10 Marketing Channels and Supply Chain Management

10 Marketing Channels and Supply Chain Management

ROAD MAP: Previewing the Concepts • Explain why companies use distribution channels • • and discuss the functions 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 marketing logistics and supply chain management. 10 -2

Marketing or Distribution Channel • A 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. 10 -3

Channel of Distribution e. GO faces challenges in establishing a channel of distribution for its product. Click the picture above to play video 10 -4

Distribution in Action Fed. Ex’s creative and imposing distribution system made it a market leader in express delivery. 10 -5

How Channel Members Add Value • The use of intermediaries results from their greater efficiency in making goods available to target markets. • Offers the firm more than it can achieve on its own through the intermediaries: – Contacts – Experience – Specialization – Scale of operation 10 -6

How a Distributor Reduces the Number of Channel Transactions 10 -7

Channel Functions These functions should be assigned to the channel member who can add the most value for the cost Information Negotiation Promotion Physical Distribution Contact Financing Matching Risk Taking 10 -8

Consumer and Business Channels 10 -9

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

Channel Conflict When it decided to sell its familiar containers at retail through Target stores, Tupperware avoided conflicts with its army of in-home sales consultants by inviting them into the stores to demonstrate the products. 10 -11

Discussion Question • What do you think the impact was of Taco Bell selling its products in grocery stores? Why? 10 -12

Conventional vs. Vertical Marketing System 10 -13

Vertical Marketing System (VMS) • A distribution channel structure in which producers, wholesalers, and retailers act as a unified system • One channel member owns the other, has contracts with them, or has so much power that they all cooperate. 10 -14

Types of Vertical Marketing Systems Corporate VMS Common Ownership at Different Levels of the Channel (e. g. , Sears) High Contractual VMS Contractual Agreements Among Channel Members (e. g. , ACE Hardware) Control Administered VMS Leadership is Assumed by One or a Few Dominant Members (e. g. , Kraft) Low 10 -15

Franchise Organization • Manufacturer-Sponsored Retailer Franchise System – Ford and its independent franchised dealers • Manufacturer-Sponsored Wholesaler Franchise System – Coca-Cola’s licensed bottlers • Service-Firm Sponsored Retailer Franchise System – Mc. Donald’s, Avis, and Holiday Inn 10 -16

Innovations in Marketing Systems Horizontal Marketing System Two or more companies at one channel level join together to follow a new marketing opportunity. Example: Banks in grocery stores Hybrid Marketing System A single firm sets up two or more marketing channels to reach one or more customer segments. Example: Retailers and catalogs 10 -17

Hybrid Marketing Channel 10 -18

Changing Channel Organization • Disintermediation means that more and more, product and service producers are bypassing intermediaries and going directly to final buyers, or that radically new types of channel intermediaries are emerging to displace traditional ones. 10 -19

Disintermediation Travel supersites such as Expedia, Travelocity, Priceline, Hotels. com, and Orbitz have threatened the very existence of traditional travel agents. 10 -20

Channel Design Decisions • Analyzing Consumer Needs • Setting Channel Objectives • Identifying Major Alternatives – Types of intermediaries – Number of intermediaries – Responsibilities of intermediaries 10 -21

Types of Intermediaries • Company sales force • Manufacturer’s agency • Industrial distributors 10 -22

Number of Intermediaries • Intensive distribution • Exclusive distribution • Selective distribution 10 -23

Interactive Student Assignment • Choose a partner and decide what type of distribution is used for washing machines. What are the advantages for the manufacturer and retailer in using this level of distribution intensity? 10 -24

Selective Distribution Luxury car makers sell exclusively through a limited number of dealerships. Such limited distribution enhances the car’s image and generates strong dealer support. 10 -25

Evaluating the Major Alternatives • Economic Criteria: – A company compares the likely sales, costs, and profitability of different channel alternatives. • Control Issues: – How and to whom should control be given? • Adaptive Criteria: – Consider long-term commitment vs. flexibility. 10 -26

Channel Management Decisions Selecting Channel Members Managing & Motivating Channel Members Evaluating Channel Members 10 -27

Public Policy and Distribution Decisions • Exclusive distribution • Exclusive dealing • Exclusive territorial agreements • Tying agreements 10 -28

Logistics and Supply Chain Management • Planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit. • Includes: – Outbound distribution – Inbound distribution – Reverse distribution 10 -29

Supply Chain Management 10 -30

Major Logistics Functions • Warehousing • Inventory management • Transportation • Logistics information management 10 -31

Warehousing • How many, what types, and where? • Storage warehouses • Distribution centers • Automated warehouses 10 -32

Inventory Management • Must balance between too much and too little inventory. • Just-in-time logistics systems • RFID, Auto. ID, or Smart Tag technology • Click Here to Find Out All About RFID 10 -33

Logistics Technology In the not-too-distant future, Auto. ID or “smart tag” technology could make the entire supply chain—which accounts for nearly 75% of a product’s cost—intelligent and automated. 10 -34

Transportation • Trucks • Railroads • Water carriers • Pipelines • Air • Internet • Intermodal transportation 10 -35

Intermodal Transportation 10 -36

Intermodal Transportation 10 -37

Intermodal Transportation 10 -38

Intermodal Transportation 10 -39

Intermodal Transportation 10 -40

Integrated Logistics Management • The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. • Involves: – Cross-functional teamwork inside the company – Building logistics partnerships – Third-party logistics 10 -41

Third Party Logistics Many companies are now outsourcing logistics tasks to companies like Ryder Integrated Logistics. Here, Ryder describes a system it designed to keep Friendly’s refrigerated trucks on the road. “Thanks to Ryder, Friendly’s doesn’t have to worry about breakdowns. Or meltdowns. ” 10 -42

Rest Stop: Reviewing the Concepts 1. Explain why companies use distribution channels 2. 3. 4. 5. and discuss the functions 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 marketing logistics and integrated supply chain management. 10 -43