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CHAPTER 10

Marketing Channels and Supply Chain Management

Supply Chains, Distribution Channels, and Value Delivery Networks 

Supply Chains
± Producing & making products available to buyers requires building relationships with ³upstream´ and ³downstream´ supply chain partners. 

Value Delivery Networks
± Partnering among the company, suppliers, distributors, and customers improves the performance of the whole system. 

Distribution Channel:
± Set of interdependent organizations involved in making a product or service available for use or consumption by the consumer or business user.
Copyright 2007, Prentice-Hall Inc. 10-2

Consumer and Business Marketing Channels
What is the minimum $ cost of any channel?
Consumer Consumer Consumer Business Customer Business Customer Business Customer

Retailer

Retailer

Business Distributor

Business Distributor

Wholesaler

Manufacture's Representative Or sales branch

Producer Channel 1

Producer Channel 2

Producer Channel 3

Producer Channel 1

Producer Channel 2

Producer Channel 3

A. Customer marketing channels
Copyright 2007, Prentice-Hall Inc.

B. Business marketing channels
10-3

Consumer and Business Marketing Channels
Why does your professor depict the channels in this sheet in up side down order (see figure 10-2)?
Consumer Consumer Consumer Business Customer Business Customer Business Customer

Retailer

Retailer

Business Distributor

Business Distributor

Wholesaler

Manufacture's Representative Or sales branch

Producer Channel 1

Producer Channel 2

Producer Channel 3

Producer Channel 1

Producer Channel 2

Producer Channel 3

A. Customer marketing channels
Copyright 2007, Prentice-Hall Inc.

B. Business marketing channels
10-4

Consumer and Business Marketing Channels
Why do the terms of ³Consumer´ and ³Business consumer´ have a
Consumer Consumer Consumer Business Customer Business Customer

on them?
Business Customer

Retailer

Retailer

Business Distributor

Business Distributor

Wholesaler

Manufacture's Representative Or sales branch

Producer Channel 1

Producer Channel 2

Producer Channel 3

Producer Channel 1

Producer Channel 2

Producer Channel 3

A. Customer marketing channels
Copyright 2007, Prentice-Hall Inc.

B. Business marketing channels
10-5

Customer marketing channels Copyright 2007.Consumer and Business Marketing Channels Each member depicted in a channel of distribution (excluding consumers) is an Independent business/organization « Sears is an example. Prentice-Hall Inc. Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A. B. Business marketing channels 10-6 .

Consumer and Business Marketing Channels Note that each channel intermediary brings the product and/or its ownership closer To the final buyer/user/renter. Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A. Business marketing channels 10-7 . Prentice-Hall Inc. B. Customer marketing channels Copyright 2007.

Prentice-Hall Inc. Customer marketing channels Copyright 2007.Consumer and Business Marketing Channels As small firms grow (geographically or in terms of intensity). B. they will tend to move from bottom to top from each of the depictions of the B C and B B distribution channel. Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A. Business marketing channels 10-8 .

Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A.Consumer and Business Marketing Channels Business channels may use multiple channels to service the same or different market segments for the same or different products. Customer marketing channels Copyright 2007. B. Prentice-Hall Inc. Business marketing channels 10-9 .

Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A.Consumer and Business Marketing Channels When a product¶s substantially changes form or substance. B. Prentice-Hall Inc. it marks the end of one Channel of distribution begins a new channel. Business marketing channels 10-10 . Customer marketing channels Copyright 2007.

Prentice-Hall Inc.Consumer and Business Marketing Channels ³Let¶s eliminate the middle man³. B. Who are they? Why doesn¶t his elimination not necessarily save money or/and reduce prices to customers? Consumer Consumer Consumer Business Customer Business Customer Business Customer Retailer Retailer Business Distributor Business Distributor Wholesaler Manufacture's Representative Or sales branch Producer Channel 1 Producer Channel 2 Producer Channel 3 Producer Channel 1 Producer Channel 2 Producer Channel 3 A. Customer marketing channels Copyright 2007. Business marketing channels 10-11 .

Marketing in Action Innovative Distribution Calyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web. cutting a week or more off the time it takes flowers to reach consumers via conventional retail channels. Copyright 2007. Prentice-Hall Inc. 10-12 .

10-13 . Prentice-Hall Inc.  Offers the firm more than it can achieve on its own through the intermediaries: ± Contacts ± Experience ± Specialization ± Scale of operation Copyright 2007.How Channel Members Add Value  The use of intermediaries results from their greater efficiency in making goods available to target markets.

10-14 .Figure 10-1 How Distributors Reduce the Number of Channel Transactions Copyright 2007. Prentice-Hall Inc.

Prentice-Hall Inc.Key Channel Functions  Transaction Completing: ± Information ± Promotion ± Contact ± Matching ± Negotiation  Transaction Fulfilling: ± Physical distribution ± Financing ± Risk taking Copyright 2007. 10-15 .

Prentice-Hall Inc. 10-16 .Figure 10-2 Consumer and Business Marketing Channels Copyright 2007.

