10
Marketing Channels and Supply
Chain Management
ROAD MAP: Previewing the Concepts
• Explain why companies use distribution channels
•
•
•
•
and discuss the functions these channels perform.
Discuss how channel members interact and how
they organize to perform the work of the channel.
Identify the major channel alternatives open to a
company.
Explain how companies select, motivate, and
evaluate channel members.
Discuss the nature and importance of marketing
logistics and supply chain management.
10-2
Marketing or Distribution
Channel
• A set of interdependent organizations
involved in the process of making a
product or service available for use or
consumption by the consumer or business
user.
10-3
Channel of Distribution
eGO faces challenges in
establishing a channel
of distribution for its
product.
Click the picture above to play video
10-4
Distribution in Action
FedEx’s creative
and imposing
distribution
system made it
a market leader
in express
delivery.
10-5
How Channel Members Add Value
• The use of intermediaries results from their
greater efficiency in making goods available
to target markets.
• Offers the firm more than it can achieve on
its own through the intermediaries:
– Contacts
– Experience
– Specialization
– Scale of operation
10-6
How a Distributor Reduces the
Number of Channel Transactions
10-7
Channel Functions
These functions should be assigned to the channel
member who can add the most value for the cost
Information
Negotiation
Promotion
Physical
Distribution
Contact
Financing
Matching
Risk Taking
10-8
Consumer and Business Channels
10-9
Channel Behavior
• The channel will be most effective when:
– each member is assigned tasks it can do best.
– all members cooperate to attain overall channel
goals.
• If this does not happen, conflict occurs:
– Horizontal Conflict occurs among firms at the same
level of the channel (e.g., retailer to retailer).
– Vertical Conflict occurs between different levels of
the same channel (e.g., wholesaler to retailer).
• Some conflict can be healthy competition.
10-10
Channel Conflict
When it decided to sell its familiar containers at retail through Target stores,
Tupperware avoided conflicts with its army of in-home sales consultants by inviting
them into the stores to demonstrate the products.
10-11
Discussion Question
• What do you think the impact was of
Taco Bell selling its products in
grocery stores? Why?
10-12
Conventional vs. Vertical Marketing System
10-13
Vertical Marketing System (VMS)
• A distribution channel structure in which
producers, wholesalers, and retailers act
as a unified system
• One channel member owns the other, has
contracts with them, or has so much
power that they all cooperate.
10-14
Types of Vertical Marketing Systems
Corporate VMS
Common Ownership at Different
Levels of the Channel (e.g., Sears)
High
Contractual VMS
Contractual Agreements Among
Channel Members (e.g., ACE Hardware)
Control
Administered VMS
Leadership is Assumed by One or
a Few Dominant Members (e.g., Kraft)
Low
10-15
Franchise Organization
• Manufacturer-Sponsored Retailer
Franchise System
– Ford and its independent franchised dealers
• Manufacturer-Sponsored Wholesaler
Franchise System
– Coca-Cola’s licensed bottlers
• Service-Firm Sponsored Retailer Franchise
System
– McDonald’s, Avis, and Holiday Inn
10-16
Innovations in Marketing Systems
Horizontal Marketing
System
Two or more
companies at one
channel level join
together to follow a
new marketing
opportunity.
Example: Banks in
grocery stores
Hybrid Marketing
System
A single firm sets up
two or more marketing
channels to reach one
or more customer
segments.
Example: Retailers
and catalogs
10-17
Hybrid Marketing Channel
10-18
Changing Channel Organization
• Disintermediation means that more and
more, product and service producers are
bypassing intermediaries and going
directly to final buyers, or that radically
new types of channel intermediaries are
emerging to displace traditional ones.
10-19
Disintermediation
Travel supersites
such as Expedia,
Travelocity, Priceline,
Hotels.com, and
Orbitz have
threatened the very
existence of
traditional travel
agents.
10-20
Channel Design Decisions
• Analyzing Consumer Needs
• Setting Channel Objectives
• Identifying Major Alternatives
– Types of intermediaries
– Number of intermediaries
– Responsibilities of intermediaries
10-21
Types of Intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
10-22
Number of Intermediaries
• Intensive distribution
• Exclusive distribution
• Selective distribution
10-23
Interactive Student
Assignment
• Choose a partner and decide what type of
distribution is used for washing machines.
What are the advantages for the
manufacturer and retailer in using this
level of distribution intensity?
10-24
Selective Distribution
Luxury car makers sell exclusively through a limited number of dealerships. Such
limited distribution enhances the car’s image and generates strong dealer support.
10-25
Evaluating the Major Alternatives
• Economic Criteria:
– A company compares the likely sales, costs,
and profitability of different channel
alternatives.
• Control Issues:
– How and to whom should control be given?
• Adaptive Criteria:
– Consider long-term commitment vs. flexibility.
10-26
Channel Management Decisions
Selecting Channel Members
Managing & Motivating Channel Members
Evaluating Channel Members
10-27
Public Policy and Distribution
Decisions
• Exclusive distribution
• Exclusive dealing
• Exclusive territorial agreements
• Tying agreements
10-28
Logistics and Supply Chain
Management
• Planning, implementing, and controlling
the physical flow of goods, services, and
related information from points of origin to
points of consumption to meet customer
requirements at a profit.
• Includes:
– Outbound distribution
– Inbound distribution
– Reverse distribution
10-29
Supply Chain Management
10-30
Major Logistics Functions
• Warehousing
• Inventory management
• Transportation
• Logistics information management
10-31
Warehousing
• How many, what types, and where?
• Storage warehouses
• Distribution centers
• Automated warehouses
10-32
Inventory Management
• Must balance between too much and too
little inventory.
• Just-in-time logistics systems
• RFID, AutoID, or Smart Tag technology
• Click Here to Find Out All About RFID
10-33
Logistics Technology
In the not-too-distant
future, AutoID or
“smart tag” technology
could make the entire
supply chain—which
accounts for nearly
75% of a product’s
cost—intelligent and
automated.
10-34
Transportation
• Trucks
• Railroads
• Water carriers
• Pipelines
• Air
• Internet
• Intermodal transportation
10-35
Intermodal Transportation
10-36
Intermodal Transportation
10-37
Intermodal Transportation
10-38
Intermodal Transportation
10-39
Intermodal Transportation
10-40
Integrated Logistics Management
• The logistics concept that emphasizes
teamwork, both inside the company and
among all the marketing channel
organizations, to maximize the
performance of the entire distribution
system.
• Involves:
– Cross-functional teamwork inside the
company
– Building logistics partnerships
– Third-party logistics
10-41
Third Party Logistics
Many companies are now
outsourcing logistics tasks
to companies like Ryder
Integrated Logistics.
Here, Ryder describes a
system it designed to
keep Friendly’s
refrigerated trucks on the
road. “Thanks to Ryder,
Friendly’s doesn’t have to
worry about breakdowns.
Or meltdowns.”
10-42
Rest Stop: Reviewing the Concepts
1. Explain why companies use distribution channels
2.
3.
4.
5.
and discuss the functions these channels perform.
Discuss how channel members interact and how
they organize to perform the work of the channel.
Identify the major channel alternatives open to a
company.
Explain how companies select, motivate, and
evaluate channel members.
Discuss the nature and importance of marketing
logistics and integrated supply chain management.
10-43