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Chapter Outline Supply Chains and the Value Delivery Network The Nature and Importance of Marketing Channels Channel Behavior and Organization Channel Design Decisions Channel Management Decisions Public Policy and Distribution Decisions Marketing Logistics and Supply Chain Management Copyright © 2009 Pearson Education South Asia Pte Ltd

37% M/S of Worldwide construction & farming equipment Why successful? [Caterpillar Case] 37% M/S of Worldwide construction & farming equipment Why successful? Innovative New Product/Product Quality/… -> 200 independent dealers worldwide! “Buy the iron, get the company” : Dealer profitability/Extraordinary dealer support(parts delivery system)/ Communications/Dealer Perf./Personal relationships Copyright © 2009 Pearson Education South Asia Pte Ltd

Supply Chains and the Value Delivery Network Supply Chain Partners Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service. Downstream partners include the marketing channels or distribution channels that look toward the customer. Copyright © 2009 Pearson Education South Asia Pte Ltd

Supply Chains and the Value Delivery Network Supply Chain Views Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity. Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer and the firm responds to these needs by organizing a chain of resources and activities with the goal of creating customer value. Copyright © 2009 Pearson Education South Asia Pte Ltd

Supply Chains and the Value Delivery Network The value delivery network is the firm’s suppliers, distributors, and ultimately, customers who partner with each other to improve the performance of the entire system. Palm Inc. Case on p.307 Marketing channels=Downstream side of Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels Marketing Channel Defined A marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the consumer or business users. * FedEx/Dell/Amazon.com/Calyx&Corolla Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Producers use intermediaries because they create greater efficiency in making goods available to target markets. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations. From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Promotion refers to the development and spreading persuasive communications about an offer. Contacts refers to finding and communicating with prospective buyers. -> Figure 12.1 @ p.308 Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging. Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels How Channel Members Add Value Physical distribution refers to transporting and storing goods. Financing refers to acquiring and using funds to cover the costs of carrying out the channel work. Risk taking refers to assuming the risks of carrying out the channel work. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels Number of Channel Members Channel level refers to each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. -> Figure 12.2 @ p 309 Direct marketing channel has no intermediary levels; the company sells directly to consumers. -> Avon, Amway Indirect marketing channels contain one or more intermediaries. Copyright © 2009 Pearson Education South Asia Pte Ltd

The Nature and Importance of Marketing Channels Number of Channel Members Connected by types of flows: Physical flow of products Flow of ownership Payment flow Information flow Promotion flow Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization A marketing channel consists of firms that have partnered for their common food with each member playing a specialized role. : Samsung-> Best Denki(@ Japan, Indonesia, Singapore…) Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Channel conflict refers to disagreement over goals, roles, and rewards by channel members. Horizontal conflict Vertical conflict May change character according to popularity of this person Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Horizontal conflict is conflict among members at the same channel level. : Among Toyota dealers Vertical conflict is conflict between different levels of the same channel. : UA -> Agents/ UA -> Consumers Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Conventional Distribution Systems Consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits and there is little control over the other members. No formal means for assigning roles and resolving conflict. -> Figure 12.3 @p.311 Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Vertical Marketing Systems Vertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: Corporate marketing systems Contractual marketing systems Administered marketing systems Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Vertical Marketing Systems Corporate vertical marketing system integrates successive stages of production and distribution under single ownership. : Luxottica makes Ray-Ban, Vogue, Anne Klein, Ferragamo, Bulgari eyewears & sells them at LensCraftes, Sungass Hut : Japanese Keiretsu Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Vertical Marketing Systems Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. Most common form is the franchise organization Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Vertical Marketing Systems Franchise organizations link several stages in the production distribution process. Manufacturer-sponsored retailer franchise system : Toyota & franchised independent dealers Manufacturer-sponsored wholesaler franchise system : Coca Cola & Coca Cola bottlers Service firm-sponsored retailer franchise system : McDonald’s Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Vertical Marketing Systems Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power. : GE/P&G : Walmart Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Horizontal Marketing Systems Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. : Phillips & TCL/ McDonald’s & Sinopec (@p.313) Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Multichannel Distribution Systems Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments. -> Rather common! Customer Firm Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization A multichannel distribution system Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Hybrid Marketing Channels Advantages Increased sales and market coverage New opportunities to tailor products and services to specific needs of diverse customer segments Challenges Hard to control Create channel conflict Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Behavior and Organization Changing Channel Organization Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones. * Dell, Singapore Airlines go directly to final buyers. * sonystyle.com/amazon.com,… Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Analyzing Consumer Needs Designing a channel system requires: Analyzing consumer needs Setting channel objectives Identifying major channel alternatives Evaluation Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Analyzing Consumer Needs Designing a marketing channel starts with finding out what target consumers want from the channel. Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Setting Channel Objectives In terms of: Targeted levels of customer service What segments to serve Best channels to sue Minimizing the cost of meeting customer service requirements Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Setting Channel Objectives Objectives are influenced by Nature of the company Marketing intermediaries Competitors Environment Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives In terms of Types of intermediaries Number of intermediaries Responsibilities of each channel member Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Examples include Company sales force Manufacturer’s agency Industrial distributors Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Company sales force strategies Expand direct sales force Assign outside salespeople to territories Develop a separate sales force Telesales Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Manufacturer’s agencies are independent firms whose sales forces handle related products from many companies in different regions or industries. Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Industrial distributors Find distributors in different regions or industries Exclusive distribution Margin opportunities Training Support Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Number of marketing intermediaries to use at each level Strategies Intensive distribution Exclusive distribution Selective distribution Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible. * Kraft, Coca Cola, Kimberly-Clark,… Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g. Luxury automobiles High-end apparel = Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Identifying Major Alternatives Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products. Televisions Electrical appliances = Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Responsibilities of Channel Members Producers and intermediaries need to agree on Price policies Conditions of sale Territorial rights Services provided by each party Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Evaluating the Major Alternatives Each alternative should be evaluated against Economic criteria Control Adaptive criteria Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Evaluating the Major Alternatives Economic criteria compares the likely sales costs and profitability of different channel members. Control refers to channel members’ control over the marketing of the product. Adaptive criteria refers to the ability to remain flexible to adapt to environmental changes. Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Design Decisions Designing International Distribution Channels Channel systems can vary from country to country. Must be able to adapt channel strategies to the existing structures within each country. * Japanese distribution system @ p. 318 * Decentralized markets in China & Walmart Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Management Decisions Channel management involves Selecting channel members Managing channel members Motivating channel members Evaluating channel members Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Management Decisions Selecting Channel Members Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members Years in business Lines carried Profit record Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Management Decisions Selecting Channel Members Selecting intermediaries that are sales agents involves evaluating Number and character of other lines carried Size and quality of sales force Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Management Decisions Selecting Channel Members Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating Store’s customers Store locations Growth potential Copyright © 2009 Pearson Education South Asia Pte Ltd

