Part III

Designing a Customer-Driven Strategy and Mix

11. Marketing channels: delivering customer
value
11. Marketing channels: delivering customer value
In this chapter you learn:

o Supply chains and the value delivery network

o The nature and importance of marketing channels
o Channel behaviour and organisation
o Channel design decisions
o Channel management decisions
o Marketing logistics and supply chain management

| page 5
11. Marketing channels: delivering customer value
Supply chains and the value delivery network

Supply chain partners:

1. Upstream partners:
Raw material suppliers, components, parts, information, finances
and expertise to create a product or service.

2. Downstream partners:
The marketing channels or distribution channels that
look toward the customer.

| page 7
11. Marketing channels: delivering customer value
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 organising a chain of
resources and activities with the goal of creating customer
value.

| page 8
11. Marketing channels: delivering customer value
Supply chains and the value delivery network

Value delivery network:

A network composed of the company, suppliers, distributors and,

ultimately, customers who ‘partner’ with each other to improve the
performance of the entire system in delivering customer value.

| page 9
11. Marketing channels: delivering customer value
The nature and importance of marketing channels
The role of distributors / intermediaries:

1. Distributors / Intermediaries offer producers greater efficiency in

making goods available to target markets.

2. Through their contacts, experience, specialisation and scale of

operations, intermediaries usually offer the firm more than it can
achieve on its own.

3. From an economic view, intermediaries transform the assortment

of products into assortments wanted by consumers.

4. Channel members add value by bridging the major time, place and
possession gaps that separate goods and services from those who
would use them.
| page 10
 11. Marketing channels: delivering customer value
The nature and importance of marketing channels
How adding a distributor reduces the number of channel transactions

Source: Kotler: Principles (2016), p 378

| page 11
11. Marketing channels: delivering customer value
The nature and importance of marketing channels

Information

Promotion

Contact

Matching

Negotiation

Physical distribution Value added

by
Risk taking channel members
Financing

| page 12
 11. Marketing channels: delivering customer value
The nature and importance of marketing channels
Consumer and business marketing channels

Source: Kotler: Principles (2016), p 379

| page 13
11. Marketing channels: delivering customer value
The nature and importance of marketing channels

The institutions within the channel

are connected by types of flows:

o Physical flow of products

o Flow of ownership
o Payment flow
o Information flow
o Promotion flow.

| page 14
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Marketing channel consists of firms that have partnered for their
common good with each member playing a specialised role.

Disagreement among marketing channel members on goals, roles

and rewards—who should do what and for what rewards.

Channel conflict

Vertical
conflict
Horizontal
conflict

| page 15
11. Marketing channels: delivering customer value
Channel behaviour and organisation

Conventional distribution Producer

channels:
One or more independent
producers, wholesalers and Wholesaler
retailers, each a separate
business seeking maximise its
own profits, even at the expense
of profits for the system as a Retailer
whole.

Consumer

| page 16
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Vertical marketing systems
(VMSs)
VMSs provide channel Producer
leadership and consist of
producers, wholesalers and Wholesaler Retailer
retailers acting as a unified
system and consist of:

1. Corporate marketing
systems
2. Contractual marketing
systems
3. Administered marketing Consumer
systems

| page 17
 11. Marketing channels: delivering customer value
Channel behaviour and organisation

Producer

Wholesaler Retailer

1. Corporate vertical marketing CVMS

system (CVMS):
Integration of successive stages of
production and distribution under
single ownership
Consumer

| page 18
11. Marketing channels: delivering customer value
Channel behaviour and organisation
2. Contractual vertical
marketing system
Independent firms at Producer
different levels of
production and Wholesaler Retailer
distribution who join
together through
contracts to obtain more
economies or sales
impact than each could
achieve alone. (e.g.
Franchise organisation)
Consumer

| page 19
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Franchise: Example for a Contractual vertical marketing system

A Franchise organisation
links several stages in the production distribution process
o Manufacturer-sponsored retailer franchise system
o Manufacturer-sponsored wholesaler franchise system
o Service firm-sponsored retailer franchise system.

| page 20
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Franchise: Example for a Contractual vertical marketing system

International Franchising Association: www.franchise.org

| page 21
11. Marketing channels: delivering customer value
Channel behaviour and organisation

3. Administered vertical marketing system

Have no formal contractual obligation, corporate ownership

of the distribution channel.
Instead, one member of the distribution channel, generally
though sheer size, effectively control the activities of the
other members of the distribution channel, e.g. Walmart.

| page 22
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Horizontal marketing systems
Two or more companies at one level join together to follow a
new marketing opportunity. Companies combine financial,
production or marketing resources to accomplish more than
any one company could alone.

