ROAD MAP: Previewing the Concepts Chapter 1 ROAD MAP: Previewing the Concepts Explain 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.

Marketing or Distribution Channel Chapter 1 Marketing or Distribution Channel A 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.

Channel of Distribution Chapter 1 Channel of Distribution eGO faces challenges in establishing a channel of distribution for its product. Click the picture above to play video

Distribution in Action Chapter 1 Distribution in Action FedEx’s creative and imposing distribution system made it a market leader in express delivery.

How Channel Members Add Value Chapter 1 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

How a Distributor Reduces the Number of Channel Transactions Chapter 1 How a Distributor Reduces the Number of Channel Transactions

Chapter 1 Channel Functions These functions should be assigned to the channel member who can add the most value for the cost Information Negotiation Promotion Physical Distribution Contact Financing 1). Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange. 2). Promotion: 3). Contact: with prospective buyers. 4). Matching—buyers with sellers. 5). Negotiation so ownership can take place. 6). Others include: a). Physical distribution (such as transportation and storage). b). Financing. c). Risk taking. Note: The question is not whether these functions must be performed but rather who will perform them. Matching Risk Taking

Consumer and Business Channels Chapter 1 Consumer and Business Channels

Channel Behavior The channel will be most effective when: Chapter 1 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.

Chapter 1 Channel Conflict When it decided to sell its familiar containers at retail through Target stores, Tupperware avoided conflicts with its army of in-home sales consultants by inviting them into the stores to demonstrate the products.

Conventional vs. Vertical Marketing System Chapter 1

Vertical Marketing System (VMS) Chapter 1 Vertical Marketing System (VMS) 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.

Types of Vertical Marketing Systems Corporate VMS Common Ownership at Different Levels of the Channel (e.g., Sears) Chapter 1 Types of Vertical Marketing Systems Contractual VMS Contractual Agreements Among Channel Members (e.g., ACE Hardware) Control High Administered VMS Leadership is Assumed by One or a Few Dominant Members (e.g., Kraft) Low

Franchise Organization Chapter 1 Franchise Organization Manufacturer-Sponsored Retailer Franchise System Ford and its independent franchised dealers Manufacturer-Sponsored Wholesaler Franchise System Coca-Cola’s licensed bottlers Service-Firm Sponsored Retailer Franchise System McDonald’s, Avis, and Holiday Inn 1]. Manufacturer-sponsored retailer franchise system (automobile industry). 2]. Manufacturer-sponsored wholesaler franchise system (soft-drink industry). 3]. Service-firm-sponsored retailer franchise system (auto-rentals, fast food, hotels business).

Innovations in Marketing Systems Chapter 1 Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System Two or more companies at one channel level join together to follow a new marketing opportunity. Example: Banks in grocery stores A single firm sets up two or more marketing channels to reach one or more customer segments. Example: Retailers and catalogs

Hybrid Marketing Channel Chapter 1 Hybrid Marketing Channel

Changing Channel Organization Chapter 1 Changing Channel Organization Disintermediation means that more and more, product and service producers are bypassing intermediaries and going directly to final buyers, or that radically new types of channel intermediaries are emerging to displace traditional ones.

Chapter 1 Disintermediation Travel supersites such as Expedia, Travelocity, Priceline, Hotels.com, and Orbitz have threatened the very existence of traditional travel agents.

Channel Design Decisions Chapter 1 Channel Design Decisions Analyzing Consumer Needs Setting Channel Objectives Identifying Major Alternatives Types of intermediaries Number of intermediaries Responsibilities of intermediaries

Types of Intermediaries Chapter 1 Types of Intermediaries Company sales force Manufacturer’s agency Industrial distributors

Number of Intermediaries Chapter 1 Number of Intermediaries Intensive distribution Exclusive distribution Selective distribution

Selective Distribution Chapter 1 Selective Distribution Luxury car makers sell exclusively through a limited number of dealerships. Such limited distribution enhances the car’s image and generates strong dealer support.

Evaluating the Major Alternatives Chapter 1 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.

Channel Management Decisions Selecting Channel Members Chapter 1 Channel Management Decisions Managing & Motivating Channel Members Evaluating Channel Members Selecting Channel Members The first decision that must be reached is to select the channel members. The fact is that some manufacturers vary in their ability to attract qualified intermediaries. At the other extreme is the manufacturer with whom everyone wants to work. The best approach is to determine what characteristics are necessary, and be able to distinguish the better intermediaries. Motivating Channel Members Once selected, intermediaries must be continuously motivated to do their best. They must not only sell through them but to and with them as well. Positive and negative measures are possible—positive is preferred. 1). Many companies are now developing partner relationship management systems to coordinate their whole-channel efforts. Evaluating Channel Members Finally, the producer must regularly check on the intermediary’s performance against set standards. Periodic re-qualification is advised. Be sensitive to the needs of dealers and they will be sensitive to the firm’s needs as well.

