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Marketing Channels and Marketing Channels and Supply Chain 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 logistics importance of marketing logistics and integrated supply chain and integrated supply chain management.management.

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Dominates world’s Dominates world’s markets for heavy markets for heavy construction and mining construction and mining equipment.equipment.Independent dealers are Independent dealers are key to success key to success Dealer network is linked Dealer network is linked via computersvia computers

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

cCaterpillarCaterpillar

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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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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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Channel choices affect Channel choices affect other decisions in the other decisions in the marketing mixmarketing mix

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

Channel decisions involve Channel decisions involve long-term commitments to long-term commitments to other firmsother firms

Nature & Importance of Marketing Channels

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Figure 13-1:

How Channel Members Add Value

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How Channel Members How Channel Members Add ValueAdd Value Intermediaries Intermediaries

Require fewer contacts to Require fewer contacts to move the product to the move the product to the final purchaser.final purchaser.

Help match product Help match product assortment demand assortment demand with supply. with supply.

Help bridge major time, Help bridge major time, place, and possession gapsplace, and possession gaps


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Key Functions Performed Key Functions Performed by Channel Membersby Channel Members

InformationInformation

PromotionPromotion

ContactContact

MatchingMatching

NegotiationNegotiation

Physical Physical DistributionDistribution

FinancingFinancing

Risk takingRisk 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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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 face Producers lose more control and face greater channel complexity as greater channel complexity as additional channel levels are added.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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Channel Members Are Connected Channel Members Are Connected Via A Variety of FlowsVia A Variety of Flows

Physical Physical FlowFlow

Payment Payment FlowFlow

Information Information FlowFlow

Promotion Promotion FlowFlow

Flow of OwnershipFlow of Ownership

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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 occurs among

firms at the same channel levelfirms at the same channel level Vertical conflict:Vertical conflict: occurs among firms occurs among firms

at different channel levelsat different channel levels

Channel Behavior and Organization

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Figure 13-3:

Conventional Versus Vertical

Marketing System

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Vertical Marketing SystemsVertical Marketing Systems Corporate VMSCorporate VMS Contractual VMSContractual VMS

Manufacturer-sponsored Manufacturer-sponsored retailer franchise system retailer franchise system

Manufacturer-sponsored Manufacturer-sponsored wholesaler franchise system wholesaler franchise system

Service-firm-sponsored Service-firm-sponsored retailer franchise system retailer franchise system

Administered VMSAdministered VMS


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Horizontal Horizontal Marketing SystemsMarketing Systems Two or more Two or more

companies at one companies at one level join together to level join together to follow a new follow a new marketing marketing 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

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Figure 13-4:

Multichannel Distribution System

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Multichannel Multichannel Distribution SystemsDistribution Systems Also called hybrid Also called hybrid

marketing channelsmarketing channels Occurs when a firm uses Occurs when a firm uses

two or more marketing two or more marketing channels channels

Hybrid marketing has Hybrid marketing has many advantagesmany advantages


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Changing Channel OrganizationChanging Channel Organization Disintermediation has hurt many Disintermediation has hurt many

established companiesestablished companies


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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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Step 1:Step 1: Analyzing Analyzing Consumer NeedsConsumer Needs Cost and feasibility Cost and feasibility

of meeting needs of meeting needs must be considered must be considered

Channel Design Decisions

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Step 2:Step 2: Setting Channel ObjectivesSetting 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 Many factors influence channel

objectivesobjectives


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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

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Step 3:Step 3: Identifying Major AlternativesIdentifying Major Alternatives


Types of Types of IntermediariesIntermediaries

Company sales Company sales force force

Manufacturer’s Manufacturer’s agency agency

Industrial Industrial distributors distributors

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Manufacturer’s Agents:Manufacturer’s Agents: Also called reps, agents, Also called reps, agents, manufacturers’ representatives, manufacturers’ representatives, sales agencies or even brokers. sales agencies or even brokers.

What Do They Do?What Do They Do?Act as outsourced providers of Act as outsourced providers of field sales services to multiple field sales services to multiple manufacturers of manufacturers of complementary products.complementary products.

Compensation:Compensation: Work on commission and Work on commission and pay their own expenses. pay their own expenses.

