Marketing Channels and Marketing Channels and Supply Chain ManagementSupply Chain Management

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ROAD MAP: Previewing the Concepts

• Explain why companies use distribution channels Explain why companies use distribution channels and discuss the functions these channels and discuss the functions these channels perform.perform.

• Discuss how channel members interact and how Discuss how channel members interact and how they organize to perform the work of the they organize to perform the work of the channel.channel.

• Identify the major channel alternatives open to a Identify the major channel alternatives open to a company.company.

• Explain how companies select, motivate, and Explain how companies select, motivate, and evaluate channel members.evaluate channel members.

• Discuss the nature and importance of marketing Discuss the nature and importance of marketing logistics and supply chain management.logistics and supply chain management.

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Marketing or Distribution Channel

• A set of interdependent organizations A set of interdependent organizations involved in the process of making a involved in the process of making a product or service available for use product or service available for use or consumption by the consumer or or consumption by the consumer or business user.business user.

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Channel of Distribution

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eGO faces eGO faces challenges in challenges in establishing a establishing a channel of channel of distribution for its distribution for its product.product.

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Distribution in Action

FedEx’s creative and imposing distribution system made it a market leader in express delivery.

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How Channel Members Add Value

• The use of intermediaries results from The use of intermediaries results from their greater efficiency in making their greater efficiency in making goods available to target markets.goods available to target markets.

• Offers the firm more than it can Offers the firm more than it can achieve on its own through the achieve on its own through the intermediaries:intermediaries:– ContactsContacts– ExperienceExperience– SpecializationSpecialization– Scale of operationScale of operation

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How a Distributor Reduces the Number of Channel Transactions

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ContactContact FinancingFinancing

InformationInformation

Risk TakingRisk Taking

PromotionPromotion

MatchingMatching

NegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

These functions should be assigned to the channel member who can add the most value for

the cost

Channel Functions

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Consumer and Business Channels

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Channel Behavior

• The channel will be most effective when:The channel will be most effective when:– each member is assigned tasks it can do best.each member is assigned tasks it can do best.– all members cooperate to attain overall channel all members cooperate to attain overall channel

goals.goals.

• If this does not happen, conflict occurs:If this does not happen, conflict occurs:– Horizontal ConflictHorizontal Conflict occurs among firms at the occurs among firms at the

same level of the channel (e.g., retailer to same level of the channel (e.g., retailer to retailer).retailer).

– Vertical ConflictVertical Conflict occurs between different levels occurs between different levels of the same channel (e.g., wholesaler to of the same channel (e.g., wholesaler to retailer).retailer).

• Some conflict can be healthy competition.Some conflict can be healthy competition.

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Channel Conflict

When it decided to sell its familiar containers at retail through Target stores, Tupperware avoided conflicts with its army of in-home sales consultants by inviting them into the stores to demonstrate the products.

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•What do you think the impact What do you think the impact was of Taco Bell selling its was of Taco Bell selling its products in grocery stores? products in grocery stores? Why?Why?

Discussion Question

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Conventional vs. Vertical Marketing System

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Vertical Marketing System (VMS)

• A distribution channel structure in A distribution channel structure in which producers, wholesalers, and which producers, wholesalers, and retailers act as a unified systemretailers act as a unified system

• One channel member owns the One channel member owns the other, has contracts with them, or other, has contracts with them, or has so much power that they all has so much power that they all cooperate.cooperate.

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Corporate VMSCommon Ownership at Different

Levels of the Channel (e.g., Sears)

Contractual VMSContractual Agreements Among

Channel Members (e.g., ACE Hardware)

Administered VMSLeadership is Assumed by One or

a Few Dominant Members (e.g., Kraft)

Types of Vertical Marketing Systems

Control

High

Low

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Franchise Organization

• Manufacturer-Sponsored Retailer Manufacturer-Sponsored Retailer Franchise SystemFranchise System– Ford and its independent franchised Ford and its independent franchised

dealersdealers

• Manufacturer-Sponsored Wholesaler Manufacturer-Sponsored Wholesaler Franchise SystemFranchise System– Coca-Cola’s licensed bottlersCoca-Cola’s licensed bottlers

• Service-Firm Sponsored Retailer Service-Firm Sponsored Retailer Franchise SystemFranchise System– McDonald’s, Avis, and Holiday InnMcDonald’s, Avis, and Holiday Inn

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Innovations in Marketing Systems

Two or more Two or more companies at one companies at one channel level join channel level join together to follow a together to follow a new marketing new marketing opportunity.opportunity.

Example: Banks in Example: Banks in grocery storesgrocery stores

Two or more Two or more companies at one companies at one channel level join channel level join together to follow a together to follow a new marketing new marketing opportunity.opportunity.

Example: Banks in Example: Banks in grocery storesgrocery stores

A single firm sets up A single firm sets up two or more two or more marketing channels marketing channels to reach one or to reach one or more customer more customer segments.segments.

Example: Retailers Example: Retailers and catalogsand catalogs

A single firm sets up A single firm sets up two or more two or more marketing channels marketing channels to reach one or to reach one or more customer more customer segments.segments.

