Marketing Channels and Supply Chain Management

Chapter 13

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

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c Caterpillar

Dominates worlds 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

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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.
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In building its value delivery network, Palm manages a whole community of suppliers, assemblers, resellers and complementors who must work effectively together.
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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
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Figure 13-1:

How Channel Members Add Value

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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
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Nature & Importance of Marketing Channels

Key Functions Performed by Channel Members
Information Promotion Contact Matching Negotiation Physical Distribution Financing Risk taking
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Figure 13-2a:

Consumer Marketing Channels

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Figure 13-2b:

Business Marketing Channels

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

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Nature & Importance of Marketing Channels

Channel Members Are Connected Via A Variety of Flows
Physical Information Flow Flow Payment Promotion Flow Flow Flow of Ownership
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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

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Figure 13-3:

Conventional Versus Vertical Marketing System

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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
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Channel Behavior and Organization

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

Figure 13-4:

Multichannel Distribution System

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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
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Channel Behavior and Organization

Changing Channel Organization
Disintermediation has hurt many established companies

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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
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Channel Design Decisions

Step 1: Analyzing Consumer Needs
Cost and feasibility of meeting needs must be considered

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Channel Design Decisions

Step 2: Setting Channel Objectives
Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives
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GEICOs channel objectives led them to sell direct via telephone and the Web in order to serve those who are looking to save money.

Geico

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Channel Design Decisions

Step 3: Identifying Major Alternatives
Types of Intermediaries

Company sales force Manufacturers agency Industrial distributors

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Manufacturers Agencies

In-Depth
Manufacturers Agents:
Also called reps, agents, manufacturers representatives, sales agencies or even brokers.

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.
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What Do They Do?

Act as outsourced providers of field sales services to multiple manufacturers of complementary products.

Manufacturers Agencies

In-Depth
Benefits: Reps View
Manufacturers 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

Benefits: Firms 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
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Discussion Question

What are the key disadvantages that a producer firm might face when relying on manufacturers agents?

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Channel Design Decisions

Step 3: Identifying Major Alternatives
Number of marketing intermediaries
Intensive distribution Selective distribution Exclusive distribution

Responsibilities of channel members

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Channel Design Decisions

Step 4: Evaluating Major Alternatives
Economic criteria

Sales, costs, profitability

Control issues Adaptive criteria

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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
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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
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Channel Management Decisions

Evaluating Channel Members
Performance should be checked against standards Channel members should be rewarded or replaced as dictated by performance

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Public Policy and Distribution Decisions

Exclusive distribution
Only certain outlets are allowed to carry a firms products

Exclusive dealing
Exclusive territorial agreements Tying agreements
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Marketing Logistics and Supply Chain Management

Marketing Logistics
Outbound distribution Inbound distribution Reverse distribution Involves the entire supply chain management system
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Figure 13-5:

Supply Chain Management

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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
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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.
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Marketing Logistics and Supply Chain Management

Major Logistics Functions
Warehousing Inventory Management Transportation Logistics Information Management

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Marketing Logistics and Supply Chain Management

Transportation Carrier Options

Truck Rail Water

Pipeline Air Internet

Intermodal transportation is becoming more common

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

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

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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?
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Marketing Logistics and Supply Chain Management

Outsourcing of logistic firms to third party firms is becoming more common

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