Employment Terms:Employment Terms: Contractual agreement to Contractual agreement to be the exclusive “agent” of be the exclusive “agent” of the manufacturers they the manufacturers they represent in a given represent in a given territory, market, or for territory, market, or for specific accounts. specific accounts.

Manufacturer’s Agencies In-Depth

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Benefits: Reps’ ViewBenefits: Reps’ View Manufacturer’s agents can Manufacturer’s agents can

leverage their time so that leverage their time so that sales for multiple sales for multiple manufacturers can be manufacturers can be made to the same made to the same customer, often during the customer, often during the same sales call.same sales call.

Multiple products means Multiple products means reps can offer the best reps can offer the best product to suit needsproduct to suit needs

Benefits:Benefits: Firm’s ViewFirm’s View Sales costs vary Sales costs vary

predictably with sales predictably with sales Lower sales, turnover, Lower sales, turnover,

and training costsand training costs Increased sales; Increased sales;

experienced sales forceexperienced sales force Flexibility; immediate Flexibility; immediate

access to marketsaccess to markets Enables systems salesEnables systems sales

Manufacturer’s Agencies In-Depth

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What are the key What are the key disadvantagesdisadvantages that a that a producer firm might producer firm might face when relying on face when relying on manufacturer’s manufacturer’s agents?agents?

Discussion Question

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Step 3:Step 3: Identifying Major AlternativesIdentifying Major Alternatives Number of marketing intermediariesNumber of marketing intermediaries

Intensive distributionIntensive distribution Selective distributionSelective distribution Exclusive distributionExclusive distribution

Responsibilities of channel membersResponsibilities of channel members


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Step 4: Step 4: Evaluating Evaluating Major AlternativesMajor Alternatives Economic criteriaEconomic criteria

Sales, costs, Sales, costs, profitability profitability

Control issuesControl issues Adaptive criteriaAdaptive criteria


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Designing International Designing International Distribution 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 countries

Key challenges:Key challenges: Channels may be complex Channels may be complex

or hard to penetrate or hard to penetrate Channels may be Channels may be

scattered, inefficient, or scattered, inefficient, or totally lacking totally lacking


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Selecting Channel Selecting Channel MembersMembers Identify characteristics that Identify characteristics that

distinguish the best channel distinguish the best channel membersmembers

Managing and Motivating Managing and Motivating Channel MembersChannel Members Partner relationship Partner relationship

management (PRM) is keymanagement (PRM) is key

Channel Management Decisions

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Evaluating Channel Evaluating Channel MembersMembers Performance Performance

should be checked should be checked against standardsagainst standards

Channel members Channel members should be rewarded should be rewarded or replaced as or replaced as dictated by dictated by performance performance

Channel Management Decisions

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Exclusive distributionExclusive distribution Only certain outlets are Only certain outlets are

allowed to carry a firm’s allowed to carry a firm’s productsproducts

Exclusive dealingExclusive dealing Exclusive territorial Exclusive territorial

agreementsagreements 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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Figure 13-5:

Supply Chain Management

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

logisticslogistics Improvements in distribution efficiency are Improvements in distribution efficiency are

possible due to information technologypossible due to information technology


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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 customer service and minimize costs.costs.

Firms must first weigh the Firms must first weigh the benefits of higher service benefits of higher service against 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 cost.level of customer service at the least cost.


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


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Transportation Carrier OptionsTransportation Carrier Options

TruckTruck

RailRail

WaterWater

PipelinePipeline

AirAir

InternetInternet

Intermodal transportation is becoming Intermodal transportation is becoming

more commonmore common

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Celarix Video Clip

Arranging transportation for goods can be challenging

BusinessNow

Click the picture above to play video

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Integrated Logistics Integrated Logistics ManagementManagement Cross-functional Cross-functional

teamwork inside the teamwork inside the company is criticalcompany is critical

Logistics Logistics partnerships are also partnerships are also built through shared built through shared projectsprojects


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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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Western Publishing Western Publishing Group partnered with Group partnered with Toys “R” Us to create Toys “R” Us to create mini-bookstore sections mini-bookstore sections within each store.within each store.

Can you think of other Can you think of other examples of similar examples of similar logistics partnerships?logistics partnerships?

Discussion Question

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


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Documents

firms2004 prentice hall

value2004 prentice hall

channel behavior

additional channel levels

major channel alternatives

greater channel complexity

dealer performance

distribution channels