± All members cooperate to attain overall channel goals. wholesaler to retailer).  Some conflict can be healthy competition.  If this does not happen. retailer to retailer). ± Vertical Conflict occurs between different levels of the same channel (e. Prentice-Hall Inc. conflict occurs: ± Horizontal Conflict occurs among firms at the same level of the channel (e.Channel Behavior  The channel will be most effective when: ± Each member is assigned tasks it can do best.g. Copyright 2007..g.. 10-17 .

00 per unit. ± What would be the final retail price if all the members of the channel received their desired markups? Copyright 2007. the retailer desires a 40% markup. 10-18 . And finally. Assume furthermore that the wholesaler desires 30% markup based on his selling price.A ³Traditional´ Channel of Distribution Channel Markup Problem  Channel markups throughout a traditional channel (C R W P) required some final negotiations among channel partners. ± Assume that a producer¶s cost of goods sold equals $2. Prentice-Hall Inc. and he desires a 20% markup based on his cost.

43 Retailer 40% $3.40 Wholesaler $2.40 Selling price (SP) $2.40 $1. 10-19 .43 $2. Prentice-Hall Inc.Answer Channel Member Producer Desired markup 20% on cost 30% on SP COGS $2.29 $5.00 $ Markup $.72 Copyright 2007.03 $3.

Prentice-Hall Inc. Copyright 2007.Marketing in Action Channel Conflict Goodyear¶s conflicts with its independent dealers have caused hard feelings and flattened the firm¶s replacement tire sales. 10-20 .

I.Let·s Talk! Branded goods using the Wolfgang Puck. Emeril¶s. Prentice-Hall Inc. T. 10-21 . and Starbuck¶s names are now being sold in grocery stores. Taco Bell. Friday¶s. Which stands the greatest risk of causing channel conflict? Why? Copyright 2007. Look at the items at right.G.

 One channel member owns the other. and retailers act as a unified system. 10-22 . or has so much power that they all cooperate. Copyright 2007. has contracts with them. Prentice-Hall Inc. wholesalers.Vertical Marketing System  A distribution channel structure in which producers.

Vertical Marketing System Copyright 2007.Figure 10-3 Conventional Marketing Channel Vs. Prentice-Hall Inc. 10-23 .

Types of Vertical Marketing Systems  Corporate VMS ± Corporation owns production and distribution.  Administered VMS ± Leadership through the size and power of dominant channel members. ± Includes franchise organizations. Copyright 2007. 10-24 . ± Leadership could be manufacturer or retailer. ± Coordination and conflict through regular organizational channels.  Contractual VMS ± Individual firms who join through contracts. Prentice-Hall Inc.

franchise. Prentice-Hall Inc.Franchise Organizations  Manufacturer-Sponsored Retailer Franchise ± Ford and its independent franchised dealers  Manufacturer-Sponsored Wholesaler Franchise ± Coca-Cola¶s licensed bottlers  Service-Firm Sponsored Retailer Franchise ± McDonald¶s.org/ Copyright 2007. and Holiday Inn What type of franchises are illustrated above? http://www. 10-25 . Avis.

Innovations in Marketing Systems  Horizontal Marketing System ± Two or more companies at one level join together to follow a new marketing opportunity. Copyright 2007. ± Also called hybrid marketing system. Prentice-Hall Inc. 10-26 .  Multichannel Distribution System ± Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments.

10-27 . Prentice-Hall Inc.Figure 10-4 Marketing Channels Copyright 2007.

10-28 . Copyright 2007. Prentice-Hall Inc. or when radically new types of channel intermediaries displace traditional ones.Disintermediation Occurs when product and service producers cut out intermediaries and go directly to final buyers. The Internet has made the disintermediation of many traditional retailers possible.

Copyright 2007. Prentice-Hall Inc. 10-29 .Marketing in Action Disintermediation Black & Decker chose to avoid disintermediation by not using the Internet to sell their products. but rather direct consumers to stores that carry the firm¶s products.

10-30 . Prentice-Hall Inc.  Setting Channel Objectives ± State objectives in terms of targeted levels of customer service.  Identifying Major Alternatives  Evaluating the Major Alternatives Copyright 2007.Channel Design Decisions  Analyzing Consumer Needs ± Firm must balance needs against costs and consumer price preferences.

Identifying Major Alternatives  Types of Intermediaries ± Company sales force  Employed directly by the firm in outside sales or insides sales capacity. 10-31 . Prentice-Hall Inc. ± Manufacturer¶s agency  Independent firms whose sales people handle several companyies¶ products simultaneously ± Industrial distributors Copyright 2007.

10-32 . ± Exclusive distribution  Granting a limited number of outlets the exclusive right to sell a firm¶s brands in their territory. but fewer than all outlets that are willing to carry a product. Copyright 2007. ± Selective distribution  The use of more than one. Prentice-Hall Inc.Identifying Major Alternatives  Number of intermediaries ± Intensive distribution  Stocking the product in as many outlets as possible.

com Copyright 2007.maytag.Marketing in Action Selective Distribution Maytag uses selective distribution like many furniture and appliance manufacturers. Prentice-Hall Inc. 10-33 . The ³Where to Buy´ page on their Web site assists buyers in finding stores that carry the Maytag brand. http://www.

