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Chapter ObjectivesChapter Objectives1. Introduce you to the Supply Chain2. Describe the roles that Distribution Channels

play in marketing strategy.3. Describe the various types of distribution

channels available to marketers.4. Outline the major channel strategy decisions.5. Identify and compare the major components of

logistics, the physical distribution system.6. Compare the major transportation alternatives

on the basis of speed, dependability, cost, frequency of shipments, availability & flexibility.

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Figure 15.3Figure 15.3Hewlett Packard’s Supply ChainHewlett Packard’s Supply Chain

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Links in the Supply ChainLinks in the Supply Chain

Supply chain linksThe supplier network provides raw

materials and parts to the manufacturerFirm manufactures a productProducts are distributed via the

Distribution Channel for resale to buyers

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Distribution OverviewDistribution Overview

Distribution – moving goods and services from producers to consumers

Distribution channel (aka “marketing channel”) - system of marketing institutions that controls the physical flow of goods and services, along with ownership title, from producers to consumers or business users

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Q. What distribution channels would you use for this product?

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Distribution Channel FunctionsDistribution Channel Functions

Channels perform 5important functions:1. They serve as an intermediary to bring together large

companies with often small buyers (consumers)

2. They physically transport and store goods

3. They provide setup, repair, and maintenance services for products carried

4. They standardize payment terms, delivery schedules, prices, and purchase lots

5. They facilitate the exchange process by cutting the # of contacts necessary (for consumers & manufacturers) – see slide 6

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Figure 15.4Figure 15.4Reducing Transactions via IntermediariesReducing Transactions via Intermediaries

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1. Direct Selling vs. 1. Direct Selling vs. Using IntermediariesUsing Intermediaries

Direct Selling: Direct Selling:

The producer does business directly with the final user, establishing a “contract”

Channel Strategy DecisionsChannel Strategy Decisions

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Distributing DirectDistributing Direct

Internet channels allow for global expansion (Salami.com) and mass customization

Vermont Teddy Bear

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Direct Selling vs. Using IntermediariesDirect Selling vs. Using Intermediaries

Using Marketing Intermediaries: companies that operate between producers and consumers or business users (aka “middlemen”) Wholesaler: Marketing intermediary that

takes title to goods and then distributes these goods to another wholesaler or a retailer (aka “jobber” or “distributor”)

Retailer: Marketing intermediary that takes title to goods and then distributes these goods to the consumer

Broker/Agent: Marketing intermediary that doesn’t take title to goods

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Types of Distribution Channels

Consumer Goods

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Figure 15.5, Part BFigure 15.5, Part BDifferent Types of Distribution Channels Different Types of Distribution Channels

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Figure 15.5, Part CFigure 15.5, Part CDifferent Types of Distribution Channels Different Types of Distribution Channels

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Channel Strategy Decisions

2. Determining Distribution Intensity2. Determining Distribution IntensityDistribution intensity: the # of intermediaries

through which a manufacturer distributes its goods

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Intensive Intensive distributiondistribution: channel policy in which a manufacturer of a product uses as many retailers as possible. Wrigley’s uses an

Intensive distribution strategy for its products

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Selective distributionSelective distribution: channel policy in which a firm chooses only a limited number of retailers to handle its product line

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Exclusive Exclusive distributiondistribution: channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic areaThis Redken hair care

product made only available at its NYC outlet

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Channel Strategy Decisions

3. Determining Who Should Perform Channel FunctionsEach function needs to be performed by either

the producer or an intermediary, such as:WarehousingTransportingFinancingCustomer service

*The goal is to transfer costs to the other company while ensuring your goals are being met!

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Traditional Channels are ChangingTraditional Channels are Changing

The new youth-oriented Scion gets delivered faster because Toyota’s streamlined distribution system lets buyers customize the car online

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LogisticsLogistics

A company’s Logistics (physical distribution) system contains the following elements:

1. Transportation

2. Warehousing

3. Inventory Control

4. Order Processing

5. Protective packaging and materials handling

6. Customer Service The goal is to achieve specified customer

service levels while minimizing the total costs of distribution

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Logistics Expenditures

Warehousing 22%

Administrative Costs 5%

Customer Service/Order Processing 6%

Inventory Control 25%

Transportation 42%

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1. Transportation

Major ModesMajor ModesRailroads – largest mode. Most efficient way to

move bulky commodities long distancesMotor Carriers – Versatile and relatively fastWater Carriers – slow, but cheap. Most

international goodsPipelines – natural gas and oil productsAir Freight – fast, but expensiveIntermodal coordination – combination of two or

more modesInternet: services such as banking, news, and

entertainment

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UPS: Offering a form of intermodal coordination between motor carriers and air carriers when speed is needed.

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FedEx – another intermodal coordinator.

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Comparison of Major Modes of Transport

Mode Speed Depend-ability in Meeting

Schedules

Frequency of

Shipments

Availabil-ity in

Different Locations

Flexibility in

Handling

Cost

Rail Average Average Low Low High Average

Water Very slow Average Very low Limited Very high Very low

Truck Fast High High Very extensive

Average High

Pipeline Slow High High Very limited

Very low Low

Air Very fast High Average Average Low Very high

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2. Warehousing2. Warehousing

Storage Warehouse: warehouse that holds goods for moderate to long periods prior to shipment, usually to buffer seasonal demand

Distribution Warehouse: facility designed to assemble and then redistribute goods in a way that facilitates rapid movement to purchasers (usually holds goods <24 hours)

Locating Warehouses:Locating Warehouses:Cost factors – size, land, labor, shippingCustomer service factors – delivery time

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3. Inventory Control Systems

“There’s only a one unit difference between too much inventory and not enough”

Some firms attempt to keep inventory levels under control by implementing just-in-time production (JIT).

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4. Order Processing

Major ActivitiesMajor Activities

1.1. Conducting a credit checkConducting a credit check

2.2. Keeping a record of the saleKeeping a record of the sale

3.3. Making the right accounting entriesMaking the right accounting entries

4.4. Locating orders, shipping them, and adjusting Locating orders, shipping them, and adjusting inventory recordsinventory records

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5. Protective Packaging & Materials Handling

Materials Handling: set of activities that move products within plants, warehouses, and transportation terminals

Unitizing: process of combining individual materials into large loads for easy handling (using pallets & strapping or shrink-wrapping usually)

Containerization: process of combining several unitized loads into a single, well-protected load= lower costs and less damage

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6. Customer Service

Customer Service StandardsCustomer Service Standards - - Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers.

* Conclusion - Companies must find ways to meet Customer Service Standards while orchestrating the other 5 physical distribution methods at the lowest possible cost