Channel Management Decisions Managing and Motivating Channel Members Partner relationship management (PRM) and supply chain management (SCM) software are used to Forge long-term partnerships with channel members Recruit, train, organize, manage, motivate, and evaluate channel members Copyright © 2009 Pearson Education South Asia Pte Ltd

Public Policy and Distribution Decisions Exclusive distribution is when the seller allows only certain outlets to carry its products. Exclusive dealing is when the seller requires that sellers do not handle competitors’ products. Copyright © 2009 Pearson Education South Asia Pte Ltd

Public Policy and Distribution Decisions Benefits of exclusive distribution include Seller obtains more loyal and dependable dealers Dealers obtain a steady and stronger seller support Copyright © 2009 Pearson Education South Asia Pte Ltd

Public Policy and Distribution Decisions Exclusive territorial agreement refers to an agreement where the producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. Tying agreements are agreements where there is a strong brand that producers sometimes sell to dealers only if the dealers will take some or all of the rest of the line. Not necessarily illegal as long as they do not substantially lessen competition. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Nature and importance of logistics management in the supply chain Goals of the logistics system Major logistics functions Need for integrated supply chain management Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Marketing logistics (=physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Marketing logistics involves Outbound distribution: Moving products from the factory to resellers and consumers Inbound distribution: Moving products and materials from suppliers to the factory Reverse distribution: Moving broken, unwanted, or excess products returned by consumers or resellers Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Supply chain management is the process of managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers and final consumers. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Importance of logistics Competitive advantage by giving customers better service at lower prices Cost savings to the company and its customers Product variety requires improved logistics Information technology has created opportunities for distribution efficiency Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Goals of the Logistics System To provide a targeted level of customer service at the least cost with the objective to maximize profit, not sales. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Warehousing Inventory management Transportation Logistics information management Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Warehousing is the storage function that overcomes difference in need quantities and timing, ensuring that the products are available when customers are ready to buy them. Storage warehouses Distribution centers Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Storage warehouses are designed to store goods, not move them. Distribution centers are designed to move goods, not store them. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Inventory management balances carrying too little and too much inventory. Just-in-time logistics systems RFID Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Just-in-time logistics systems allow producers and retailers to carry small amounts of inventories of parts of merchandise.: Dell’s 2 days inventory vs. competitors’ 50 days inventory RFID (radio frequency identification devices) are small transmitter chips embedded in or placed on products or packages to provide greater inventory control. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Transportation affects the pricing of products, delivery performance, and condition of the goods when they arrive. Truck Rail Water Pipeline Air Internet Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Major Logistics Functions Intermodal transportation combines two or more modes of transportation. Piggyback uses rail and truck. Fishyback uses water and truck. Airtruck uses air and truck. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Logistics Information Management Logistics information management is the management of the flow of information, including customer orders, billing, inventory levels, and customer data. EDI (electronic data interchange) VMI (vendor-managed inventory) Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Integrated Logistics Management Integrated logistics management is the recognition that providing customer service and trimming distribution costs require teamwork internally and externally. Cross-functional teamwork inside the company Building partner relationships Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Integrated Logistics Management Cross-functional teamwork inside the company refers to the inter-relationship of different departments within the company to achieve the goals of integrated supply chain management. Building partner relationships refers to the understanding that one company’s distribution is another company’s supply system. Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Integrated Logistics Management Third-party logistics is the outsourcing of logistics functions to third-party logistics providers (3PLs) Provide logistics functions more efficiently Provide logistics functions at lower cost Allow the company to focus on its core business Are more knowledgeable of complex logistics Copyright © 2009 Pearson Education South Asia Pte Ltd

Marketing Logistics and Supply Chain Management Company Case: Zara - Fast Fashion H&M, Top Shop, Mango Sara’s cycle: 2 weeks vs. months 19,000 new items/year vs. 2,000 to 4,000 items by H&M and Gap -> Distribution system with domestic manufacturing ! Copyright © 2009 Pearson Education South Asia Pte Ltd