Marketing Channels and Marketing Channels and Supply Chain ManagementSupply Chain ManagementSupply Chain ManagementSupply Chain Management

Ch t 13Ch t 13Chapter 13Chapter 13

Objectives

K h iK h iKnow why companies use Know why companies use distribution channels and distribution channels and understand the functions that these understand the functions that these channels perform.channels perform.channels perform.channels perform.Learn how channel members Learn how channel members i t t d h th i ti t t d h th i tinteract and how they organize to interact and how they organize to perform the work of the channel.perform the work of the channel.ppKnow the major channel alternatives Know the major channel alternatives that are open to a companythat are open to a company

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that are open to a company.that are open to a company.

Objectives

C h d h iC h d h iComprehend how companies Comprehend how companies select, motivate, and evaluateselect, motivate, and evaluateselect, motivate, and evaluate select, motivate, and evaluate channel members.channel members.Understand the nature and Understand the nature and importance of marketing logisticsimportance of marketing logisticsimportance of marketing logistics importance of marketing logistics and integrated supply chain and integrated supply chain

ttmanagement.management.

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DefinitionDefinition

Value Delivery NetworkValue Delivery NetworkThe network made up of the The network made up of the company, suppliers, distributors,company, suppliers, distributors,company, suppliers, distributors, company, suppliers, distributors, and ultimately customers who and ultimately customers who “ t ” ith h th t“ t ” ith h th t“partner” with each other to “partner” with each other to improve the performance of the improve the performance of the p pp pentire system.entire system.

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Nature & Importance of M k ti Ch lMarketing Channels

Channel choices affect Channel choices affect other decisions in the other decisions in the marketing mixmarketing mixA strong distribution A strong distribution system can be a system can be a yycompetitive advantage competitive advantage Channel decisions involveChannel decisions involveChannel decisions involve Channel decisions involve longlong--term commitments to term commitments to other firmsother firms

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Fig re 13 1Figure 13-1:

How Channel MembersHow Channel Members Add Valuedd a ue

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Nature & Importance of M k ti Ch lMarketing Channels

How Channel Members How Channel Members Add ValueAdd Value

IntermediariesIntermediariesIntermediaries Intermediaries Require fewer contacts to Require fewer contacts to move the product to the move the product to the fi l hfi l hfinal purchaser.final purchaser.Help match product Help match product assortment demandassortment demandassortment demand assortment demand with supply. with supply. Help bridge major time, Help bridge major time,

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place, and possession gapsplace, and possession gaps

Nature & Importance ofNature & Importance of Marketing ChannelsMarketing Channels

Key Functions Performed Key Functions Performed by Channel Membersby Channel Membersby Channel Membersby Channel Members

InformationInformationPromotionPromotion

NegotiationNegotiationPhysicalPhysicalPromotionPromotion

ContactContactPhysical Physical DistributionDistributionContactContact

MatchingMatching FinancingFinancing

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Risk takingRisk taking

Fig re 13 2aFigure 13-2a:

ConsumerConsumer Marketing Channelsa e g C a e s

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Fig re 13 2bFigure 13-2b:

BusinessBusiness Marketing Channelsa e g C a e s

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Nature & Importance of M k ti Ch lMarketing Channels

Number of Channel LevelsNumber of Channel LevelsNumber of Channel LevelsNumber of Channel LevelsThe number of intermediary levels The number of intermediary levels indicates the length of a marketingindicates the length of a marketingindicates the length of a marketing indicates the length of a marketing channel.channel.

Di t Ch lDi t Ch lDirect ChannelsDirect ChannelsIndirect ChannelsIndirect Channels

Producers lose more control and face Producers lose more control and face greater channel complexity as greater channel complexity as

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g p yg p yadditional channel levels are added.additional channel levels are added.

Nature & Importance ofNature & Importance of Marketing ChannelsMarketing Channels

Channel Members Are Connected Channel Members Are Connected Via A Variety of FlowsVia A Variety of FlowsVia A Variety of FlowsVia A Variety of Flows

PhysicalPhysical InformationInformationPhysical Physical FlowFlow

Information Information FlowFlow

Payment Payment FlowFlow

Promotion Promotion FlowFlowFlowFlow FlowFlow

Flow of OwnershipFlow of Ownership

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pp

Channel Behavior and O i tiOrganization

Channel ConflictChannel ConflictChannel ConflictChannel ConflictOccurs when channel members Occurs when channel members disagree on roles activities ordisagree on roles activities ordisagree on roles, activities, or disagree on roles, activities, or rewards.rewards.T f C fli tT f C fli tTypes of Conflict:Types of Conflict:

Horizontal conflict:Horizontal conflict: occurs among occurs among firms at the same channel levelfirms at the same channel levelVertical conflict:Vertical conflict: occurs among firms occurs among firms

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at different channel levelsat different channel levels

Fig re 13 3Figure 13-3:

Conventional Versus VerticalConventional Versus Vertical Marketing Systema e g Sys e

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Channel Behavior and O i tiOrganization

Vertical Marketing SystemsVertical Marketing Systemsg yg yCorporate VMSCorporate VMSContractual VMSContractual VMSContractual VMSContractual VMS

ManufacturerManufacturer--sponsored sponsored retailer franchise systemretailer franchise systemManufacturerManufacturer--sponsored sponsored wholesaler franchise systemwholesaler franchise systemServiceService--firmfirm--sponsored sponsored retailer franchise systemretailer franchise system

Administered VMSAdministered VMS

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Administered VMSAdministered VMS

Channel Behavior and O i tiOrganization

HorizontalHorizontalHorizontal Horizontal Marketing SystemsMarketing Systems

Two or more Two or more companies at one companies at one pplevel join together to level join together to follow a newfollow a newfollow a new follow a new marketing marketing opportunityopportunity

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opportunity.opportunity.Nestle and General Mills work together to Nestle and General Mills work together to market cereal outside of North Americamarket cereal outside of North America

Fig re 13 4Figure 13-4:

Multichannel DistributionMultichannel Distribution SystemSys e

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Channel Behavior and O i tiOrganization

MultichannelMultichannelMultichannel Multichannel Distribution SystemsDistribution Systems

Also called hybridAlso called hybridAlso called hybrid Also called hybrid marketing channelsmarketing channelsO h fiO h fiOccurs when a firm uses Occurs when a firm uses two or more marketing two or more marketing channelschannelschannels channels Hybrid marketing has Hybrid marketing has

d td t13- 17

many advantagesmany advantages

Channel Behavior and O i tiOrganization

Changing Channel OrganizationChanging Channel OrganizationChanging Channel OrganizationChanging Channel OrganizationDisintermediation has hurt many Disintermediation has hurt many

bli h d ibli h d iestablished companiesestablished companies

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Channel Behavior and O i tiOrganization

Disintermediation:Traditional brick and mortar travel agencies face competition fromface competition from online travel agencies, airlines, and reverse ,auction web sites such as Priceline.

See how Sunflower Travel has

t i d t d t

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tried to adapt

Channel Design DecisionsChannel Design Decisions

Step 1:Step 1: Analyzing Analyzing Consumer NeedsConsumer Needs

C t d f ibilitC t d f ibilitCost and feasibility Cost and feasibility of meeting needs of meeting needs ggmust be considered must be considered

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Channel Design DecisionsChannel Design Decisions

Step 2:Step 2:Setting Channel ObjectivesSetting Channel Objectives

S t h l bj ti i t fS t h l bj ti i t fSet channel objectives in terms of Set channel objectives in terms of targeted level of customer servicetargeted level of customer serviceggMany factors influence channel Many factors influence channel objectivesobjectives

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Channel Design DecisionsChannel Design Decisions

Step 3:Step 3:Id tif i M j Alt tiId tif i M j Alt tiIdentifying Major AlternativesIdentifying Major Alternatives

Types ofTypes ofTypes of Types of IntermediariesIntermediaries

Company sales Company sales p yp yforceforceManufacturer’s Manufacturer’s agencyagencyIndustrial Industrial distributorsdistributors

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distributorsdistributors

Channel Design DecisionsChannel Design Decisions

Step 3:Step 3:Id tif i M j Alt tiId tif i M j Alt tiIdentifying Major AlternativesIdentifying Major Alternatives

Number of marketing intermediariesNumber of marketing intermediariesNumber of marketing intermediariesNumber of marketing intermediariesIntensive distributionIntensive distributionS l ti di t ib tiS l ti di t ib tiSelective distributionSelective distributionExclusive distributionExclusive distribution

Responsibilities of channel membersResponsibilities of channel members

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Channel Design DecisionsChannel Design Decisions

Step 4: Step 4: Evaluating Evaluating Major AlternativesMajor AlternativesMajor AlternativesMajor Alternatives

Economic criteriaEconomic criteriaSales, costs, Sales, costs, profitabilityprofitabilityprofitabilityprofitability

Control issuesControl issuesAdaptive criteriaAdaptive criteria

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Channel Design DecisionsChannel Design Decisions