| page 23
11. Marketing channels: delivering customer value
Channel behaviour and organisation
Multichannel distribution systems (hybrid marketing channels)
A single firm sets up two or more marketing channels to reach one or
more customer segments.

| page 24
 11. Marketing channels: delivering customer value
Channel behaviour and organisation
Multi-channel distribution system

Source: Kotler: Principles (2016), p 384

| page 25
11. Marketing channels: delivering customer value
Channel behaviour and organisation

Changing the channel: Channel Disintermediation:

A product or service producers cut out intermediaries and go

directly to final buyers, or when radically new types of channel
intermediaries displace traditional ones.

| page 26
11. Marketing channels: delivering customer value
Channel design decisions

1. Analysing customer
needs

4. Designing Channel
international design 2. Setting channel
distribution channels decisions objectives

3. Identifying and
assessing of major
alternatives

| page 27
11. Marketing channels: delivering customer value
Channel design decisions

2. Setting channel
objectives

o Targeted levels of customer service

o What segments to serve
o Best channels to use
o Minimising the cost of meeting customer service requirements.

| page 29
11. Marketing channels: delivering customer value
Channel design decisions
3. Identifying and
assessing major
alternatives
o Types of intermediaries
o Number of marketing intermediaries
o Responsibilities of channel members

Intensive distribution
• As many outlets as possible
Exclusive distribution
• Limited distribution network
Selective distribution
• Specialised dealers
| page 30
11. Marketing channels: delivering customer value
Channel design decisions
3. Identifying and
assessing major
alternatives

Assessment:

Each alternative should be evaluated against:

o Economic criteria
o Control
o Adaptive criteria

| page 31
11. Marketing channels: delivering customer value
Channel design decisions
4. Designing
international
distribution channels

o Channel systems can vary from country to country.

o Must be able to adapt channel strategies to the existing
structures within each country.

| page 32
11. Marketing channels: delivering customer value
Channel management decisions

Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members

| page 33
11. Marketing channels: delivering customer value
Channel management decisions
Public policy and distribution decisions:

Exclusive distribution:
The seller allows only certain outlets to carry its products.

Exclusive dealing:
The seller requires that the sellers not handle competitor’s
products.

Exclusive territorial agreement:

Producer or seller limit territory.

Tying agreements:
Agreements where the dealer must take most or all of the line.

| page 34
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management

What is 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.

| page 35
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management

Marketing logistics involves:

1. Outbound distribution
Moving products from the factory to resellers and consumers.

2. Inbound distribution
Moving products and materials from suppliers to the factory.

3. Reverse distribution
Moving broken, unwanted or excess products returned by
consumers or resellers.

| page 36
 11. Marketing channels: delivering customer value
Marketing logistics and supply chain management

Supply chain management

Source: Kotler: Principles (2016), p 384

| page 37
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management

Supply chain management

Process of managing
o upstream and
o downstream
value-added flows of materials, final goods and
related information among suppliers, the company,
resellers and final consumers.
| page 38
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions
1. Warehousing

2. Inventory management

3. Transportation

4. Logistics information management

5. Cross-functional teamwork inside the company

6. Building logistics partnership

7. Third-party logistics

| page 39
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

1. Warehousing

Warehousing decisions:
o How many?
o What types?
o Where to locate?
o Warehouses
o Distribution centres

| page 40
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

2. Inventory management

Inventory management systems:

o Just-in-time systems
o RFID (radio frequency identification):
Knowing exact product location
o Smart shelves:
Placing orders automatically

| page 41
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

3. Transportation

Rail
Truck Water

Pipeline Internet
Air

| page 42
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

4. Logistics information management

Logistics information management (LIM)

is the management of the flow of information,

including customer orders, billing, inventory levels
and customer data:

o Electronic data interchange (EDI)

o Vendor-managed inventory (VMI)

| page 43
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

5. Cross-functional teamwork inside the company

Mar-
keting Fi-
Sales nance

Opera- Pur-
tions chasing

| page 44
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

6. Building logistics partnership

Logistics partnership

Cooperation with partners outside the company:

o Cross-functional teams
o Cross-company teams
o Shared projects

| page 45
11. Marketing channels: delivering customer value
Marketing logistics and supply chain management
Major logistics functions

7. Third-party logistics

Third-party logistics 3PL

Outsourcing of logistics functions to

third-party logistics providers

| page 46
VIETNAMESE-GERMAN UNIVERSITY
Department of Marketing and Student Recruitment

Le Lai Street, Hoa Phu Ward,

Thu Dau Mot City, Binh Duong Province, Vietnam
Phone +84 (0)650 222 0990, ext. 127
Hotline +84 (0)988 54 52 54
Email study@vgu.edu.vn
Web www.vgu.edu.vn

47 VGU I VIETNAMESE-GERMAN UNIVERSITY