-24 . Inc.Logistics and Supply Chain Management  Supply (value) chain sequence of chain: suppliers that contributes to the creation and delivery of a good or service Upstream management Downstream management Copyright © 2006 by South-Western. All rights reserved. a division of Thomson Learning.

All rights reserved. 13-25 . a division of Thomson Learning. Figure 13.6 The Supply Chain of a Manufacturing Company Copyright © 2006 by South-Western. Inc.

a division of Thomson Learning. Inc. All rights reserved. Radio Frequency Identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance  Enterprise Resource Planning Software system that consolidates data among a firm¶s units  Logistical Cost Control Third party (contract) logistics firm: company that specializes in handling logistics activities for other firms Copyright © 2006 by South-Western. 13-26 .

All rights reserved.Physical Distribution  A company¶s physical distribution system contains the following elements: Customer Service Transportation Inventory Control Protective packaging and materials handling Order Processing Warehousing Copyright © 2006 by South-Western. Inc. a division of Thomson Learning. 13-27 .

13-28 .7 Allocation of Physical Distribution Expenditures Copyright © 2006 by South-Western. Figure 13. Inc. a division of Thomson Learning. All rights reserved.

13-29 . All rights reserved. a division of Thomson Learning. Inc. The Problem of Suboptimization Condition that results when individual operations achieve their objectives but interfere with progress toward broader organizational goals  Customer Service Standards Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers Copyright © 2006 by South-Western.

 Transportation Class Rate Commodity Rate Classes of Carriers Common carriers move freight via all modes of transportation for the general public Contract carriers do not serve the general public Private carriers do not offer services for hire. a division of Thomson Learning. 13-30 . Inc. but provide transportation services solely for internally generated freight Copyright © 2006 by South-Western. All rights reserved.

a division of Thomson Learning. Major Modes of Transportation Railroads Motor Carriers Water Carriers Pipelines Air Freight Freight Forwarders and Supplemental Carriers Intermodal Coordination Copyright © 2006 by South-Western. 13-31 . Inc. All rights reserved.

 Comparison of Transport Modes Mode Speed Dependability in Meeting Schedules Average Average High High High Frequency of Shipments Availability in Different Locations Low Limited Very extensive Very limited Average Flexibility in Handling Cost Rail Water Truck Pipeline Air Average Very slow Fast Slow Very fast Low Very low High High Average High Very high Average Very low Low Average Very low High Low Very high Copyright © 2006 by South-Western. All rights reserved. a division of Thomson Learning. Inc. 13-32 .

 Warehousing Storage warehouse Distribution warehouse Automated Warehouse Technology Distribution costs can be cut and customer service improved by automating warehouse systems Copyright © 2006 by South-Western. a division of Thomson Learning. Inc. All rights reserved. 13-33 .

All rights reserved. a division of Thomson Learning. Inc. 13-34 .Warehouse Locations Major logistics decision involving the number and location(s) of storage facilities Two cost categories influence the choice: yWarehousing and materialshandling costs yDelivery costs from warehouse to customers Copyright © 2006 by South-Western.

 Inventory Control Systems Important since firms need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Just-in-time (JIT) production Vendor-managed inventory (VMI)  Order Processing Stockout: order for a product that is unavailable for shipment or sale Copyright © 2006 by South-Western. All rights reserved. 13-35 . Inc. a division of Thomson Learning.

a division of Thomson Learning. All rights reserved. 13-36 . Protective Packaging and Materials Handling Materials Handling: set of activities that move production inputs and other goods within plants. Inc. and transportation terminals Unitizing: process of combining individual materials into large loads for easy handling Containerization: process of combining several unitized loads into a single. well-protected load Copyright © 2006 by South-Western. warehouses.