Designing International Designing International Distribution ChannelsDistribution ChannelsDistribution ChannelsDistribution Channels

Global marketers usually Global marketers usually adapt their channel strategies adapt their channel strategies to structures that exist within to structures that exist within foreign countriesforeign countriesK h llK h llKey challenges:Key challenges:

Channels may be complex Channels may be complex or hard to penetrateor hard to penetrateor hard to penetrateor hard to penetrateChannels may be Channels may be scattered, inefficient, or scattered, inefficient, or

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, ,, ,totally lackingtotally lacking

Channel Management D i iDecisions

Selecting Channel Selecting Channel MembersMembers

Identify characteristics that Identify characteristics that di ti i h th b t h ldi ti i h th b t h ldistinguish the best channel distinguish the best channel membersmembers

Managing and Motivating Managing and Motivating Channel MembersChannel MembersChannel MembersChannel Members

Partner relationship Partner relationship management (PRM) is keymanagement (PRM) is key

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g ( ) yg ( ) y

Channel Management D i iDecisions

Evaluating Channel Evaluating Channel MembersMembers

Performance Performance h ld b h k dh ld b h k dshould be checked should be checked

against standardsagainst standardsChannel membersChannel membersChannel members Channel members should be rewarded should be rewarded or replaced as or replaced as dictated by dictated by performance performance

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Marketing Logistics and S l Ch i M tSupply Chain Management

Marketing LogisticsMarketing LogisticsMarketing Logistics Marketing Logistics Outbound distributionOutbound distributionInbound distributionInbound distributionReverse distributionReverse distributionInvolves the entire supply chainInvolves the entire supply chainInvolves the entire supply chain Involves the entire supply chain management systemmanagement system

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Fig re 13 5Figure 13-5:

Supply ChainSupply Chain Managementa age e

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Marketing Logistics and S l Ch i M tSupply Chain Management

Why Greater Emphasis is Being PlacedWhy Greater Emphasis is Being PlacedWhy Greater Emphasis is Being Placed Why Greater Emphasis is Being Placed on Logistics:on Logistics:

Offers firms a competitive advantageOffers firms a competitive advantageOffers firms a competitive advantageOffers firms a competitive advantageCan yield cost savingsCan yield cost savingsGreater product variety requires improved Greater product variety requires improved logisticslogisticsImprovements in distribution efficiency are Improvements in distribution efficiency are possible due to information technologypossible due to information technology

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Marketing Logistics and S l Ch i M tSupply Chain Management

Goals of the Logistics SystemGoals of the Logistics SystemGoals of the Logistics SystemGoals of the Logistics SystemNo system can both maximize No system can both maximize customer service and minimizecustomer service and minimizecustomer service and minimize customer service and minimize costs.costs.Firms must first weigh theFirms must first weigh theFirms must first weigh the Firms must first weigh the benefits of higher service benefits of higher service against the costsagainst the costsagainst the costs.against the costs.State goals in terms of a targeted State goals in terms of a targeted level of customer service at the least costlevel of customer service at the least cost

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level of customer service at the least cost.level of customer service at the least cost.

Marketing Logistics and S l Ch i M tSupply Chain Management

Major Logistics FunctionsMajor Logistics FunctionsMajor Logistics FunctionsMajor Logistics FunctionsWarehousingWarehousingInventory ManagementInventory ManagementTransportationTransportationTransportationTransportationLogistics Information ManagementLogistics Information Management

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Marketing Logistics and Supply Chain ManagementChain Management

Transportation Carrier OptionsTransportation Carrier Options

TruckTruck PipelinePipelineTruckTruckRailRail

PipelinePipelineAirAir

WaterWater InternetInternet

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Marketing Logistics and S l Ch i M tSupply Chain Management

Integrated LogisticsIntegrated LogisticsIntegrated Logistics Integrated Logistics ManagementManagement

CrossCross functionalfunctionalCrossCross--functional functional teamwork inside the teamwork inside the company is criticalcompany is criticalcompany is criticalcompany is criticalLogistics Logistics partnerships are alsopartnerships are alsopartnerships are also partnerships are also built through shared built through shared projectsprojects

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projectsprojects

Many companies y puse sophisticated, system-wide supplysystem wide supply chain management software such assoftware, such as that which is

il bl favailable from Oracle and other software providers.

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Marketing Logistics and S l Ch i M tSupply Chain Management

Outsourcing ofOutsourcing ofOutsourcing of Outsourcing of logistic firms to logistic firms to thi d t fi ithi d t fi ithird party firms is third party firms is becoming morebecoming morebecoming more becoming more commoncommon

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