Chap Distribution Channels and Supply Chain Management

Chapter
Distribution
Channels
and Supply Chain
Management
Copyright © 2008 Pearson Education Canada Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain why companies use distribution
channels and discuss the functions that 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. Discuss the nature and importance of physical
distribution
Copyright © 2008 Pearson Education Canada 12-2 Principles of Marketing, Seventh Canadian Edition
Nature and Importance of
Distribution Channels
• Marketing channel
– Set of interdependent organizations involved
in the process of making a product or service
available for use or consumption by the
consumer or business user.
Marketing Channels
• Channel choices affect other decisions in
the marketing mix
– Pricing, marketing communications
• A strong distribution system can be a
competitive advantage
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• Channel decisions involve long-term

commitments to other firms
Marketing Channels
• How Channel
Members Add Value
(Figure 12.1)
– Fewer contacts.
– Match product
assortment demand
with supply.
– Bridge, time, place, and
possession gaps that
separate products from
users.
How Channel Members Add Value
• Channel members add value by bridging
the major time, place, and possession
gaps.
• Key functions:
– Information – Physical Distribution
– Promotion – Financing
– Contact – Risk taking
– Matching – Environmental
– Negotiation sustainability
Marketing Channels
• 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.
Figure 12.2
Customer and Business
Distribution Channels
Channel Members are Connected
via a Variety of Flows
• Physical Flow
• Payment Flow
• Information Flow
• Promotion Flow
• Flow of Ownership
Channel Behaviour and
Organization
• Conventional Distribution Channels
– Consist of one or more independent channel members
– Each seeking to maximize its own profits
– Often result in poor performance
• Vertical Marketing Systems
– Producers, wholesalers, and retailers act as a unified
system
– One channel member owns, has contracts with, or has
so much power that they all cooperate
– Benefits should include greater control, less conflict,
and economies of scale due to the size of the system
Figure 12.3
Conventional vs. Vertical
Marketing Channel
Figure 12.4
Multichannel
Distribution System
Channel Design Decisions
• Step 1: Analyzing Consumer Needs
– Cost and feasibility of meeting needs must be
considered
• Step 2: Setting Channel Objectives
– Set channel objectives in terms of targeted level of
customer service
– Many factors influence channel objectives
• Nature of the company (size/financial position) and its
products
• Marketing intermediaries
• Competition Video Snippet
• Marketing environment Hasbro targets
consumers through
channels
• Step 3: Identifying Major Alternatives
– Types of intermediaries
• Company sales force, manufacturer’s agency,
industrial distributors
– Number of marketing intermediaries
• Intensive, selective, and exclusive distribution
– Responsibilities of channel members
• Step 4: Evaluating Major Alternatives
– Economic criteria
– Control issues
– Adaptive criteria
• Designing International Distribution
Channels
– Global marketers usually adapt their channel
strategies to structures that exist within
foreign countries
– Key challenges:
• May be complex or hard to penetrate
• May be scattered, inefficient, or totally lacking
Marketing Logistics and Supply
Chain Management
• Marketing logistics (physical distribution).
– Tasks involved in planning, implementing,
and controlling the physical flow of materials,
final goods and related information
• Supply chain management.
– Managing upstream and downstream value-
added flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers
Chain Management
• Marketing Logistics
– Outbound distribution
– Inbound distribution
– Reverse distribution
– Involves the entire supply chain management
system
Figure 12.5
Supply Chain Management
Chain Management
• Why Greater Emphasis is Being Placed on
Logistics:
– Offers firms a competitive advantage
– Can yield cost savings
– Greater product variety requires improved
logistics
– Improvements in distribution efficiency are
possible due to information technology
Chain Management
• Major Logistics Functions
– Warehousing
– Inventory Management
– Transportation
– Logistics Information Management

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• Channel decisions involve long-term

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