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Chapter 11

Marketing Channels and Supply Chain Management

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Road Map: Previewing the ConceptsExplain why companies use distribution channels and discuss the functions these channels perform.Discuss how channel members interact and how they organize to perform the work of the channel.Identify the major channel alternatives open to a company.Explain how companies select, motivate, and evaluate channel members.Discuss the nature and importance of marketing logistics and supply chain management.

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What is a Distribution Channel?

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.

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.

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Why are Marketing Intermediaries Used?

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.

Purpose: match supply from producers to demand from consumers.

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A Distributor Reduces the Number of Channel Transactions (Fig. 11-1)

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ContactContact

FinancingFinancing

InformationInformationRisk TakingRisk Taking

PromotionPromotion

MatchingMatchingNegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most

Efficiently and Effectively.

Distribution Channel Functions

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List and briefly discuss the marketing channel functions that are involved in completing and fulfilling transactions.Which functions apply most in each of the following situations?

A retailer puts in a rush re-order for a needed Christmas item that is in short supply. An Internet marketer seeks ways to identify and contact its market.

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Number of Channel Levels (Fig. 11-2)

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Channel Behavior & OrganizationThe channel will be most effective when:

each member is assigned tasks it can do best.all members cooperate to attain overall channel goals and satisfy the target market.

When this doesn’t happen, conflict occurs:Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer.Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.

Each channel member’s role must be specified and conflict must be managed.

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Conventional Distribution Channel Vs. a Vertical Marketing System (Fig. 11-3)

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Corporate VMSCommon Ownership at Different Levels of the Channel i.e. Sears

Contractual VMSContractual Agreements Among

Channel Members i.e Western Auto

Administered VMSLeadership is Assumed by One or

a Few Dominant Members i.e. Kraft

Degree of Direct Control

Types of Vertical Marketing Systems

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ContractualVMS

ContractualVMS

RetailerCooperatives

RetailerCooperatives

FranchiseOrganizations

FranchiseOrganizations

Wholesaler SponsoredVoluntary Chain

Wholesaler SponsoredVoluntary Chain

Service-Firm-Sponsored RetailerFranchise System

Service-Firm-Sponsored RetailerFranchise System

Manufacturer-Sponsored Wholesaler

Franchise System

Manufacturer-Sponsored Wholesaler

Franchise System

Manufacturer-Sponsored RetailerFranchise System

Manufacturer-Sponsored RetailerFranchise System

CorporateVMS

CorporateVMS

AdministeredVMS

AdministeredVMS

Types of Vertical Marketing Systems

Vertical Marketing Systems (VMS)

Vertical Marketing Systems (VMS)

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Innovations in Marketing Systems

Horizontal Marketing System

Two or More Companies at One Channel Level Join

Together to Follow a New Marketing Opportunity.

Example:

Banks in Grocery Stores

Horizontal Marketing System

Two or More Companies at One Channel Level Join

Together to Follow a New Marketing Opportunity.

Example:

Banks in Grocery Stores

Hybrid Marketing System

A Single Firm Sets Up Two or More

Marketing Channels to Reach One or

More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

Hybrid Marketing System

A Single Firm Sets Up Two or More

Marketing Channels to Reach One or

More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

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Hybrid Marketing Channel (Fig. 11-4)

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Changing Channel Organization

A Major Trend is Toward Disintermediation Which Means

that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or

That New Types of Channel Intermediaries are Emerging to

Displace Traditional Ones.

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Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Responsibilities ofIntermediaries

Number ofIntermediaries

Types ofIntermediaries

Identifying Major Alternatives

Evaluating the Major Alternatives

Designing International Distribution Channels

Channel Design Decisions

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IntensiveDistributionIntensive

DistributionSelective

DistributionSelective

Distribution

Exclusive DistributionExclusive Distribution

Number of Marketing Intermediaries

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Decide which distribution strategy--intensive, selective, or exclusive--is used for the following products, and why:

Piaget watches, Acura automobiles, Snickers candy bars.

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Selecting Channel MembersSelecting Channel Members

Motivating Channel Members Motivating Channel Members

Evaluating Channel MembersEvaluating Channel Members

FEED

BA

CK

Channel Management Decisions

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Marketing Logistics and Supply Chain Management

Involves getting the right product to the right customers in the right place at the right time.Marketing logistics addresses:

Outbound distribution,Inbound distribution,Reverse distribution,Entire supply chain management.

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Supply Chain Management (Fig. 11-5)

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Goals of the Logistics System

Lower Distribution Costs;

Lower Customer Service Levels

Higher Distribution Costs;

Higher Customer Service Levels

Goal: To Provide a Targeted Level of Customer Service

at the Least Cost.

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InventoryWhen to order

How much to orderJust-in-time

InventoryWhen to order

How much to orderJust-in-time

CostsMinimize Costs ofAttaining Logistics

Objectives

CostsMinimize Costs ofAttaining Logistics

Objectives

WarehousingStorage

DistributionAutomated

WarehousingStorage

DistributionAutomated

Order ProcessingReceivedProcessedShipped

Order ProcessingReceivedProcessedShipped

Logistics

FunctionsTransportation Rail, Truck,

Water, Pipeline, Air,

Intermodal

Major Logistics Functions

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RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goodsWater

Low cost for shipping bulky, low-value, non-perishable goods, slowest form

WaterLow cost for shipping bulky, low-value,

non-perishable goods, slowest form

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

Transportation Modes

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Integrated Logistics ManagementConcept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires TeamworkTeamwork, Both Inside the Company and Among All the Marketing Channel Organizations.Involves:

Cross-functional teamwork inside the companyBuilding channel partnershipsThird-party logistics

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Toys “R” Us PartnerWestern Publishing Group partners with Toys “R” Us to create mini-bookstore sections – called Books “R” Us –within each store.This helps to build channel partnerships that benefit both companies.

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Rest Stop: Reviewing the ConceptExplain why companies use distribution channels and discuss the functions these channels perform.Discuss how channel members interact and how they organize to perform the work of the channel.Identify the major channel alternatives open to a company.Explain how companies select, motivate, and evaluate channel members.Discuss the nature and importance of marketing logistics and supply chain management.