Chapter 13Chapter 13

Marketing Marketing Channels and Channels and Supply Chain Supply Chain ManagementManagement

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Chapter ObjectivesChapter Objectives1. Describe the types of marketing channels and roles they play in

marketing strategy.2. Outline the major channel strategy decisions.3. Describe the concepts of channel management, conflict, and

cooperation.4. Identify and describe the different vertical marketing systems.5. Explain the roles of logistics and supply-chain management in

an overall distribution strategy.6. Identify the major components of a physical distribution system.7. Compare the major modes of transportation.8. Discuss how transportation intermediaries and combined

transportation modes can improve physical distribution.9. Identify and briefly describe the different types of warehousing.

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The Role of Marketing Channels in The Role of Marketing Channels in Marketing StrategyMarketing Strategy

Channels provide the means by which the firm moves the goods and services it produces to ultimate usersFacilitate the exchange process by cutting

the number of contacts necessaryAdjust for discrepancies in the market’s

assortment of goods and services via sortingStandardize exchange transactionsFacilitate searches by both buyers and

sellers

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Types of Marketing ChannelsTypes of Marketing Channels

Marketing channelMarketing channel: system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel

Marketing intermediaryMarketing intermediary: wholesaler or retailer that operates between producers and consumers or business users; also called a middleman

WholesalerWholesaler: marketing intermediary that takes title to goods and then distributes these goods further; also called a jobber or distributor

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U.S. U.S. FoodServiceFoodServiceA wholesaler

[called a distributor in the industry] is a marketing intermediary

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Types of Marketing ChannelsTypes of Marketing ChannelsConsumer Goods

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Types of Marketing ChannelsTypes of Marketing ChannelsBusiness GoodsServices

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Direct SellingDirect SellingDirect channelDirect channel:

marketing channel that moves goods directly from a producer to ultimate user

Direct sellingDirect selling: strategy designed to establish direct sales contract between producer and final user

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DellDellA direct

seller of computers

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Channels Using Marketing IntermediariesChannels Using Marketing IntermediariesProducer to wholesaler to retailer to

consumerProducer to wholesaler to business userProducer to agent to wholesaler to retailer

to consumerProducer to agent to wholesaler to

business userProducer to agent to business user

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Dual DistributionDual Distribution: Network that moves products to a firm’s target market through more than one marketing channel

IBM’s direct marketing channel (IBM.com) for a product also sold through other channels.

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Reverse ChannelsReverse Channels: Channels designed to return goods to their producers

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Channel Strategy DecisionsChannel Strategy Decisions

Selection of a Marketing Channel Factors which impact the selection of a

marketing channel include:Market factorsProduct factorsOrganizational factorsCompetitive factors

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Factors influencing Marketing Channel Strategies

Characteristics of Short Channels

Characteristics of Long Channels

Market factors

Business users Consumers

Geographically concentrated Geographically diverse

Extensive technical knowledge and regular servicing required

Little technical knowledge and regular servicing not required

  Large orders Small orders

Product factors

Perishable Durable

Complex Standardized

Expensive Inexpensive

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Characteristics of Short Channels

Characteristics of Long Channels

Producer

factors

Manufacturer has adequate resources to perform channel functions

Manufacturer lacks adequate resources to perform channel functions

Broad product line Channel control important

Limited product line Channel control not important

Competitive factors

Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products

Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products

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Short Marketing Channels: Characteristics of Perishable Products

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Long Marketing Channels: Characteristics of Products with Low unit Costs

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Determining Distribution IntensityDetermining Distribution IntensityDistribution intensity: number of

intermediaries through which a manufacturer distributes its goods

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Intensive Intensive distributiondistribution: channel policy in which a manufacturer of a convenience product attempts to saturate the marketWrigley’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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Legal problems of exclusive distributionLegal problems of exclusive distributionExclusive-dealing agreement: arrangement

between manufacturer and e-marketing intermediary that prohibits the intermediary from handling competing product lines

Closed sales territories: exclusive geographic selling region of a distributor

Tying agreement: Arrangement that requires a marketing intermediary to carry items other than those they want to sell

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Who Should Perform Channel Functions?Who Should Perform Channel Functions?Fundamental principle that governs

channel decisionsChannel members can shift responsibilities

for the performance of certain marketing functions, but they cannot eliminate central functions

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Channel Management and LeadershipChannel Management and Leadership

