Channel Relationships and Supply Chains Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Value Delivery Network A value delivery network is made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system.

Marketing Channel Marketing channel is a set of interdependent organizations that help make a product or service available for use by the business user.

Rationale for Channel Design Channels Can Create Efficiency Direct: V x C transactions Via Reseller: V + C transactions V1 V2 V3 V4 C1 C2 C3 C4 V1 V2 V3 V4 C1 C2 C3 C4 RS V = Vendors; C=Customers; RS=Reseller Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Benefits of Channel Members Information Promotion Contact Matching Negotiation Physical distribution Financing Risk taking

Marketing Channels & Economic Utility Form Time Place Possession Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Marketing Channels & Economic Utility: Form The usable quantity or mode of the product most preferred by the customer Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Marketing Channels & Economic Utility: Time The availability of the product when the customer needs it Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Marketing Channels & Economic Utility: Place “Locational Convenience” — the availability of the product where the customer needs it Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Marketing Channels & Economic Utility: Possession Methodology by which the customer obtains ownership or the right to use of the product or service Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

B2B Channel Structures Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Distributors Serve Buyers and Sellers Buyer Benefits Seller Benefits Buy and hold inventory Provide fast delivery Combine supplier outputs (reduce discrepancy of assortment) Provide market segment-based product assortment Share credit risk Provide local credit Share selling risk Provide product information Forecast market needs Assist in buying decisions Provide market information Anticipate needs Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

“Backward” Vertical Integration Henry Ford developed his own iron ore mining operation, steel mills, glass factories, tire manufacturing, etc. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

“Forward” Vertical Integration Apple owns its own retail channels Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Vertical Integration Advantages Economies of Scale Complete Control Reliability and Availability Disadvantages Lack of Flexibility Significant Investment Slow to Innovate (Myopia) Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Management Creation of value for customers through effective and efficient flow of materials, components, finished goods and services Extends from raw materials to end use customers Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Channel Design Decisions Marketing channel design includes designing effective marketing channels by analyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating them.

Channel Management Decisions Marketing channel management involves selecting, managing, and motivating channel members and evaluating their performance over time.

Channel Design – Dual Distribution Different market segments require different channel design Example: Goodyear Tires Manufacturer Multi-brand Distributor Logistics Provider Large Customer – Direct Channel Integrated Retailers Independent Retailers Goodyear may or may not use the same distributor/logistics provider as the independent stores. Auto Manufacturers – GM, Ford, Honda, etc. Goodyear Sponsored/ Franchised Dealers Sears, Wheel Works, etc. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Channel Design – Multi-Distribution Customers within a segment with similar needs will expect locational convenience Example: Honda Automobiles Manufacturer Dealer/Retailer Dealer/Retailer Dealer/Retailer Dealer/Retailer Number of dealers with same channel design relates to the desired intensity of distribution. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Channel Design Reduce the Discrepancy of Assortment Channels convert manufacturers’ product lines to product assortments desired by particular market segments Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

When to Use Distributors Favoring Product requires local stock. Product line is small, unable to support direct sales. Product is somewhat generic. Product has low unit value. Product is near end of PLC. Customers are widely dispersed. Local repackaging, sizing, or fabrication is required. Market has many small-volume buyers. Product requires extensive sales effort directed at buying professionals. Start-up venture or established company is entering a new market. Competition uses distributors. Customers prefer distributors. Not Favoring Product is highly customized. Product is new or innovative. Product is technically sophisticated. Significant missionary selling is required. Manufacturer requires control over product application. Large buyers are geographically concentrated. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Selecting and Caring for Distributors Determine right distributor for your marketing plan Ask customers who they recommend Train and support them well, at both your facilities and theirs Make calls on them Make calls with them Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Web Opportunities for B2B Marketers Better and faster channel flows—market data more readily available Faster communications provide rapid ordering and order tracking Reduced transaction costs through online processing and tracking Product information available at the customers’ convenience Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Business Logistics The management of movement, sorting, and storage of goods—an important tactical function Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Logistics Functions System design aimed at minimizing costs while maintaining a given level of customer service through the simultaneous management of three elements Inventory management Transportation Warehousing Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Inventory Management Largest cost is often associated with logistics system Inventory implies carrying/finance charges, costs of storage and creating assortment Lower inventory quantities lead to lower costs but result in more costly transportation or stockouts Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Transportation Tradeoff of speed versus cost Slower transportation implies larger safety stocks If transportation costs are minimized without regarding necessary inventory levels, carrying costs increase Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Warehousing Two primary functions of warehousing: Product flow/movement- associated with the creation of assortment (Distribution Centers) Product storage (Warehouses) Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc.   Publishing as Prentice Hall 1-31 Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 31