Armstrong Mai08 Media10

CHAPTER 10
Marketing Channels and Supply Chain Management
Supply Chains, Distribution Channels, and Value Delivery Networks
Supply Chains
Producing & making products available to buyers requires building relationships with upstream and downstream supply chain partners.
Value Delivery Networks

Partnering among the company, suppliers, distributors, and customers improves the performance of the whole system.
Distribution Channel:
Set of interdependent organizations involved in making a product or service available for use or consumption by the consumer or business user.
Copyright 2007, Prentice-Hall Inc. 10-2
Consumer and Business Marketing Channels

What is the minimum $ cost of any channel?
Consumer Consumer Consumer Business Customer Business Customer Business Customer
Retailer
Retailer
Business Distributor
Wholesaler
Manufacture's Representative Or sales branch
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3
A. Customer marketing channels

Copyright 2007, Prentice-Hall Inc.
B. Business marketing channels

10-3

Why does your professor depict the channels in this sheet in up side down order (see figure 10-2)?
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-4

Why do the terms of Consumer and Business consumer have a
Consumer Consumer Consumer Business Customer Business Customer
on them?
Business Customer
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-5

Each member depicted in a channel of distribution (excluding consumers) is an Independent business/organization Sears is an example.
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-6

Note that each channel intermediary brings the product and/or its ownership closer To the final buyer/user/renter.
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-7

As small firms grow (geographically or in terms of intensity), they will tend to move from bottom to top from each of the depictions of the B C and B B distribution channel.
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-8

Business channels may use multiple channels to service the same or different market segments for the same or different products.
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-9

When a products substantially changes form or substance; it marks the end of one Channel of distribution begins a new channel.
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-10

Lets eliminate the middle man. Who are they? Why doesnt his elimination not necessarily save money or/and reduce prices to customers?
Retailer
Retailer
Wholesaler
Producer Channel 1
Producer Channel 2
Producer Channel 3
Producer Channel 1
Producer Channel 2
Producer Channel 3


10-11
Marketing in Action
Innovative Distribution
Calyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, cutting a week or more off the time it takes flowers to reach consumers via conventional retail channels.
How Channel Members Add Value
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
Figure 10-1
How Distributors Reduce the Number of Channel Transactions
10-14
Key Channel Functions
Transaction
Completing:
Information Promotion Contact Matching Negotiation
Transaction
Fulfilling:
Physical distribution Financing Risk taking
10-15
Figure 10-2
10-16
Channel Behavior
The channel will be most effective when:
Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals.
If this does not happen, conflict occurs:

Horizontal Conflict occurs among firms at the same level of the channel (e.g., retailer to retailer). Vertical Conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).
Some conflict can be healthy competition.

A Traditional Channel of Distribution Channel Markup Problem
Channel markups throughout a traditional

channel (C R W P) required some final negotiations among channel partners.
Assume that a producers cost of goods sold equals $2,00 per unit, and he desires a 20% markup based on his cost. Assume furthermore that the wholesaler desires 30% markup based on his selling price. And finally, the retailer desires a 40% markup. What would be the final retail price if all the members of the channel received their desired markups?
Answer
Channel Member Producer Desired markup 20% on cost 30% on SP COGS $2.00 $ Markup $.40 Selling price (SP) $2.40
Wholesaler
$2.40
$1.03
$3.43
Retailer
40%
$3.43
$2.29
$5.72
10-19
Marketing in Action
Channel Conflict
Goodyears conflicts with its independent dealers have caused hard feelings and flattened the firms replacement tire sales.
Lets Talk!
Branded goods using the Wolfgang Puck, T.G. I. Fridays, Taco Bell, Emerils, and Starbucks names are now being sold in grocery stores. Look at the items at right. Which stands the greatest risk of causing channel conflict? Why?
Vertical Marketing System
A distribution channel structure in

which producers, wholesalers, and retailers act as a unified system.
One channel member owns the other,

