DISTRIBUTION CHANNELS AND SUPPLY CHAIN MANAGEMENT

RAVIMOHAN

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Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select, motivate, and evaluate channel members Discuss the nature and importance of physical distribution

LEARNING GOALS
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Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select.1. 2. motivate. 5. and evaluate channel members Discuss the nature and importance of physical distribution LEARNING GOALS 12-3 . 4. 3.

A supply chain consists of upstream and downstream partners  Marketers have traditionally focused on the downstream side   Value Delivery Network ◦ Supply chain – make-and-sell view ◦ Demand chain – sense-and-respond-view ◦ The network made up of the company. distributors. and ultimately customers who “partner” with each other to improve the performance of the entire system. suppliers. SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK 12-4 .

 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. NATURE & IMPORTANCE OF DISTRIBUTION CHANNELS 12-5 .

marketing communications A strong distribution system can be a competitive advantage  Channel decisions involve long-term commitments to other firms  NATURE & IMPORTANCE OF MARKETING CHANNELS 12-6 . Channel choices affect other decisions in the marketing mix ◦ Pricing.

place. NATURE & IMPORTANCE OF MARKETING CHANNELS 12-7 . time. ◦ Match product assortment demand with supply. ◦ Bridge. How Channel Members Add Value ◦ Fewer contacts. and possession gaps that separate products from users.

 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. NATURE & IMPORTANCE OF MARKETING CHANNELS 12-8 .

3. 2.1. motivate. Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select. and evaluate channel members Discuss the nature and importance of physical distribution LEARNING GOALS 12-9 . 4. 5.

activities. Channel Conflict ◦ Occurs when channel members disagree on roles. ◦ Types of Conflict:  Horizontal conflict: occurs among firms at the same channel level  Vertical conflict: occurs among firms at different channel levels CHANNEL BEHAVIOUR AND ORGANIZATION 12-10 . or rewards.

has contracts with. and retailers act as a unified system ◦ One channel member owns. Conventional Distribution Channels  Vertical Marketing Systems ◦ Consist of one or more independent channel members ◦ Each seeking to maximize its own profits ◦ Often result in poor performance ◦ Producers. and economies of scale due to the size of the system CHANNEL BEHAVIOUR AND ORGANISATION 12-11 . wholesalers. less conflict. or has so much power that they all cooperate ◦ Benefits should include greater control.

 Vertical Market System (VMS) ◦ Corporate VMS ◦ Contractual VMS ◦ Administered VMS   Integrates successive stages of production and distribution under single ownership – channel ownership is established through common ownership Coordination and conflict through regular organizational channels CHANNEL BEHAVIOUR AND ORGANISATION 12-12 .

 Vertical Market System (VMS) ◦ Corporate VMS ◦ Contractual VMS ◦ Administered VMS Individual firms who join through contracts  Franchise organizations  ◦ Manufacturer-sponsored retailer franchise system ◦ Manufacturer-sponsored wholesaler franchise system ◦ Service-firm-sponsored retailer franchise system CHANNEL BEHAVIOUR AND ORGANISATION 12-13 .

 Vertical Market System (VMS) ◦ Corporate VMS ◦ Contractual VMS ◦ Administered VMS   Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer CHANNEL BEHAVIOUR AND ORGANISATION 12-14 .

 Horizontal Marketing Systems ◦ Companies at the same level work together with channel members  Multichannel Distribution Systems ◦ Also called hybrid marketing channels ◦ Occurs when a firm uses two or more marketing channels  Changing Channel Organization ◦ Disintermediation CHANNEL BEHAVIOUR AND ORGANISATION 12-15 .

and evaluate channel members Discuss the nature and importance of physical distribution LEARNING GOALS 12-16 . 2.1. motivate. 3. Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select. 4. 5.

  Step 1: Analyzing Consumer Needs Step 2: Setting Channel Objectives ◦ Cost and feasibility of meeting needs must be considered ◦ 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  Marketing environment CHANNEL DESIGN DECISIONS 12-17 .

 Step 3: Identifying Major Alternatives ◦ Types of intermediaries  Company sales force. industrial distributors ◦ Number of marketing intermediaries  Intensive. and exclusive distribution ◦ Responsibilities of channel members CHANNEL DESIGN DECISIONS 12-18 . manufacturer’s agency. selective.

 Step 4: Evaluating Major Alternatives ◦ Economic criteria ◦ Control issues ◦ Adaptive criteria CHANNEL DESIGN DECISIONS 12-19 .

2. motivate. Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select. 3. 4. 5.1. and evaluate channel members Discuss the nature and importance of physical distribution LEARNING GOALS 12-20 .

   Selecting channel members Managing and motivating channel members Evaluating channel members  Which characteristics are important? ◦ Years in business ◦ Lines carried ◦ Growth and profit record ◦ Cooperativeness and reputation ◦ Type of customer ◦ Location CHANNEL MANAGEMENT DECISIONS 12-21 .

   Selecting channel members Managing and motivating channel members Evaluating channel members   Partner relationship management (PRM) for long-term partnerships Software available to coordinate members CHANNEL MANAGEMENT DECISIONS 12-22 .

   Selecting channel members Managing and motivating channel members Evaluating channel members  Check channel performance of: ◦ ◦ ◦ ◦ Sales Inventory Customer delivery Promotion and training ◦ Customer service CHANNEL MANAGEMENT DECISIONS 12-23 .

Sellers cannot demand exclusivity for their product from resellers if it can be proven that it will lessen competition or create a monopoly Exclusive territories. as a condition of doing business. Not illegal but a source of much channel conflict PUBLIC POLICY AND DISTRIBUTION DECISIONS 12-24 . but may have trouble demanding that resellers deal only within that exclusive territory Tying agreements.   Exclusive dealing. Sellers may grant exclusive territories. demanding that resellers buy and/or stock all products within a product line.

Ethical concerns over supply sources from countries with human rights violations or use the proceeds to fund armed conflict  PUBLIC POLICY AND DISTRIBUTION DECISIONS 12-25 . they must show cause.Dealers’ rights. Producers are free to select dealers. and cannot drop dealers who refuse to participate in doubtful legal arrangements  Sources of supply. but are limited in their ability to terminate dealers.

and evaluate channel members LEARNING GOALS 12-26 .1. 4. motivate. 2. Explain why companies use distribution channels and discuss the functions that these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select. 3.

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