Marketing Channels and Supply Chain Management

1. Marketing Channels and Supply Chain Management Chapter 13

2. Objectives • Know why companies use distribution channels and understand the functions that these channels perform. • Learn how channel members interact and how they organize to perform the work of the channel. • Know the major channel alternatives that are open to a company.

3. Objectives • Comprehend how companies select, motivate, and evaluate channel members. • Understand the nature and importance of marketing logistics and integrated supply chain management.

4. Dominates world’s markets for heavy construction and mining equipment. Independent dealers are key to success Dealer network is linked via computers Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications c Caterpillar

5. Definition • Value Delivery Network • The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system.

6. In building its value delivery network, Palm manages a whole community of suppliers, assemblers, resellers and complementors who must work effectively together.

7. Nature & Importance of Marketing Channels • Channel choices affect other decisions in the marketing mix • A strong distribution system can be a competitive advantage • Channel decisions involve long-term commitments to other firms

8. Figure 13-1: How Channel Members Add Value

9. Nature & Importance of Marketing Channels • How Channel Members Add Value • Intermediaries • Require fewer contacts to move the product to the final purchaser. • Help match product assortment demand with supply. • Help bridge major time, place, and possession gaps

10. Information Promotion Contact Matching Nature & Importance of Marketing Channels Key Functions Performed by Channel Members • Negotiation • Physical Distribution • Financing • Risk taking

11. Figure 13-2a: Consumer Marketing Channels

12. Figure 13-2b: Business Marketing Channels

13. Nature & Importance of Marketing Channels • 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.

14. L.L. Bean sells direct via the Internet, telephone, and mail catalogs

15. Physical Flow Payment Flow Nature & Importance of Marketing Channels Channel Members Are Connected Via A Variety of Flows • Information Flow • Promotion Flow • Flow of Ownership

16. Channel Behavior and Organization • Channel Conflict • Occurs when channel members disagree on roles, activities, or rewards. • Types of Conflict: • Horizontal conflict: occurs among firms at the same channel level • Vertical conflict: occurs among firms at different channel levels

17. Figure 13-3: Conventional Versus Vertical Marketing System

18. Channel Behavior and Organization • Vertical Marketing Systems • Corporate VMS • Contractual VMS • Manufacturer-sponsored retailer franchise system • Manufacturer-sponsored wholesaler franchise system • Service-firm-sponsored retailer franchise system • Administered VMS

19. Channel Behavior and Organization • Horizontal Marketing Systems • Two or more companies at one level join together to follow a new marketing opportunity. Nestle and General Mills work together to market cereal outside of North America

20. Figure 13-4: Multichannel Distribution System

21. Channel Behavior and Organization • Multichannel Distribution Systems • Also called hybrid marketing channels • Occurs when a firm uses two or more marketing channels • Hybrid marketing has many advantages

22. Channel Behavior and Organization • Changing Channel Organization • Disintermediation has hurt many established companies

23. Channel Behavior and Organization Disintermediation:Traditional brick and mortar travel agencies face competition from online travel agencies, airlines, and reverse auction web sites such as Priceline. See how Sunflower Travel has tried to adapt

24. Channel Design Decisions • Step 1: Analyzing Consumer Needs • Cost and feasibility of meeting needs must be considered

25. Channel Design Decisions • Step 2:Setting Channel Objectives • Set channel objectives in terms of targeted level of customer service • Many factors influence channel objectives

26. GEICO’s channel objectives led them to sell direct via telephone and the Web in order to serve those who are looking to save money. Geico

27. Channel Design Decisions • Step 3:Identifying Major Alternatives • Types of Intermediaries • Company sales force • Manufacturer’s agency • Industrial distributors

28. Compensation:Work on commission and pay their own expenses. Employment Terms: Contractual agreement to be the exclusive “agent” of the manufacturers they represent in a given territory, market, or for specific accounts. Manufacturer’s AgenciesIn-Depth • Manufacturer’s Agents:Also called reps, agents, manufacturers’ representatives, sales agencies or even brokers. • What Do They Do?Act as outsourced providers of field sales services to multiple manufacturers of complementary products.

29. Benefits:Firm’s View Sales costs vary predictably with sales Lower sales, turnover, and training costs Increased sales; experienced sales force Flexibility; immediate access to markets Enables systems sales Manufacturer’s AgenciesIn-Depth • Benefits: Reps’ View • Manufacturer’s agents can leverage their time so that sales for multiple manufacturers can be made to the same customer, often during the same sales call. • Multiple products means reps can offer the best product to suit needs

30. Discussion Question What are the key disadvantages that a producer firm might face when relying on manufacturer’s agents?

31. Channel Design Decisions • Step 3:Identifying Major Alternatives • Number of marketing intermediaries • Intensive distribution • Selective distribution • Exclusive distribution • Responsibilities of channel members

32. Channel Design Decisions • Step 4: Evaluating Major Alternatives • Economic criteria • Sales, costs, profitability • Control issues • Adaptive criteria

33. Channel Design Decisions • Designing International Distribution Channels • Global marketers usually adapt their channel strategies to structures that exist within foreign countries • Key challenges: • Channels may be complex or hard to penetrate • Channels may be scattered, inefficient, or totally lacking

34. Channel Management Decisions • Selecting Channel Members • Identify characteristics that distinguish the best channel members • Managing and Motivating Channel Members • Partner relationship management (PRM) is key

35. Channel Management Decisions • Evaluating Channel Members • Performance should be checked against standards • Channel members should be rewarded or replaced as dictated by performance

36. Public Policy and Distribution Decisions • Exclusive distribution • Only certain outlets are allowed to carry a firm’s products • Exclusive dealing • Exclusive territorial agreements • Tying agreements

37. Marketing Logistics and Supply Chain Management • Marketing Logistics • Outbound distribution • Inbound distribution • Reverse distribution • Involves the entire supply chain management system

38. Figure 13-5: Supply Chain Management

39. Marketing Logistics and Supply Chain Management • Why Greater Emphasis is Being Placed on Logistics: • Offers firms a competitive advantage • Can yield cost savings • Greater product variety requires improved logistics • Improvements in distribution efficiency are possible due to information technology

40. Marketing Logistics and Supply Chain Management • Goals of the Logistics System • No system can both maximize customer service and minimize costs. • Firms must first weigh the benefits of higher service against the costs. • State goals in terms of a targeted level of customer service at the least cost.

41. Marketing Logistics and Supply Chain Management • Major Logistics Functions • Warehousing • Inventory Management • Transportation • Logistics Information Management

42. Truck Rail Water Marketing Logistics and Supply Chain Management Transportation Carrier Options • Pipeline • Air • Internet Intermodal transportation is becoming more common

43. BusinessNow Celarix Video Clip Arranging transportation for goods can be challenging Click the picture above to play video

44. Marketing Logistics and Supply Chain Management • Integrated Logistics Management • Cross-functional teamwork inside the company is critical • Logistics partnerships are also built through shared projects

45. Many companies use sophisticated, system-wide supply chain management software, such as that which is available from Oracle and other software providers.

46. Discussion Question Western Publishing Group partnered with Toys “R” Us to create mini-bookstore sections within each store. Can you think of other examples of similar logistics partnerships?

47. Marketing Logistics and Supply Chain Management • Outsourcing of logistic firms to third party firms is becoming more common