Lecture 10_Place (Channels of distribution) MANAGING MARKETING CHANNELS AND SUPPLY CHAINS Associate professor of Plekhanov REA marketing department Irina I. Skorobogatykh (Ph. D) © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -2
LECTURE QUESTIONS: • What is marketing channel of distribution and why intermediaries are needed. • Differences between marketing channels for consumer and business products and services, and between different types of vertical marketing systems. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -5
LECTURE QUESTIONS • Factors considered by marketing executives when selecting and managing a marketing channel. • Explain what supply chain and logistics management are and how they relate to marketing strategy. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -6
LECTURE QUESTIONS • Explain how managers trade off different “logistics costs” relative to customer service in order to make a supply chain decision. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -7
NATURE AND IMPORTANCE OF MARKETING CHANNELS • What Is a Marketing Channel of Distribution? § Marketing Channel © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -9
Marketing Channel A marketing channel consists of individuals and firms involved in the process of making a product or service available. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -71
Terms used for marketing intermediaries © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -10
NATURE AND IMPORTANCE OF MARKETING CHANNELS • Value Created by Intermediaries § Functions Performed by Intermediaries § Consumer Benefits from Intermediaries © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -11
Marketing channel functions performed by intermediaries © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -12
Concept Check 1. What is meant by a marketing channel? A: A marketing channel consists of individuals and firms involved in the process of making a product or service available. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -13
Concept Check 2. What are three basic functions performed by intermediaries? A: Intermediaries perform transactional, logistical, and facilitating functions. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -14
CHANNEL STRUCTURE AND ORGANIZATION • Marketing Channels for Consumer Goods and Services § Direct Channel § Indirect Channel © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -15
Structure of marketing channels © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -16
Common marketing channels for consumer goods and services © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -17
CHANNEL STRUCTURE AND ORGANIZATION • Marketing Channels for Business Goods and Services § Industrial Distributor § Agent © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -18
Common marketing channels for business goods and services © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -19
CHANNEL STRUCTURE AND ORGANIZATION • Electronic Marketing Channels • Multiple Channels and Strategic Alliances § Dual Distribution § Strategic Channel Alliances © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -20
Dual Distribution Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -72
Representative electronic marketing channels © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -21
CHANNEL STRUCTURE AND ORGANIZATION • Vertical Marketing Systems § Corporate Systems • Corporate Vertical Marketing System • Forward Integration • Backward Integration © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -23
Vertical Marketing Systems Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -73
Types of vertical marketing systems © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -24
CHANNEL STRUCTURE AND ORGANIZATION • Vertical Marketing Systems § Contractual Systems • Contractual Vertical Marketing System • Wholesaler-Sponsored Voluntary Chains • Retailer-Sponsored Cooperatives © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -26
CHANNEL STRUCTURE AND ORGANIZATION • Vertical Marketing Systems § Contractual Systems: Franchising • Manufacturer-Sponsored Retail Franchise Systems • Manufacturer-Sponsored Wholesale Franchise Systems • Service-Sponsored Retail Franchise Systems • Service-Sponsored Franchise Systems © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -28
Franchising is a contractual arrangement between a parent company (a franchiser) and an individual or firm (a franchisee) that allows the franchise to operate a certain type of business under an established name and according to specific rules. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -74
CHANNEL STRUCTURE AND ORGANIZATION • Vertical Marketing Systems § Administered Systems • Administered Vertical Marketing Systems © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -29
Concept Check 1. What is the difference between a direct and indirect channel? A: A direct channel is one in which a producer of consumer or business goods and services and ultimate consumers or industrial users deal directly with each other whereas an indirect channel has intermediaries that are inserted between the producer and consumers or industrial users and who perform numerous channel functions. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -30
Concept Check 2. What is the major distinction between a corporate vertical marketing system and an administered vertical marketing system? A: A corporate vertical marketing system combines the successive stages of production and distribution under a single ownership, whereas a administered vertical marketing system achieves the same thing by the size and influence of one channel member rather than through ownership. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -31
CHANNEL CHOICE AND MANAGEMENT • Factors in Choosing a Marketing Channel § Target Market Coverage • Intensive Distribution • Exclusive Distribution • Selective Distribution © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -32
Intensive Distribution Intensive distribution means that a firm tries to place its products and services in as many outlets as possible. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -75