has contracts with them, or has so much power that they all cooperate.
10-22
Figure 10-3
Conventional Marketing Channel Vs. Vertical Marketing System
10-23
Types of Vertical Marketing Systems
Corporate VMS
Corporation owns production and distribution. Coordination and conflict through regular organizational channels.
Contractual VMS
Individual firms who join through contracts. Includes franchise organizations.
Administered VMS
Leadership through the size and power of dominant channel members. Leadership could be manufacturer or retailer.
Franchise Organizations
Manufacturer-Sponsored
Retailer Franchise
Ford and its independent franchised dealers
Manufacturer-Sponsored
Wholesaler Franchise
Coca-Colas licensed bottlers
Service-Firm Sponsored
Retailer Franchise
McDonalds, Avis, and Holiday Inn What type of franchises are illustrated above?
http://www.franchise.org/
Innovations in Marketing Systems
Horizontal Marketing System

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

Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. Also called hybrid marketing system.
Figure 10-4
Marketing Channels
10-27
Disintermediation
Occurs when product and service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.
The Internet has made the disintermediation of many traditional retailers possible.
Marketing in Action
Disintermediation
Black & Decker chose to avoid disintermediation by not using the Internet to sell their products, but rather direct consumers to stores that carry the firms products.
Channel Design Decisions
Analyzing Consumer Needs

Firm must balance needs against costs and consumer price preferences.
Setting Channel Objectives

State objectives in terms of targeted levels of customer service.
Identifying Major Alternatives Evaluating the Major Alternatives

Identifying Major Alternatives
Types of Intermediaries
Company sales force Employed directly by the firm in outside sales or insides sales capacity. Manufacturers agency Independent firms whose sales people handle several companyies products simultaneously Industrial distributors

Number of intermediaries
Intensive distribution Stocking the product in as many outlets as possible. Exclusive distribution Granting a limited number of outlets the exclusive right to sell a firms brands in their territory. Selective distribution The use of more than one, but fewer than all outlets that are willing to carry a product.
Marketing in Action
Selective Distribution
Maytag uses selective distribution like many furniture and appliance manufacturers. The Where to Buy page on their Web site assists buyers in finding stores that carry the Maytag brand.
http://www.maytag.com
Lets Talk!
The Roomba by iRobot is a self-propelled vacuum cleaner that avoids falling off of stairs, vacuums along walls and furniture, and recharges itself. Prices range from $150 - $399. How many intermediaries would be appropriate for this product? Why?
Channel Member Responsibilities:

The terms and responsibilities of intermediaries must be agreed upon by the producer and intermediary.
Agreements should cover:

Pricing policies Conditions of sale Territorial rights and territorial boundaries Specific services to be performed
Evaluating the Major Alternatives
Economic Criteria:
A company compares the likely sales, costs, and profitability of different channel alternatives.
Control Issues:
How and to whom should control be given?
Adaptive Criteria:
Consider long-term commitment vs. flexibility.
International Channel Decisions

Every country has its own unique
distribution system that has evolved over time. Channel systems vary widely from country to country.
Countries such as Japan have complex, multilayered distribution systems that are hard for Western firms to penetrate. India and China have inefficient distribution systems, despite their enormous size.
Channel Management Decisions

Selecting channel
members
Many factors should be considered.
Managing and
motivating channel members

Partner relationship management
GEs CustomerNet is a partner relationship management tool that offers dealers 24/7 access to GEs prices and product availability.
10-38
Evaluating channel
members
Public Policy and Distribution Decisions
Exclusive
distribution Exclusive dealing Exclusive territorial agreements Tying agreements
If Xerox required every business who bought or leased their copiers to also buy their brand of paper, it would be a tying agreement.
10-39
Marketing Logistics
Planning, implementing, and controlling

the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit. Includes:
Outbound distribution Inbound distribution Reverse distribution
Figure 10-5
Supply Chain Management
10-41
Goals of the Logistics System and Major Logistics Functions
Goals of the Logistics System:

Deliver a targeted level of customer service at the least cost.
Major Logistics Functions:

Warehousing Inventory management Transportation Logistics information management
Video Snippet
Hasbro recognizes the importance of superior logistics. Learn more by watching the snippet.
10-42
Warehousing
How many, what

types, and where? Storage warehouses Distribution centers Automated warehouses
Some warehouses automate the storage and retrieval of palletized loads.

