Chapter 11
Marketing Channels and Supply
Chain Management
Dr. Manoochehr Najmi
Graduate School of Management and Economics
Sharif University of Technology
1384
- 85 (2)
11-1
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.
11-2
1
What is a Distribution Channel?
Set
Set of
of interdependent
interdependent organizations
organizations
involved
involved in
in the
the process
process of
of making
making aa
product
product or
or service
service available
available for
for use
use or
or
consumption
consumption by
by the
the consumer
consumer or
or
business
business user.
user.
11-3
Why are Marketing Intermediaries
Used?
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.
Purpose: match supply from producers to demand
from consumers.
11-4
2
A Distributor Reduces the Number of
Channel Transactions (Fig. 11-1)
11-5
Distribution Channel Functions
These Functions Should be Assigned to the Channel
Member Who Can Perform Them Most Efficiently and
Effectively.
Risk
Risk Taking
Taking
Information
Information
Financing
Financing
Promotion
Promotion
Physical
Physical
Distribution
Distribution
Contact
Contact
Negotiation
Negotiation
Matching
Matching
11-6
3
Number of Channel Levels
(Fig. 11-2)
11-7
Channel Behavior & Organization
The channel will be most effective when:
each member is assigned tasks it can do best.
all members cooperate to attain overall channel goals
and satisfy the target market.
When this doesn’t happen, conflict occurs:
Horizontal Conflict occurs among firms at the same
level of the channel, i.e retailer to retailer.
Vertical Conflict occurs between different levels of the
same channel, i.e. wholesaler to retailer.
Each channel member’s role must be specified
and conflict must be managed.
11-8
4
Conventional Distribution Channel
Vs. a Vertical Marketing System
(Fig. 11-3)
11-9
Types of Vertical Marketing
Systems
Corporate VMS
Common Ownership at Different
Levels of the Channel i.e. Sears
Degree of
Direct
Control
Contractual VMS
Contractual Agreements Among
Channel Members i.e Western Auto
Administered VMS
Leadership is Assumed by One or
a Few Dominant Members i.e. Kraft
11-10
5
Types of Vertical Marketing
Systems Vertical
Vertical Marketing
Marketing
Systems
Systems (VMS)
(VMS)
Corporate
Corporate
VMS
VMS
Wholesaler
Wholesaler Sponsored
Sponsored
Voluntary
Voluntary Chain
Chain
ManufacturerManufacturerSponsored
Sponsored Retailer
Retailer
Franchise
FranchiseSystem
System
Contractual
Contractual
VMS
VMS
Retailer
Retailer
Cooperatives
Cooperatives
Administered
Administered
VMS
VMS
Franchise
Franchise
Organizations
Organizations
ManufacturerManufacturerSponsored
Sponsored Wholesaler
Wholesaler
Franchise
FranchiseSystem
System
Service-FirmService-FirmSponsored
Sponsored Retailer
Retailer
Franchise
FranchiseSystem
System
11-11
Innovations in Marketing Systems
Horizontal
Horizontal Marketing
Marketing
System
System
Two
Two or
or More
More Companies
Companies
at
One
at One Channel
Channel Level
Level
Join
Join Together
Together to
to
Follow
a
New
Follow a New
Marketing
Marketing Opportunity.
Opportunity.
Example:
Example:
Banks
Banks in
in Grocery
Grocery Stores
Stores
Hybrid Marketing
Marketing
Hybrid
System
System
Single Firm
Firm Sets
Sets Up
Up
AA Single
Two or
or More
More Marketing
Marketing
Two
Channels
to
Reach
Channels to Reach
One
or
More
Customer
One or More Customer
Segments.
Segments.
Example:
Example:
Retailers, Catalogs,
Catalogs,
Retailers,
and Sales
Sales Force
Force
and
11-12
6
Toys “R” Us Partner
Western Publishing
Group partners with
Toys “R” Us to create
mini-bookstore sections
– called Books “R” Us –
within each store.
This helps to build
channel partnerships
that benefit both
companies.
11-13
Hybrid Marketing Channel
(Fig. 11-4)
11-14
7
Changing Channel Organization
A Major Trend is Toward
Disintermediation Which Means that
Product and Service Producers are
Bypassing Intermediaries and Going
Directly to Final Buyers or That New
Types of Channel Intermediaries are
Emerging to Displace Traditional
Ones.
11-15
Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Types of
Intermediaries
Number of
Intermediaries
Responsibilities of
Intermediaries
Evaluating the Major Alternatives
Designing International Distribution Channels
11-16
8
Number of Marketing
Intermediaries
Intensive
Intensive
Distribution
Distribution
Selective
Selective
Distribution
Distribution
Exclusive
Exclusive
Distribution
Distribution
11-17
Channel Management Decisions
Motivating
Motivating Channel
Channel Members
Members
FEEDBACK
Selecting
Selecting Channel
Channel Members
Members
Evaluating
Evaluating Channel
Channel Members
Members
11-18
9
Marketing Logistics and Supply
Chain Management
Involves getting the right product to the
right customers in the right place at the
right time.
Marketing logistics addresses:
Outbound distribution,
Inbound distribution,
Reverse distribution,
Entire supply chain management.
11-19
Supply Chain Management
(Fig. 11-5)
11-20
10
Goals of the Logistics System
Higher Distribution Costs;
Higher Customer Service
Levels
Goal:
To Provide a Targeted Level of Customer Service
at the Least Cost.
Lower Distribution Costs;
Lower Customer Service
Levels
11-21
Major Logistics Functions
Order
Order Processing
Processing
Received
Received
Processed
Processed
Shipped
Shipped
Costs
Costs
Minimize
Minimize Costs
Costs of
of
Attaining
Logistics
Attaining Logistics
Objectives
Objectives
Logistics
Transportation
Rail, Truck,
Water, Pipeline,
Air, Intermodal
Functions
Inventory
Inventory
When
When to
to order
order
How
How much
much to
to order
order
Just
in
time
Just- in
- time
Warehousing
Warehousing
Storage
Storage
Distribution
Distribution
Automated
Automated
11-22
11
Transportation Modes
Rail
Rail
Nation’s
Nation’s largest
largest carrier,
carrier, cost-effective
cost-effective
for
shipping
for shipping bulk
bulk products
products
Truck
Truck
Flexible
Flexible in
in routing
routing && time
time schedules,
schedules, efficient
efficient
for
short-hauls
of
high
for short-hauls of high value
value goods
goods
Water
Water
Low
Low cost
cost for
for shipping
shipping bulky,
bulky, low-value,
low-value,
non-perishable
goods,
non-perishable goods, slowest
slowest form
form
Pipeline
Pipeline
Ship
Ship petroleum,
petroleum, natural
natural gas,
gas, and
and chemicals
chemicals
from
sources
to
markets
from sources to markets
Air
Air
High
High cost,
cost, ideal
ideal when
when speed
speed isis needed
needed or
or
distance
markets
have
to
be
reached
distance markets have to be reached
11-23
Integrated Logistics Management
Concept Recognizes that Providing Better
Customer Service and Trimming Distribution
Costs Requires Teamwork, Both Inside the
Company and Among All the Marketing Channel
Organizations.
Involves:
Cross- functional teamwork inside the company
Building channel partnerships
Third
- party logistics
11-24
12