Exclusive Distribution Exclusive distribution is the extreme opposite of intensive distribution because only one retail outlet in a specified geographical area carries the firm’s products. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -76
Selective Distribution Selective distribution lies between the two extremes of intensive and exclusive distribution and means that a firm selects a few retail outlets in a specified geographical area to carry its products. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -77
CHANNEL CHOICE AND MANAGEMENT • Factors in Choosing a Marketing Channel § Satisfying Buyer Requirements § Profitability © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -33
CHANNEL CHOICE AND MANAGEMENT • Channel Relationships: Conflict and Cooperation § Conflict in Marketing Channels • Channel Conflict • Vertical Conflict • Disintermediation • Horizontal Conflict © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -37
Channel Conflict Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -78
Disintermediation is a form of vertical channel conflict that arises when a channel member bypasses another member and sells or buys products direct from a channel member in a different level in the marketing channel. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -79
CHANNEL CHOICE AND MANAGEMENT • Channel Relationships: Conflict and Cooperation § Cooperation in Marketing Channels • Channel Captain © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -38
Concept Check 1. What are three degrees of distribution intensity? A: intensive, exclusive, and selective. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -39
Concept Check 2. What are three questions marketing executives consider when choosing a marketing channel and intermediaries? A: Which channel and intermediaries will: (1) provide the best coverage of the target market? (2) best satisfy the buying requirements of the target market? and (3) be the most profitable? © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -40
LOGISTICS AND SUPPLY CHAIN MANAGEMENT • Logistics § Logistics Management • Flow • Cost Effective • Customer Requirements © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -41
Logistics involves those activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -80
Definition of logistics © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -42
LOGISTICS AND SUPPLY CHAIN MANAGEMENT • Supply Chains vs. Marketing Channels § Supply Chain Management • Sourcing, Assembling, and Delivering a New Car: The Automotive Supply Chain © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -44
Supply Chain A supply chain is a series of firms that perform activities required to create and deliver a good or service to consumers or industrial users. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -81
Definition of a supply chain © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -45
Relating marketing channels, logistics management, and supply chain management © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -46
The automotive supply chain © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -47
LOGISTICS AND SUPPLY CHAIN MANAGEMENT • Supply Chain Management and Marketing Strategy § Aligning a Supply Chain with Marketing Strategy • Understand the Customer • Understand the Supply Chain • Harmonize the Supply Chain with the Marketing Strategy © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -48
LOGISTICS AND SUPPLY CHAIN MANAGEMENT • Supply Chain Management and Marketing Strategy § Dell Computer: A Responsive Supply Chain § Wal-Mart: An Efficient Supply Chain • Cross-Docking © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -49
Concept Check 1. What is the principal difference between a marketing channel and a supply chain? A: A supply chain also includes suppliers who provide raw materials to a manufacturer as well as the wholesalers and retailers—the marketing channel—who deliver the finished goods to ultimate consumers. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -50
Concept Check 2. The choice of a supply chain involves what three steps? A: (1) Understand the customer. (2) Understand the supply chain. (3) Harmonize the supply chain with the marketing strategy. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -51
TWO CONCEPTS OF LOGISTICS MANAGEMENT IN A SUPPLY CHAIN • Total Logistics Cost Concept • Customer Service Concept § Time • Order Cycle or Replenishment • Quick or Efficient Consumer Response § Dependability § Communication § Convenience • Vendor-Managed Inventory (VMI) © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -52
Vendor-Managed Inventory (VMI) Vendor-managed inventory (VMI) is a customer service factor whereby the supplier determines the product amount and assortment a customer (such as a retailer) needs and automatically delivers the appropriate items. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -84
Supply chain managers balance total logistics cost factors against customer service factors © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -53
Concept Check 1. What is the logistics management objective in a supply chain? A: To minimize total logistics costs while delivering the appropriate level of customer service. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -54
Concept Check 2. A manager’s key task is to balance which four customer service factors against which five logistics cost factors? A: Customer service factors: time, dependability, communication, and convenience. Logistics cost factors: transportation costs, materials handling and warehousing costs, order processing costs, stockout costs, and inventory costs. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -55
Total Logistics Cost Total logistics cost includes expenses associated with transportation, materials handling and warehousing, inventory, stockouts (being out of inventory) order processing, and return goods handling. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -82
Customer Service Customer service is the ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience. © 2004 Mc. Graw-Hill Companies, Inc. , Mc. Graw-Hill/Irwin Slide 13 -83
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