Marketing Channels Marketing Channels and Supply Chain and Supply Chain

ManagementManagement

Chapter 13Chapter 13

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Objectives

• Know 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.

• Learn how channel members Learn how channel members interact and how they organize to interact and how they organize to perform the work of the channel.perform the work of the channel.

• Know the major channel alternatives Know the major channel alternatives that are open to a company.that are open to a company.

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Objectives

• Comprehend how companies Comprehend how companies select, motivate, and evaluate select, motivate, and evaluate channel members.channel members.

• Understand the nature and Understand the nature and importance of marketing importance of marketing logistics and integrated supply logistics and integrated supply chain management.chain management.

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• Dominates world’s Dominates world’s markets for heavy markets for heavy construction and construction and mining mining equipment.equipment.

• Independent Independent dealers are key to dealers are key to success success

• Dealer network is Dealer network is linked via linked via computerscomputers

• Caterpillar stresses Caterpillar stresses dealer profitability, dealer profitability, extraordinary extraordinary dealer support, dealer support, personal personal relationships, relationships, dealer performance dealer performance and full, honest, and full, honest, and frequent and frequent communications communications

CaterpillarCaterpillar

Case Study

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Definition

• Value Delivery NetworkValue Delivery Network The network made up of the The network made up of the

company, suppliers, distributors, company, suppliers, distributors, and ultimately customers who and ultimately customers who “partner” with each other to “partner” with each other to improve the performance of the improve the performance of the entire system.entire system.

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• Channel choices affect other Channel choices affect other decisions in the marketing mixdecisions in the marketing mix Pricing, Marketing communicationsPricing, Marketing communications

• A strong distribution system can A strong distribution system can be a competitive advantagebe a competitive advantage

• Channel decisions involve long-Channel decisions involve long-term commitments to other firmsterm commitments to other firms

Nature & Importance of Marketing

Channels

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• How Channel Members Add ValueHow Channel Members Add Value Intermediaries require fewer contacts to Intermediaries require fewer contacts to

move the product to the final purchaser.move the product to the final purchaser. Intermediaries help match product Intermediaries help match product

assortment demand with supply. assortment demand with supply. Intermediaries help bridge major time, Intermediaries help bridge major time,

place, and possession gaps that separate place, and possession gaps that separate products from those who would use products from those who would use them.them.

Nature & Importance of Marketing

Channels

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Key Functions Performed byKey Functions Performed by Channel Members Channel Members

Nature & Importance of Marketing

Channels

• InformationInformation

• PromotionPromotion

• ContactContact

• MatchingMatching

• NegotiationNegotiation

• Physical DistributionPhysical Distribution

• FinancingFinancing

• Risk takingRisk taking

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• Number of Channel LevelsNumber of Channel Levels The number of intermediary levels The number of intermediary levels

indicates the length of a marketing indicates the length of a marketing channel.channel. Direct ChannelsDirect Channels Indirect ChannelsIndirect Channels

Producers lose more control and Producers lose more control and face greater channel complexity as face greater channel complexity as additional channel levels are added.additional channel levels are added.

Nature & Importance of Marketing

Channels

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

Nature & Importance of Marketing

Channels

• Physical Physical FlowFlow

• Payment Payment FlowFlow

• Information FlowInformation Flow

• Promotion FlowPromotion Flow

• Flow of Flow of OwnershipOwnership

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• Channel ConflictChannel Conflict Occurs when channel members Occurs when channel members

disagree on roles, activities, or disagree on roles, activities, or rewards.rewards.

Types of Conflict:Types of Conflict: Horizontal conflict:Horizontal conflict: occurs among firms at occurs among firms at

the the same channel level same channel level

Vertical conflict:Vertical conflict: occurs among firms at occurs among firms at different channel levelsdifferent channel levels

Channel Behavior and Organization

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• Vertical Marketing SystemsVertical Marketing Systems Corporate VMSCorporate VMS Contractual VMSContractual VMS

Manufacturer-sponsored retailer franchise Manufacturer-sponsored retailer franchise systemsystem

Manufacturer-sponsored wholesaler Manufacturer-sponsored wholesaler franchise systemfranchise system

Service-firm-sponsored retailer franchise Service-firm-sponsored retailer franchise systemsystem

Administered VMSAdministered VMS

Channel Behavior and Organization

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• Multichannel Distribution SystemsMultichannel Distribution Systems Also called hybrid marketing channelsAlso called hybrid marketing channels Occurs when a firm uses two or more Occurs when a firm uses two or more

marketing channels marketing channels Hybrid marketing has many Hybrid marketing has many

advantagesadvantages

• Changing Channel OrganizationChanging Channel Organization DisintermediationDisintermediation

