Lecture Principles of Marketing - Chapter 10: Marketing channels and supply chain management

Chapter 10
Marketing Channels
and Supply Chain Management


Roadmap: Previewing the Concepts
1. Explain why companies use distribution
channels and discuss the functions 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. Explain how companies select, motivate,
and evaluate channel members.
5. Discuss the nature & importance of marketing
logistics and supply chain management.
Copyright 2007, Prentice Hall, Inc.

10-2


Case Study
Caterpillar – The Vital Role of Dealers
Background
 Caterpillar dominates the
world’s markets for heavy
construction and mining
equipment.
 Independent dealers are

key to success, providing
customer service, market
intelligence, and more.
 Distribution system is a
competitive advantage.

Building Partnerships
 Distribution system is built
on a base of mutual trust
and shared dreams.
 Caterpillar stresses dealer
profitability, extraordinary
dealer support, personal
relationships, dealer
performance, and full,
honest, and frequent
communications.


Supply Chains
 Producing and making products
available to buyers requires building
relationships with “upstream” and
“downstream” partners.
– Upstream: firms that supply the raw
materials, components, parts, and other
elements necessary to create a good.
– Downstream: marketing channel partners
that link the firm to the customer.

Marketing Channel
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.
– Wholesalers
– Distributors
– Dealerships
– Retailers


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


Key Channel Functions
 Transaction
Completing:

 Transaction
Fulfilling:

– Information
– Promotion
– Contact
– Matching
– Negotiation

– Physical
distribution
– Financing
– Risk taking


Number of Channel Levels
 Number of intermediary levels
indicates the length of a channel.
– Direct marketing channels
• Have no intermediary levels between the
manufacturer and the customer.
– Indirect marketing channels
• Contains one or more intermediaries.

 All channel institutions are connected
by several types of flows.


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.


Vertical Marketing System
 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.


Types of Vertical Marketing
Systems





Corporate VMS
Contractual VMS
Franchise organization
Administered VMS


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, Avis, and Holiday Inn


Innovations in Marketing
Systems
 Horizontal Marketing System
– Two or more companies at one level join
together to follow a new marketing
opportunity.

 Multichannel Distribution System
– Occurs when a single firm sets up two or
more marketing channels to reach one or
more customer segments.
– Also called hybrid marketing system.

Changing Channel Organization
 Disintermediation:
– Occurs when product and service
producers cut out intermediaries and go
directly to final buyers, or when radically
new types of channel intermediaries
displace traditional ones.


Channel Design Decisions





Analyzing Consumer Needs
Setting Channel Objectives
Identifying Major Alternatives
Evaluating the Major Alternatives


Analyzing Consumer
Needs
 Answering key questions helps to
determine customer needs:
– Do consumers want to buy from nearby
locations or are they willing to travel?
– Do they value breadth of assortment or do

they prefer specialization?
– Do consumers want many add-on services?

 Firm must balance needs against costs
and consumer price preferences.


Setting Channel Objectives
 State objectives in terms of targeted
levels of customer service.
 Channel objectives are influenced by:
– Cost
– Nature of the company
– The firm’s products
– Marketing intermediaries
– Competitors
– Environment


Identifying Major Alternatives
 Types of Intermediaries
– Company sales force
– Manufacturer’s agency
– Industrial distributors

 Number of intermediaries
– Intensive distribution
– Exclusive distribution
– Selective distribution

 Responsibilities of intermediaries


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.


Channel Management
Decisions
 Selecting channel members
 Managing and motivating channel
members
– Partner relationship management

 Evaluating channel members


Public Policy and

Distribution Decisions





Exclusive distribution
Exclusive dealing
Exclusive territorial agreements
Tying agreements


Marketing Logistics
 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


Goals of the Logistics System
& Major Logistics Functions
 Goals of the Logistics System:
– Deliver a targeted level of customer
service at the least cost.

 Major Logistics Functions:
– Warehousing
– Inventory management
– Transportation
– Logistics information management


Warehousing





How many, what types, and where?
Storage warehouses
Distribution centers
Automated warehouses


Inventory Management
 Must balance between too much and
too little inventory.
 Just-in-time logistics systems
 RFID or Smart Tag technology