Example: Retailers Example: Retailers and catalogsand catalogs

Horizontal Horizontal Marketing SystemMarketing System

Horizontal Horizontal Marketing SystemMarketing System

Hybrid Marketing Hybrid Marketing SystemSystem

Hybrid Marketing Hybrid Marketing SystemSystem

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Hybrid Marketing Channel

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Changing Channel Organization

• DisintermediationDisintermediation means that means that more and more, product and service more and more, product and service producers are bypassing producers are bypassing intermediaries and going directly to intermediaries and going directly to final buyers, or that radically new final buyers, or that radically new types of channel intermediaries are types of channel intermediaries are emerging to displace traditional emerging to displace traditional ones.ones.

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Disintermediation

Travel supersites such as Expedia, Travelocity, Priceline, Hotels.com, and Orbitz have threatened the very existence of traditional travel agents.

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Channel Design Decisions

• Analyzing Consumer NeedsAnalyzing Consumer Needs

• Setting Channel ObjectivesSetting Channel Objectives

• Identifying Major AlternativesIdentifying Major Alternatives– Types of intermediariesTypes of intermediaries– Number of intermediariesNumber of intermediaries– Responsibilities of intermediariesResponsibilities of intermediaries

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Types of Intermediaries

• Company sales forceCompany sales force

• Manufacturer’s agencyManufacturer’s agency

• Industrial distributorsIndustrial distributors

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Number of Intermediaries

• Intensive distributionIntensive distribution

• Exclusive distributionExclusive distribution

• Selective distributionSelective distribution

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•Choose a partner and decide what Choose a partner and decide what type of distribution is used for type of distribution is used for washing machines. What are the washing machines. What are the advantages for the manufacturer advantages for the manufacturer and retailer in using this level of and retailer in using this level of distribution intensity? distribution intensity?

Interactive Student Assignment

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Selective Distribution

Luxury car makers sell exclusively through a limited number of dealerships. Such limited distribution enhances the car’s image and generates strong dealer support.

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Evaluating the Major Alternatives

• Economic Criteria:Economic Criteria:– A company compares the likely sales, A company compares the likely sales,

costs, and profitability of different channel costs, and profitability of different channel alternatives.alternatives.

• Control Issues:Control Issues:– How and to whom should control be given?How and to whom should control be given?

• Adaptive Criteria:Adaptive Criteria:– Consider long-term commitment vs. Consider long-term commitment vs.

flexibility.flexibility.

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Selecting Channel MembersSelecting Channel Members

Managing & Motivating Channel Members Managing & Motivating Channel Members

Evaluating Channel MembersEvaluating Channel Members

Channel Management Decisions

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Public Policy and Distribution Decisions

• Exclusive distributionExclusive distribution

• Exclusive dealingExclusive dealing

• Exclusive territorial agreementsExclusive territorial agreements

• Tying agreementsTying agreements

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Logistics and Supply Chain Management

• Planning, implementing, and Planning, implementing, and controlling the physical flow of goods, controlling the physical flow of goods, services, and related information from services, and related information from points of origin to points of points of origin to points of consumption to meet customer consumption to meet customer requirements at a profit.requirements at a profit.

• Includes:Includes:– Outbound distributionOutbound distribution– Inbound distributionInbound distribution– Reverse distributionReverse distribution

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Supply Chain Management

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Major Logistics Functions

• WarehousingWarehousing

• Inventory management Inventory management

• TransportationTransportation

• Logistics information managementLogistics information management

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Warehousing

• How many, what types, and where?How many, what types, and where?

• Storage warehousesStorage warehouses

• Distribution centersDistribution centers

• Automated warehousesAutomated warehouses

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Inventory Management

• Must balance between too much and Must balance between too much and too little inventory.too little inventory.

• Just-in-time logistics systemsJust-in-time logistics systems

• RFID, AutoID, or Smart Tag technologyRFID, AutoID, or Smart Tag technology

• Click Here to Find Out All About RFIDClick Here to Find Out All About RFID

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Logistics Technology

In the not-too-distant future, AutoID or “smart tag” technology could make the entire supply chain—which accounts for nearly 75% of a product’s cost—intelligent and automated.

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Transportation

• TrucksTrucks

• RailroadsRailroads

• Water carriersWater carriers

• PipelinesPipelines

• AirAir

• InternetInternet

• Intermodal transportationIntermodal transportation

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Intermodal Transportation

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Intermodal Transportation

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Intermodal Transportation

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Intermodal Transportation

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Intermodal Transportation

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Integrated Logistics Management

• The logistics concept that The logistics concept that emphasizes teamwork, both inside emphasizes teamwork, both inside the company and among all the the company and among all the marketing channel organizations, to marketing channel organizations, to maximize the performance of the maximize the performance of the entire distribution system.entire distribution system.

• Involves:Involves:– Cross-functional teamwork inside the Cross-functional teamwork inside the

companycompany– Building logistics partnershipsBuilding logistics partnerships– Third-party logisticsThird-party logistics

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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.”

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Rest Stop: Reviewing the Concepts

1.1. Explain why companies use distribution channels Explain why companies use distribution channels and discuss the functions these channels and discuss the functions these channels perform.perform.

2.2. Discuss how channel members interact and how Discuss how channel members interact and how they organize to perform the work of the channel.they organize to perform the work of the channel.

3.3. Identify the major channel alternatives open to a Identify the major channel alternatives open to a company.company.

4.4. Explain how companies select, motivate, and Explain how companies select, motivate, and evaluate channel members.evaluate channel members.

5.5. Discuss the nature and importance of marketing Discuss the nature and importance of marketing logistics and integrated supply chain logistics and integrated supply chain management.management.