10-43
Inventory Management
Must strike a balance

between too much and too little inventory. Just-in-time logistics systems RFID or Smart Tag technology
RFID technology could make the entire distribution chain automated, resulting in significant cost savings.
10-44
Marketing in Action
RFID
The Wave of the Future

Key benefits of RFID include fewer sales lost due to stock-outs and reduced labor costs. RFID Systems highlights these facts in their ad, and suggests in a different ad execution that retailers will soon mandate supplier use of RFID. Learn more:
www.rfidsystemsinc.com/
10-45
Transportation

Trucks Railroads Water carriers Pipelines Air Internet Intermodal transportation
10-46
Marketing in Action
Intermodal Transportation
Intermodal transportation combines two or more modes of transportation. Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water and rail; Airship = air and water.
Integrated Logistics Management

The logistics concept that emphasizes
teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. Involves:
Cross-functional teamwork inside the company Building logistics partnerships Third-party logistics
Marketing in Action
Third-Party Logistics
UPSs Supply Chain Solution Group can help a firm shorten its supply chain and convert the supply chain into a strategic asset.
10-49
CATERPILLAR Background
The Vital Role of Dealers Building Partnerships
Caterpillar dominates the Distribution system is built
worlds markets for heavy on a base of mutual trust construction and mining and shared dreams. equipment. Caterpillar stresses dealer profitability; extraordinary Independent dealers are dealer support; personal key to success, providing relationships; dealer customer service, market performance; and full, intelligence, and more. honest, and frequent Distribution system is a communications. competitive advantage.

Armstrong Mai08 Media10

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Armstrong Mai08 Media10

Uploaded by

Copyright:

Available Formats

CHAPTER 10

Marketing Channels and Supply Chain Management

Supply Chains, Distribution Channels, and Value Delivery Networks

 Value Delivery Networks

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

Consumer and Business Marketing Channels

Manufacture's Representative Or sales branch

A. Customer marketing channels

B. Business marketing channels

How Channel Members Add Value

 The use of intermediaries results from

Copyright 2007, Prentice-Hall Inc.

Key Channel Functions

Copyright 2007, Prentice-Hall Inc.

Copyright 2007, Prentice-Hall Inc.

 If this does not happen, conflict occurs:

 Some conflict can be healthy competition.

A Traditional Channel of Distribution Channel Markup Problem

 Channel markups throughout a traditional

Copyright 2007, Prentice-Hall Inc.

Vertical Marketing System

 A distribution channel structure in

 One channel member owns the other,

Copyright 2007, Prentice-Hall Inc.

Copyright 2007, Prentice-Hall Inc.

Types of Vertical Marketing Systems

Innovations in Marketing Systems

 Horizontal Marketing System

 Multichannel Distribution System

Copyright 2007, Prentice-Hall Inc.

Channel Design Decisions

 Analyzing Consumer Needs

Value Delivery Networks

The use of intermediaries results from

If this does not happen, conflict occurs:

Some conflict can be healthy competition.

Channel markups throughout a traditional

A distribution channel structure in

One channel member owns the other,

Horizontal Marketing System

Multichannel Distribution System

Analyzing Consumer Needs

Setting Channel Objectives

Identifying Major Alternatives Evaluating the Major Alternatives

Channel Member Responsibilities:

Agreements should cover:

Planning, implementing, and controlling

Goals of the Logistics System:

Major Logistics Functions:

How many, what

Must strike a balance

Caterpillar dominates the Distribution system is built