Marketing Channels and Supply Chain Management Chapter 13 Objectives Know why companies use distribution channels and understand the functions that these channels perform. Learn how channel members interact and how they organize to perform the work of the channel. Know the major channel alternatives that are open to a company. 13- 1 Objectives Comprehend how companies manage (select, motivate, and evaluate) channel members. Understand the nature and importance of marketing logistics and integrated supply chain management. 13- 2 c Caterpillar Dominates world’s markets for heavy construction and mining equipment. Independent dealers are key to success Dealer network is linked via computers Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications 13- 3 What is a Distribution Channel? Your idea of distribution channels A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the End-User. 13- 4 Why are Marketing Intermediaries Used? Greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: Contacts Experience Specialization Scale of operation Match supply and demand. 13- 5 Figure 13-1: How Channel Members Add Value 13- 6 Nature & Importance of Marketing Channels How Channel Members Add Value to You Intermediaries Require fewer contacts to move the product to the final purchaser. Help match product assortment demand with supply. Help bridge major time, place, and possession gaps 13- 7 Distribution Channel Functions • All Use Up Scarce Resources • All May Often Be Performed Better Through Specialization • All Can Often Be Shifted Among Channel Members Risk Taking Information Financing Promotion Physical Distribution Contact Negotiation Matching 13- 8 Distribution Channels Manufacturer Flow Wholesaler physical information Jobber promotion payment Retailer Consumer ownership Figure 13-3: Conventional Versus Vertical Marketing System 13- 10 Types of Vertical Marketing Systems Greater Corporate Common Ownership at Different Levels of the Channel Degree of Direct Control Contractual Contractual Agreement Among Channel Members Administered Lesser Leadership is Assumed by One or a Few Dominant Members 13- 11 Vertical Marketing Systems Vertical Marketing Systems (VMS) Corporate VMS Wholesaler Sponsored Voluntary Chain ManufacturerSponsored Retailer Franchise System Contractual VMS Retailer Cooperatives ManufacturerSponsored Wholesaler Franchise System Administered VMS Franchise Organizations Service-FirmSponsored Franchise System 13- 12 Recent Changes Downstream Channel + Upstream Channel Value Delivery Network The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system. 13- 13 Channel Behavior and Organization Horizontal Marketing Systems Nestle and General Mills work together to market cereal outside of North America Two or more companies at one level join together to follow a new marketing opportunity. 13- 14 In building its value delivery network, Palm manages a whole community of suppliers, assemblers, resellers and complementors who must work effectively together. 13- 15 Figure 13-4: Multichannel Distribution System 13- 16 Channel Behavior and Organization Multichannel Distribution Systems Also called hybrid marketing channels Occurs when a firm uses two or more marketing channels Hybrid marketing has many advantages 13- 17 Channel Behavior and Organization Changing Channel Organization Disintermediation has hurt many established companies 13- 18 Channel Behavior and Organization Disintermediation: Traditional brick and mortar travel agencies face competition from online travel agencies, airlines, and reverse auction web sites such as Priceline. See how Sunflower Travel has tried to adapt 13- 19 Channel Design Decisions* Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Responsibilities of Channel Members Evaluating the Major Alternatives Selecting the Best Alternative 13- 20 Three Evaluative Criteria Economic Criteria Control Criteria Adaptability Criteria 13- 21 Types of Middleman Company Salesforce Assign own salespeople to territory Manufacturer's Agency Hire an independent firm with salespeople (Industrial) Distributors find distributors to buy and carry your product Number of Channel Levels The number of intermediary levels indicates the length of a marketing channel. Direct Channels Indirect Channels Producers lose more control and face greater channel complexity as additional channel levels are added. 13- 23 Figure 13-2a: Consumer Marketing Channels 13- 24 Figure 13-2b: Business Marketing Channels 13- 25 Intensity of distribution many few Intensive Distribution stock products in as many outlets as possible Selective Distribution select a number of dealers from those willing to carry product Exclusive Distribution give limited number of dealers exclusive rights to distribute Channel Design Decisions Step 1: Analyzing Consumer Needs Cost and feasibility of meeting needs must be considered 13- 27 Channel Design Decisions Step 2: Setting Channel Objectives Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives 13- 28 GEICO’s channel objectives led them to sell direct via telephone and the Web in order to serve those who are looking to save money. Geico 13- 29 Channel Design Decisions Step 3: Identifying Major Alternatives Types of Intermediaries Company sales force Manufacturer’s agency Industrial distributors 13- 30 Channel Design Decisions Step 3: Identifying Major Alternatives Number of marketing intermediaries Intensive distribution Selective distribution Exclusive distribution Responsibilities of channel members 13- 31 Channel Design Decisions Step 4: Evaluating Major Alternatives Economic criteria Sales, costs, profitability Control issues Adaptive criteria 13- 32 Channel Management Decisions Motivating FEEDBACK Selecting Evaluating 13- 33 Distributor Selection Criteria Financial Health Sales and Market factors Knowledge of the market Market coverage Number and quality of sales personnel Previous Success (or Enthusiasm for the product) 13- 34 Channel Management Decisions Evaluating Channel Members Performance should be checked against standards Channel members should be rewarded or replaced as dictated by performance 13- 35 Channel Behavior and Organization Channel Conflict Occurs when channel members disagree on roles, activities, or rewards. Types of Conflict: Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels 13- 36 Physical Distribution Market Logistics planning, implementing, and controlling the physical flow of materials and final goods from point of origin to the end user. Marketing Logistics and Supply Chain Management Marketing Logistics Outbound distribution Inbound distribution Reverse distribution Involves the entire supply chain management system 13- 38 Figure 13-5: Supply Chain Management 13- 39 Thought for the Day supply chain distribution accounts for 50 cents of every dollar spent promotion accounts for only 2 cents! 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 13- 41 Logistics Systems Costs Order Processing Minimize Costs of Attaining Logistics Objectives Submitted Processed Shipped Logistics Transportation Functions Warehousing Storage Distribution Water, Truck, Rail, Pipeline & Air Inventory When to order How much to order Just-in-time 13- 42 Transportation Modes Rail Nation’s largest carrier, cost-effective for shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Water Low cost for shipping bulky, low-value goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or to ship high-value, low-bulk items 13- 43 Choosing Transportation Modes Checklist for Choosing Transportation Modes 1. Speed. 2. Dependability. 3. Capability. 4. Availability. 5. Cost. 13- 44 BusinessNow Celarix Video Clip Arranging transportation for goods can be challenging Click the picture above to play video 13- 45 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. Cross-Functional Teamwork inside the Company Building Channel Partnerships Third-Party Logistics 13- 46 Many companies use sophisticated, system-wide supply chain management software, such as that which is available from Oracle and other software providers. 13- 47