Channel Behavior and Organization

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• Step 1:Step 1: Analyzing Consumer Needs Analyzing Consumer Needs Cost and feasibility of meeting needs Cost and feasibility of meeting needs

must be considered must be considered

• Step 2:Step 2: Setting Channel Objectives Setting Channel Objectives Set channel objectives in terms of Set channel objectives in terms of

targeted level of customer servicetargeted level of customer service Many factors influence channel objectivesMany factors influence channel objectives

Channel Design Decisions

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• Step 3:Step 3: Identifying Major Identifying Major AlternativesAlternatives Types of intermediariesTypes of intermediaries

Company sales force, manufacturer’s Company sales force, manufacturer’s agency, industrial distributorsagency, industrial distributors

Number of marketing intermediariesNumber of marketing intermediaries Intensive, selective, and exclusive Intensive, selective, and exclusive

distributiondistribution

Responsibilities of channel membersResponsibilities of channel members

Channel Design Decisions

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• Step 4: Step 4: Evaluating Major Evaluating Major AlternativesAlternatives Economic criteriaEconomic criteria Control issuesControl issues Adaptive criteriaAdaptive criteria

Channel Design Decisions

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• Designing International Designing International Distribution ChannelsDistribution Channels Global marketers usually adapt their Global marketers usually adapt their

channel strategies to structures that channel strategies to structures that exist within foreign countriesexist within foreign countries

Key challenges:Key challenges: May be complex or hard to penetrateMay be complex or hard to penetrate May be scattered, inefficient, or totally May be scattered, inefficient, or totally

lackinglacking

Channel Design Decisions

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• Selecting Channel MembersSelecting Channel Members Identify characteristics that distinguish the Identify characteristics that distinguish the

best channel membersbest channel members

• Managing and Motivating Channel Managing and Motivating Channel MembersMembers Partner relationship management (PRM) is keyPartner relationship management (PRM) is key

• Evaluating Channel MembersEvaluating Channel Members Performance should be checked against Performance should be checked against

standardsstandards Channel members should be rewarded or Channel members should be rewarded or

replaced as dictated by performance replaced as dictated by performance

Channel Management Decisions

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• Exclusive distributionExclusive distribution Only certain outlets are allowed to Only certain outlets are allowed to

carry a firm’s productscarry a firm’s products

• Exclusive dealingExclusive dealing Exclusive territorial agreementsExclusive territorial agreements Tying agreementsTying agreements

Public Policy and Distribution Decisions

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• Marketing Logistics Marketing Logistics Outbound distributionOutbound distribution Inbound distributionInbound distribution Reverse distributionReverse distribution Involves the entire supply chain Involves the entire supply chain

management systemmanagement system

Marketing Logistics and Supply Chain Management

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• Why Greater Emphasis is Being Why Greater Emphasis is Being Placed on Logistics:Placed on Logistics: Offers firms a competitive advantageOffers firms a competitive advantage Can yield cost savingsCan yield cost savings Greater product variety requires Greater product variety requires

improved logisticsimproved logistics Improvements in distribution Improvements in distribution

efficiency are possible due to efficiency are possible due to information technologyinformation technology

Marketing Logistics and Supply Chain Management

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• Goals of the Logistics SystemGoals of the Logistics System No system can both maximize No system can both maximize

customer service and minimize costs.customer service and minimize costs. Firms must first weigh the benefits of Firms must first weigh the benefits of

higher service against the costs.higher service against the costs. State goals in terms of a targeted State goals in terms of a targeted

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

Marketing Logistics and Supply Chain Management

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• Major Logistics FunctionsMajor Logistics Functions WarehousingWarehousing Inventory ManagementInventory Management TransportationTransportation Logistics Information ManagementLogistics Information Management

Marketing Logistics and Supply Chain Management

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Transportation Carrier OptionsTransportation Carrier Options

Marketing Logistics and Supply Chain Management

• TruckTruck

• RailRail

• WaterWater

• PipelinePipeline

• AirAir

• InternetInternet

Intermodal transportation is becoming Intermodal transportation is becoming

more commonmore common

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• Integrated Logistics ManagementIntegrated Logistics Management Cross-functional teamwork inside Cross-functional teamwork inside

the company is criticalthe company is critical Logistics partnerships are also built Logistics partnerships are also built

through shared projectsthrough shared projects Outsourcing of logistics firms to Outsourcing of logistics firms to

third-party firms is becoming more third-party firms is becoming more commoncommon

Marketing Logistics and Supply Chain Management