10-34 . Prentice-Hall Inc.Let·s Talk! The Roomba by iRobot is a self-propelled vacuum cleaner that avoids falling off of stairs.$399. Prices range from $150 . vacuums along walls and furniture. and recharges itself. How many intermediaries would be appropriate for this product? Why? Copyright 2007.

10-35 .  Agreements should cover: ± Pricing policies ± Conditions of sale ± Territorial rights and territorial boundaries ± Specific services to be performed Copyright 2007.Identifying Major Alternatives  Channel Member Responsibilities: ± The terms and responsibilities of intermediaries must be agreed upon by the producer and intermediary. Prentice-Hall Inc.

10-36 . and profitability of different channel alternatives. Copyright 2007. costs.Evaluating the Major Alternatives  Economic Criteria: ± A company compares the likely sales.  Control Issues: ± How and to whom should control be given?  Adaptive Criteria: ± Consider long-term commitment vs. Prentice-Hall Inc. flexibility.

despite their enormous size. multilayered distribution systems that are hard for Western firms to penetrate. Prentice-Hall Inc.  Channel systems vary widely from country to country.International Channel Decisions  Every country has its own unique distribution system that has evolved over time. 10-37 . ± Countries such as Japan have complex. ± India and China have inefficient distribution systems. Copyright 2007.

. Prentice-Hall Inc. 10-38  Evaluating channel members Copyright 2007.  Managing and motivating channel members ± Partner relationship management GE¶s CustomerNet is a partner relationship management tool that offers dealers 24/7 access to GE¶s prices and product availability.Channel Management Decisions  Selecting channel members ± Many factors should be considered.

10-39 . it would be a tying agreement. Prentice-Hall Inc.Public Policy and Distribution Decisions  Exclusive distribution  Exclusive dealing  Exclusive territorial agreements  Tying agreements Copyright 2007. If Xerox required every business who bought or leased their copiers to also buy their brand of paper.

and controlling the physical flow of goods.Marketing Logistics  Planning.  Includes: ± Outbound distribution ± Inbound distribution ± Reverse distribution Copyright 2007. 10-40 . and related information from points of origin to points of consumption to meet customer requirements at a profit. services. Prentice-Hall Inc. implementing.

Figure 10-5 Supply Chain Management Copyright 2007. Prentice-Hall Inc. 10-41 .

 Major Logistics Functions: ± Warehousing ± Inventory management ± Transportation ± Logistics information management Copyright 2007. Prentice-Hall Inc. Learn more by watching the snippet. Video Snippet Hasbro recognizes the importance of superior logistics.Goals of the Logistics System and Major Logistics Functions  Goals of the Logistics System: ± Deliver a targeted level of customer service at the least cost. 10-42 .

Prentice-Hall Inc. and where?  Storage warehouses  Distribution centers  Automated warehouses Some warehouses automate the storage and retrieval of palletized loads.Warehousing  How many. 10-43 . Copyright 2007. what types.

Prentice-Hall Inc.Inventory Management  Must strike a balance between too much and too little inventory. RFID technology could make the entire distribution chain automated.  Just-in-time logistics systems  RFID or Smart Tag technology Copyright 2007. 10-44 . resulting in significant cost savings.

Learn more: www.Marketing in Action RFID The Wave of the Future Key benefits of RFID include fewer sales lost due to stock-outs and reduced labor costs.rfidsystemsinc. Prentice-Hall Inc. 10-45 . RFID Systems highlights these facts in their ad. and suggests in a different ad execution that retailers will soon mandate supplier use of RFID.com/ Copyright 2007.

Prentice-Hall Inc. .Transportation        Trucks Railroads Water carriers Pipelines Air Internet Intermodal transportation 10-46 Copyright 2007.

Trainship = water and rail. Prentice-Hall Inc. Piggyback = trucks and rail. Fishyback = water and trucks.Marketing in Action Intermodal Transportation Intermodal transportation combines two or more modes of transportation. Copyright 2007. Airship = air and water. 10-47 .

10-48 . Prentice-Hall Inc. to maximize the performance of the entire distribution system. both inside the company and among all the marketing channel organizations.  Involves: ± Cross-functional teamwork inside the company ± Building logistics partnerships ± Third-party logistics Copyright 2007.Integrated Logistics Management  The logistics concept that emphasizes teamwork.

10-49 . Copyright 2007. Prentice-Hall Inc.Marketing in Action Third-Party Logistics UPS¶s Supply Chain Solution Group can help a firm shorten its supply chain and convert the supply chain into a strategic asset.

honest. and frequent  Distribution system is a communications. Copyright 2007.CATERPILLAR Background The Vital Role of Dealers Building Partnerships  Caterpillar dominates the  Distribution system is built world¶s markets for heavy on a base of mutual trust construction and mining and shared dreams. personal key to success. and full. market performance. extraordinary  Independent dealers are dealer support. 10-50 . Prentice-Hall Inc. dealer customer service. and more. equipment. competitive advantage. providing relationships. intelligence.  Caterpillar stresses dealer profitability.