12

Principles of Marketing

Marketing Channels and

Supply Chain Management
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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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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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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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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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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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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Channel Behavior and
Organization

Channel Behavior

Channel conflict refers to disagreement

over goals, roles, and rewards by
channel members
• Horizontal conflict
• Vertical conflict

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Channel Behavior and
Organization

Channel Behavior

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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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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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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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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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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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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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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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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 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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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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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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Channel Management Decisions

Channel management involves:

• Selecting channel members
• Managing channel members
• Motivating channel members
• Evaluating channel members

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 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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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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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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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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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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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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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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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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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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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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Marketing Logistics and
Supply Chain Management

Major Logistics Functions

Storage warehouses are designed to

store goods, not move them

Distribution centers are designed to

move goods, not store them

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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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Marketing Logistics and
Supply Chain Management

Major Logistics Functions

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
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 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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Marketing Logistics and
Supply Chain Management

Integrated Logistics Management

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

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Marketing Logistics and
Supply Chain Management

Integrated Logistics Management

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

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