Channel CaptainChannel Captain: a dominant and controlling member of a marketing channelAn example of

channel leadership

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Channel ConflictChannel ConflictHorizontal Conflict

Most often, horizontal conflict causes sparks between different types of marketing intermediaries that handle similar products

Sometimes results from disagreements among channel members at the same level

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Vertical ConflictVertical ConflictChannel members at different levels find

many reasons for disputesExample: when retailers develop private

brands to compete with producers’ brands or when producers establish their own retail outlets or WWW Sites

The Grey MarketThe Grey MarketGrey Good: product made abroad under

license from a U.S. firm and then sold in the U.S. market in competition with that firm’s own domestic output [prescriptions]

Viewed by producers as undesired competition

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Achieving Channel CooperationAchieving Channel CooperationChannel Cooperation, achieved via

effective cooperation among channel members, is the desired antidote to channel conflict

It is Best achieved when all channel members regard themselves as components of the same organization

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Vertical Marketing SystemsVertical Marketing Systems

Vertical marketing systemVertical marketing system (VMS): planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration – manufacturer

owns their retailers [T-Mobile]Backward integration – distributor

buys a manufacturing company [Sysco]

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Administered marketing systemAdministered marketing system: VMS that achieves channel coordination when a dominant channel member exercises its powerExample: Goodyear sells tires through

independently owned dealers, but controls the stock that the dealers carry

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Contractual marketing systemContractual marketing system: VMS that coordinates channel activities through formal agreements among channel members like:Wholesaler-Sponsored Voluntary

Chains [IGA Grocery Stores]Retail Cooperatives [Ace Hardware]Franchises

Subway FranchisesAn example of a contractual marketing system

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Snap-onSnap-onA franchise

marketer of hand tools

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Logistics and Supply Chain ManagementLogistics and Supply Chain Management

Supply (value) chainSupply (value) chain: sequence of suppliers that contributes to the creation and delivery of a good or serviceUpstream managementDownstream management

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Figure 13.6Figure 13.6The Supply Chain of a Manufacturing Company

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RyderRyderA member

of the supply chain, helps firms control their delivery costs

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Radio Frequency Identification (RFID)Radio Frequency Identification (RFID)Technology that uses a tiny chip with

identification information that can be read by a scanner using radio waves from a distance

Enterprise Resource PlanningEnterprise Resource PlanningSoftware system that consolidates data

among a firm’s units

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Logistical Cost Logistical Cost ControlControlThird party

(contract) logistics firm: company that specializes in handling logistics activities for other firms

PenskeA third party logistics firm

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Physical DistributionPhysical Distribution

A company’s physical distribution system contains the following elements:Customer ServiceTransportationInventory ControlProtective packaging and materials

handlingOrder ProcessingWarehousing

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Figure 13.7Allocation of Physical Distribution Expenditures

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TransportationTransportationClasses of CarriersClasses of Carriers

Common carriers move freight via all modes of transportation for the general public

Contract carriers do not serve the general public

Private carriers do not offer services for hire, but provide transportation services solely for internally generated freight

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Major Modes of TransportationMajor Modes of TransportationRailroadsMotor CarriersWater CarriersPipelinesAir FreightFreight Forwarders and Supplemental

CarriersIntermodal Coordination

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Comparison of Transport ModesComparison of Transport Modes

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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Containerized Shipping: Increasing Efficiency in the Supply Chain

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WarehousingWarehousingStorage warehouse – long term

[frozen raw ingredients]Distribution warehouse – shorter

term [finished products]

Automated Warehouse TechnologyAutomated Warehouse TechnologyDistribution costs can be cut and

customer service improved by automating warehouse systems

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Warehouse LocationsWarehouse LocationsMajor logistics decision involving the

number and location(s) of storage facilities

Two cost categories influence the choice:Warehousing and materials-

handling costsDelivery costs from warehouse to

customers

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Inventory Control SystemsInventory Control SystemsImportant since firms need to maintain

enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory

Just-in-time (JIT) productionVendor-managed inventory (VMI)

Order ProcessingOrder ProcessingStockout: order for a product that is

unavailable for shipment or sale

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Protective Packaging and Materials Protective Packaging and Materials HandlingHandlingMaterials Handling: set of activities that

move production inputs and other goods within plants, warehouses, and transportation terminalsUnitizing: process of combining

individual materials into large loads for easy handling [pallet loads]

Containerization: process of combining several unitized loads into a single, well-protected load

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End of Chapter ThirteenEnd of Chapter Thirteen