Public Policy and Distribution Decisions Chapter 1 Public Policy and Distribution Decisions Exclusive distribution Exclusive dealing Exclusive territorial agreements Tying agreements

Logistics and Supply Chain Management Chapter 1 Logistics and Supply Chain Management 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

Supply Chain Management Chapter 1 Supply Chain Management

Major Logistics Functions Chapter 1 Major Logistics Functions Warehousing Inventory management Transportation Logistics information management

Warehousing How many, what types, and where? Storage warehouses Chapter 1 Warehousing How many, what types, and where? Storage warehouses Distribution centers Automated warehouses

Chapter 1 Inventory Management Must balance between too much and too little inventory. Just-in-time logistics systems RFID, AutoID, or Smart Tag technology Click Here to Find Out All About RFID

Chapter 1 Logistics Technology In the not-too-distant future, AutoID or “smart tag” technology could make the entire supply chain—which accounts for nearly 75% of a product’s cost—intelligent and automated.

Transportation Trucks Railroads Water carriers Pipelines Air Internet Chapter 1 Transportation Trucks Railroads Water carriers Pipelines Air Internet Intermodal transportation

Intermodal Transportation Chapter 1 Intermodal Transportation

Intermodal Transportation Chapter 1 Intermodal Transportation

Intermodal Transportation Chapter 1 Intermodal Transportation

Intermodal Transportation Chapter 1 Intermodal Transportation

Intermodal Transportation Chapter 1 Intermodal Transportation

Integrated Logistics Management Chapter 1 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

Chapter 1 Third Party Logistics Many companies are now outsourcing logistics tasks to companies like Ryder Integrated Logistics. Here, Ryder describes a system it designed to keep Friendly’s refrigerated trucks on the road. “Thanks to Ryder, Friendly’s doesn’t have to worry about breakdowns. Or meltdowns.”

Rest Stop: Reviewing the Concepts Chapter 1 Rest Stop: Reviewing the Concepts Explain 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 integrated supply chain management.

Q: A retailing operation that depends upon handy location and long hours to attract customers to its limited line of frequently purchased products is a: 1. specialty store.  2. department store.  3. superstore.  4. convenience store. AK, 7e – Chapter 11

Q: Kar Krazy, an auto parts category killer, has just opened in your home town. Which of the following types of stores would most likely survive Kar Krazy’s assault on the market? 1. An auto parts department store that offers a little of everything  2. A small store that caters to owners of high-performance sports cars  3. A small store that sells parts for less than Kar Krazy  4. A small self-service parts shop AK, 7e – Chapter 11

Q: You prefer to shop for underwear, socks, and other goods at a store in which the staff simply keeps the shelves stocked and assumes you’re there to locate, compare, and select your items on your own. This is what sort of retailer? 1. Limited-service retailer  2. Specialty store  3. Full-service retailer  4. Self-service retailer AK, 7e – Chapter 11

Q: A _______ is a group of retail businesses planned, developed, owned, and managed as a unit. 1. power center  2. shopping center  3. central business district  4. strip mall AK, 7e – Chapter 11

Q: You want to open a coffee bar that stands a chance of competing with Starbucks, and you must consider product assortment and services. These entail making all the following decisions except: 1. what will be the general atmosphere of your establishment.  2. where and how much you will advertise.  3. what customer service training you will provide for employees.  4. the types and amounts of coffee you will serve. AK, 7e – Chapter 11

Q: Bloomingdale’s is known for running spectacular shows featuring goods from a certain country, such as India or China. These shows are examples of: 1. service mix.  2. store atmosphere.  3. product assortment.  4. country range. AK, 7e – Chapter 11

Q: The ________ concept suggests that many new forms of retailing begin as low-margin, low-price, low-status operations, which take the place of other such retailers who have, over time, added services and moved upscale. 1. retail life cycle  2. wheel-of-retailing  3. scrambled merchandising  4. merchant wholesaling AK, 7e – Chapter 11

Q: Which of the following is not a current retailing trend? 1. The demise of the department store  2. Online retailing  3. Global retailing  4. The rise of megaretailers AK, 7e – Chapter 11

Q: Which of the following middlemen takes title to the goods they are selling? 1. Agents  2. Brokers  3. Merchant wholesalers  4. Cash-and-carry wholesalers AK, 7e – Chapter 11

Q: Which of the following services do wholesalers provide to retailers? 1. Retail pricing  2. Accounting services  3. Online transactions  4. All of the above AK, 7e – Chapter 11

Q: Which of the following is not a likely trend in the wholesaling industry? 1. Geographic expansion of operations  2. Vertical integration  3. Increase in services provided  4. Increase in the number of wholesalers AK, 7e – Chapter 11

EXAMPLES of what you could do. PLS EXAMPLES of what you could do. PLS. DO NOT DO MORE THAN ONE OF ANY OF THESE: Radio Commercial TV commercial Magazine Ad Newspaper AD Outdoor Ad Direct Mail Piece Point-of-Purchase Display Brochure Internet Ad Press Release Specialty Advertising Item like: A refrigerator * * Coupons Premiums such as Refrigerator Magnet, Key Chain, or some other type of inexpensive item Sales Literature for Sales Representatives Newspaper Inserts Self-liquidating Premium: Example: Bud Light Sports Bag which customer buys at a reduced price if he/she buys a case of Bud Light. AK, 7e – Chapter 11 52