Chapter 15
Marketing Channels,
Logistics, and Supply
Chain Management
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Objectives
1. Describe the roles that marketing channels and logistics
play in marketing strategy.
2. Describe the various types of distribution channels
available to marketers.
3. Outline the major channel strategy decisions.
4. Describe the concepts of management, conflict, and
cooperation within the marketing channel.
5. Identify and compare the major components of a physical
distribution system.
6. Compare the major transportation alternatives on the
basis of speed, dependability, cost, frequency of
shipments, availability in different locations, and flexibility
in handling products.
7. Discuss how transportation intermediaries and combined
transportation modes can improve physical distribution.
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Roles of Marketing Channels
• First, they facilitate the exchange process.
• Second, distributors adjust for discrepancies in
the market’s assortment of goods and
services.
• Third, they involve standardizing exchange
transactions by setting expectations for
products.
• Finally, marketing channels facilitate searches
by both buyers and sellers.
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Types of Marketing Channels
Consumer Goods
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Leading retailers
Who are the leading retailers and what are the
guidelines for selection?
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Types of Marketing Channels
Business Goods
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Major Channel Strategy Decisions
• Level of distribution intensity.
• Desirability of vertical marketing systems.
• Performance of current intermediaries.
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Market Factors Influencing Channel
Strategies
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Product Factors Influencing Channel
Strategies
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Producer Factors Influencing Channel
Strategies
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Competitive Factors Influencing
Channel Strategies
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Distribution Intensity
• Intensive Distribution strategy seeks to distribute a
product through all available channels in a trade area.
– Intensive distribution strategy suits items with
wide appeal across broad groups of consumers.
• Selective distribution, a firm chooses only a limited
number of retailers in a market area to handle its line.
– Helps to control price cutting since relatively few
dealers handle the firm’s line.
• Exclusive distribution, when a producer grants
exclusive rights to a wholesaler or retailer to sell its
products in a specific geographical region.
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Legal Problems of Exclusive
Distribution
Three main areas:
1. Exclusive dealing prohibits the handling of
competing products .
2. Closed sales territories to restrict their
distributors to certain geographical regions.
3. Tying agreements which allow channel
•
members to becoming exclusive dealers only if
they also carry products other than those that
they want to sell.
Tying agreements violate the Sherman Act and the
Clayton Act when they reduce competition or create
monopolies that keep competitors out of major
markets.
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Channel Management and
Leadership
Keys to successful management include:
1. Development of high levels of coordination.
2. Commitment.
3. Trust between channel members.
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Three Types of Channel Conflict
Horizontal Conflict
• Sometimes results from disagreements among channel members at
the same level.
• More often, causes sparks between different types of marketing
intermediaries that handle similar products.
Vertical Conflict
• Cause frequent and often severe conflict.
• Channel members at different levels find many reasons for
disputes.
• Producers may annoy wholesalers and retailers when they attempt
to bypass these intermediaries.
Grey Market
• As U.S. manufacturers license their technology and brands abroad,
they sometimes find themselves in competition in the U.S. market
against versions of their own brands produced by overseas
affiliates.
• Grey goods, or parallel goods, enter U.S. channels through the
actions of foreign distributors.
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Vertical Marketing System (VMS)
• VMS is a planned channel system designed to
improve distribution efficiency and cost
effectiveness.
–
–
Forward integration, a firm attempts to control
downstream distribution.
Backward integration occurs when a manufacturer
attempts to gain greater control over inputs in its
production process.
• A VMS offers several benefits.
–
–
First, it improves chances for controlling and
coordinating the steps in the distribution or
production process.
May also let a manufacturer expand into profitable
new businesses.
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VMS Article
Discover the answers to the following questions
and more when visiting this web site:
– What does a vertical market system (VMS)
look like?
– What are the disadvantages of vertical
marketing systems?
– Are there different types of vertical marketing
systems?
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Three Categories of VMS
1. Corporate Marketing System - where a single
owner runs organizations at each stage of the
marketing channel it operates.
2. Administered Marketing System - achieves
channel coordination when a dominant channel
member exercises its power.
3. Contractual Marketing System - coordinates
distribution through formal agreements among channel
members.
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Major Components of a Physical
Distribution System
1. Customer service - What level of customer service
the distribution activities should support.
2. Transportation - How the firm should ship its
products.
3. Inventory control - How much inventory the firm
should maintain.
4. Protective packaging and materials handling.
5. Order processing.
6. Warehousing - Where the distribution system will
locate stocks of goods.
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Physical Distribution Expenditures
Warehousing 22%
Transportation
42%
Customer Service/Order
Processing 6%
Administrative Costs 5%
Inventory Control
25%
SOURCE: These 2003 estimates were provided by Dr. Julie Gentry, Logistics Faculty, University of Arkansas-Fayetteville
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Shipping & Transportation Hints
What are some of the
considerations for a firm
looking to ship
internationally?
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Comparison of Transport Modes
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