Marketing Channels and Supply Chain Management

1. Marketing Channels and Supply Chain Management Chapter 13 Powerpoint slides Extendit! version Instructor name Course name School name Date Principles of Marketing: 6th Canadian Edition

2. After studying this chapter, you should be able to: 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 Objectives Principles of Marketing: 6th Canadian Edition

3. Fifty year old company, selling over 300 products, $26 billion annually Has 27% market share of global construction business, nearly double that of nearest competitors Komatsu and Deere combined Distributes its products only through independent dealer network Key success factors: high quality products, innovation, flexible, efficient, and lean manufacturing, and highly responsive to customers Partnership with dealers based on: Dealer profitability Extraordinary dealer support Communications Dealer performance Personal relationships Their distribution system is a sustainable competitive advantage Opening Vignette: Caterpillar Principles of Marketing: 6th Canadian Edition

4. Marketing (distribution) channel:set of interdependent organizations involved in making a product available for use or consumption; from the producer down Supply chain:includes upstream supplier partners, as well as downstream channel partners Make and sell view Value-delivery network: all those who partner with each other to improve the performance of the supply chain system; including the company, suppliers, distributors, and even, customers Sense and respond view Important Terminology Principles of Marketing: 6th Canadian Edition

5. Intermediaries reduce the number of contacts needed to cover a market Add value by transforming assortments made by producers into assortments desired by consumers Help to complete transactions: Information Promotion Contact Matching Negotiation Fulfill completed transactions: Physical distribution Financing Risk taking Using Marketing Intermediaries Figure 13.1 Principles of Marketing: 6th Canadian Edition

6. Channel level:layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer Direct: no intermediary levels Indirect: containing one or more intermediary levels Consumer Marketing Channels Figure 13.2 • Flows between levels: • Physical • Ownership • Payment • Information • Promotion Principles of Marketing: 6th Canadian Edition

7. While distribution channels are made up of companies, they are still run by people, trying to get along with other people Channel conflict:disagreements between marketing channel members on goals and roles-who should do what and for what rewards Horizontal conflict: between firms on the same channel level (dealers complaining of undue competition) Vertical conflict: between firms on different levels of the channel (Air Canada and agents) Some conflict encourages healthy competition which produces innovation and better performance Too much conflict becomes dysfunctional Channel Behaviour Principles of Marketing: 6th Canadian Edition

8. Conventional distribution channel: One or more independent producers, wholesalers, and retailers Each seeking to maximize its own profits How they go about doing this will differ Vertical marketing system (VMS): Producers, wholesalers, and retailers Act as a unified system One channel member owns, has contracts with, or has so much power that they all cooperate Benefits should include greater control, less conflict, and economies of scale due to the size of the system Types of Marketing Channels Figure 13.4 Principles of Marketing: 6th Canadian Edition

9. Example of VMS: Franchise organization: A contractual VMS in which a franchiser links several stages in the production-distribution process Franchises dominate the Canadian retail industry; 40% of retail is spent at a franchise More about franchising in Chapter 14 Horizontal marketing system: Airline industry alliances Two or more companies at one level join together to follow a new marketing opportunity May be temporary or permanent Types of Marketing Channels (continued) Figure 13.4 Principles of Marketing: 6th Canadian Edition

10. Multichannel distribution system:a single firm sets up two or more marketing channels to reach one or more customer segments Allows for reaching customers from different directions Examples ; The Bay and IBM Changing Channel Organisation - Disintermediation: Displacement of traditional resellers by new types of intermediaries or by selling direct; a potential downside to multichannel systems (Airline companies, financial institutions) But - Someone needs to perform the distribution function and value added activities that consumers are looking for The most efficient should do the job Types of Marketing Channels (continued) Figure 13.5 Principles of Marketing: 6th Canadian Edition

11. Channel objectives influenced by: To determine the type of channel system it wants Nature of the company (size/financial position, experience0 and its products (ensure expediency of delivery) Competition (going direct and not through the same intermediaries as competitors - Betonel) Marketing environment Identifying major alternatives: Types of intermediaries Number of intermediaries Responsibilities of each channel member Setting Channel Objectives • Types of intermediaries: • Company sales force • Manufacturer’s agency • Industrial distributors Principles of Marketing: 6th Canadian Edition

12. Also known asintensity of distribution Intensity chosen should match how consumers buy the product Number of Intermediaries Intensive distribution As many outlets as possible Convenience goods Selective distribution More than one, but not all outlets Shopping goods Exclusive distribution One outlet per market area Specialty goods Principles of Marketing: 6th Canadian Edition

13. Selecting channel members: companies will vary in their ability to attract qualified intermediaries Criteria: Channel member history, reputation, financial position, location, cooperativeness, future growth potential, other product lines carried, and facility Managing & motivating: Partner relationship management (for long-term relationship) Programs, contests, sales incentives (trips for best retailers) Cooperative advertising (common advertising) Product/sales training (ensures quality of sales people) Channel Management Decisions • Evaluating channel members: • Performance standards for sales, market share, customer service levels, inventory carried, and participation in company programs Principles of Marketing: 6th Canadian Edition

14. Exclusive dealing: 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: sellers may grant exclusive territories, but may have trouble demanding that resellers deal only within that exclusive territory Tying agreements: Demanding that resellers buy and/or stock all products within a product line, as a condition of doing business Not illegal but a source of much channel conflict Public Policy and Distribution Decisions Principles of Marketing: 6th Canadian Edition

15. Dealers’ rights: producers are free to select dealers, but are limited in their ability to terminate dealers; they must show cause, and cannot drop dealers who refuse to participate in doubtful legal arrangements Sources of supply: ethical concerns over supply sources from countries with human rights violations or use the proceeds to fund armed conflict Purchasing and shelving policies: The payment of monies for the right to be a supplier (bribery) Slotting allowances: payments to retailers for shelf space Payments to retailers to force them to sell the sellers products (generics) Public Policy and Distribution Decisions Principles of Marketing: 6th Canadian Edition

16. Marketing logistics(physical distribution):planning, implementing, and controlling the physical flow of materials, final goods and related information Supply chain management (a more complete view of distribution): managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers Supply Chain Management Figure 13.6 Principles of Marketing: 6th Canadian Edition

17. Goal:provide a targeted level of customer service at the least cost Providing customer service costs money; maximizing service levels at the lowest cost does not go together Major logistics functions: Warehousing: deciding how many and what type of storage and distribution centres are needed to move the products Distribution centre: a large, highly automated warehouse designed to receive goods from suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible Supply Chain Management (continued) Figure 13.6 Principles of Marketing: 6th Canadian Edition

18. Major logistics functions: Inventory management: the challenge is to balance customer needs with the cost of carrying inventory; ideally the company carries just enough inventory to meet the demands of customers Transportation: speed costs money, how fast do you need it? Size and weight will determine the possible choices, but cost and urgency will likely influence the ultimate choice Choice of rail, trucks, water, pipeline, air, and the Internet Supply Chain Management (continued) Figure 13.6 Principles of Marketing: 6th Canadian Edition

19. The learning objectives for this chapter were: 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 In Conclusion… Principles of Marketing: 6th Canadian Edition