MARKETING
Real People, Real Choices
Fourth Edition
CHAPTER 15
Creating Value Through
Supply Chain Management:
Channels of Distribution,
Logistics, and Wholesaling
Place: The Final Frontier
• Parity in product, promotion and price
• Place offers opportunity for
differentiation
– E.g. Netflix, Walmart, I-tunes
• Managing distribution can spell
enormous cost savings and profits
15-2
Supply Chain Management
• The supply chain – firms involved in all
activities from raw material procurement
to delivering the final product to the
consumer
• Supply chain management –
management of flows among the firms
in a supply chain to maximize total
profitability
• E.g. Hewlett Packard (Identify the flows)
15-3
What Is a Distribution Channel?
• Series of firms or individuals that
facilitate the movement of a product
from the producer to the final customer
– Direct
– Indirect
• Channel Intermediaries
15-4
Functions of Distribution Channels
• Time, place, and ownership utilities
• Logistics functions
– Transportation and storage
• Efficiency creation
– Breaking bulk
– Creating assortments
• Facilitating functions
– Repairs and replacements
– Credit and financing
• Risk taking
• Information flow & research
15-5
Creating Efficiencies
• Breaking bulk – channel members
purchase large quantities from
manufacturers and sell smaller
quantities to many different customers
• Creating assortments – channel
members provide a variety of products
in one location
15-6
The Internet
• Small firms selling products distributable
over the Internet (e.g. software, music,
books, magazines, newspapers, etc.)
• Small firms completing the sale over the
Internet but outsourcing logistics and
transportation functions
• Disintermediation - process by which
traditional intermediaries are eliminated
15-7
Types of Wholesaling Intermediaries
• Wholesaling intermediaries – firms that
handle the flow of products from the
manufacturer to retailer or business user
– Independent
• Merchant wholesalers (assume title and
full risks, earn profits)
• Agents and brokers (merely bring buyers
and sellers together; earn commissions)
– Manufacturer owned
• Sales branches, offices and showrooms
15-8
Independent Intermediaries
Merchant wholesalers
– Full-service
– Limited-service
– Cash-and-carry
wholesalers
– Truck jobbers
– Drop shippers
– Mail-order
wholesalers
– Rack jobbers
Merchandise Agents
or Brokers
– Manufacturers’
agents
– Selling agents
– Commission
merchants
– Merchandise
brokers
15-9
Types of Distribution Channels
• Consumer channels
– Direct (e.g. farmers market, Internet)
– Manufacturer-retailer-consumer (e.g. HP’s
computers through Best Buy)
– Manufacturer-wholesaler-retailer-consumer (e.g.
Breyers ice cream)
• Business-to-business channels
– Direct (most high value industrial products)
– Manufacturer-industrial distributor-business
customer (smaller industrial products, e.g. valves,
etc.)
15-10
Dual Distribution Systems
• Multiple channel usage
• Example:
– pharmaceutical industry sells to
hospitals, clinics, and organizational
customers directly and to consumers
indirectly through drug retailers
• Hybrid marketing systems
– Using several channels at the same
time
15-11
Deciding on a channel strategy
• Profit potential
• Control over distribution, promotion and
pricing
• Resources availability
15-12
Marketing Systems
• Conventional – multi-level distribution
channel in which members work
independently of one another
• Vertical – channel in which there is
cooperation among channel members at two
or more different levels of the channel
• Horizontal – two or more firms at the same
channel level agree to work together (e.g.
Smaller stores in Walmart; banks inside
grocery stores)
15-13
Vertical Marketing Systems
• Administered – channel members
remain independent but voluntarily work
together
• Corporate – single firm owns
manufacturing, wholesaling, and
retailing operations (e.g. Sears)
• Contractual – cooperation is enforced
by contracts that spell out member
rights and the terms of cooperation (e.g.
IGA food stores ; Ace Hardware)
15-14
Contractual VMS
• Wholesaler-sponsored – wholesalers get
retailers to work together under their
leadership in a voluntary chain (e.g. IGA)
• Retailer-cooperative – group of retailers with
a wholesaling operation to help them
compete more effectively with large chains
(e.g. True Value Hardware)
• Franchise organizations – cooperation is
explicitly defined and strictly enforced by
franchiser (e.g. McDonalds)
15-15
Distribution Intensity
• Intensive distribution
– Maximize coverage by using all available
outlets (e.g. gum, sodas, milk, bread, etc.)
• Exclusive distribution
– Limited outlets in a region
– Generally for high priced products (e.g.
cars, jewelry, pianos, etc.)
• Selective distribution
– In between (e.g. house hold appliances,
electronic equipment, etc.)
15-16
Managing the Channel
• Selecting channel partners
• Managing the channel of distribution
– Channel leader is the dominant firm
that controls the channel (channel
captain)
– Channel leaders have some form of
power relative to other members
15-17
Logistics and Customer Satisfaction
• Traditionally, logistics was thought of as
physical distribution
– order processing, warehousing,
materials handling, transportation,
and inventory control
– objective to deliver product at lowest
cost
• Now, deliver products at the lowest cost
provided, expected service quality is
maintained
15-18
Logistics Functions
•
•
•
•
•
Order processing
Warehousing
Materials handling
Transportation
Inventory Control
15-19
Transportation Mode Considerations
•
•
•
•
•
•
Dependability
Cost
Speed of Delivery
Accessibility
Capability
Traceability
15-20
Modes of Transportation
•
•
•
•
•
•
Rail
Water
Truck
Air
Pipeline
Internet
15-21