10
Marketing Channels and Supply
Chain Management
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.
10-2
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
10-3
How a Distributor Reduces the
Number of Channel Transactions
10-4
Channel Functions
These functions should be assigned to the channel
member who can add the most value for the cost
Information
Promotion
Physical
Distribution
Matching
Risk Taking
10-5
Consumer and Business Channels
10-6
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.
– Vertical Conflict occurs between different levels of
the same channel
• Some conflict can be healthy competition.
10-7
Conventional vs. Vertical Marketing System
10-8
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.
10-9
Types of Vertical Marketing Systems
Corporate VMS
Common Ownership at Different
Levels of the Channel
High
Contractual VMS
Contractual Agreements Among
Channel Members
Control
Administered VMS
Leadership is Assumed by One or
a Few Dominant Members
Low
10-10
Franchise Organization
• Manufacturer-Sponsored Retailer
Franchise System
– Ford and its independent franchised dealers
• Manufacturer-Sponsored Wholesaler
Franchise System
• Service-Firm Sponsored Retailer Franchise
System
10-11
Innovations in Marketing Systems
Horizontal Marketing
System
Two or more
companies at one
channel level join
together to follow a
new marketing
opportunity.
Hybrid Marketing
System
A single firm sets
up two or more
marketing channels
to reach one or
more customer
segments.
10-12
Hybrid Marketing Channel
10-13
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.
10-14
Channel Design Decisions
• Analyzing Consumer Needs
• Setting Channel Objectives
• Identifying Major Alternatives
– Types of intermediaries
– Number of intermediaries
– Responsibilities of intermediaries
10-15
Types of Intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
10-16
Number of Intermediaries
• Intensive distribution
• Exclusive distribution
• Selective distribution
10-17
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:
10-18
Channel Management Decisions
Selecting Channel Members
Managing & Motivating Channel Members
Evaluating Channel Members
10-19
Public Policy and Distribution
Decisions
• Exclusive distribution
• Exclusive dealing
• Exclusive territorial agreements
• Tying agreements
10-20
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
10-21
Supply Chain Management
10-22
Major Logistics Functions
• Warehousing
• Inventory management
• Transportation
• Logistics information management
10-23
Warehousing
• How many, what types, and where?
• Storage warehouses
• Distribution centers
• Automated warehouses
10-24
Inventory Management
• Must balance between too much and too
little inventory.
• Just-in-time logistics systems
• RFID, AutoID, or Smart Tag technology
10-25
Transportation
• Trucks
• Railroads
• Water carriers
• Pipelines
• Air
• Internet
• Intermodal transportation
10-26
Transportation Modes
Rail
Nation’s second largest carrier, cost-effective
for shipping bulk products,
Largest carrier Flexible in routing & time schedules,
Efficient for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value,
non-perishable goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
High cost, ideal when speed is needed or
distance markets have to be reached
10-27
Intermodal Transportation
10-28
Intermodal Transportation
10-29
Intermodal Transportation
10-30
Intermodal Transportation
10-31
Intermodal Transportation
10-32
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
10-33
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.”
10-34