15-1 Chapter Objectives 1.Introduce you to the Supply Chain 2.Describe the roles that Distribution Channels play in marketing strategy. 3.Describe the various types of distribution channels available to marketers. 4.Outline the major channel strategy decisions. 5.Identify and compare the major components of logistics, the physical distribution system. 6.Compare the major transportation alternatives on the basis of speed, dependability, cost, frequency of shipments, availability & flexibility.

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall 15-2 Figure 15.3 Hewlett Packard’s Supply Chain

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall 15-3 Links in the Supply Chain Supply chain links The supplier network provides raw materials and parts to the manufacturer Firm manufactures a product Products are distributed via the Distribution Channel for resale to buyers

15-4 Distribution Overview Distribution – moving goods and services from producers to consumers Distribution channel (aka “marketing channel”) - system of marketing institutions that controls the physical flow of goods and services, along with ownership title, from producers to consumers or business users

15-5 Q. What distribution channels would you use for this product?

15-6 Distribution Channel Functions Channels perform 5important functions: 1.They serve as an intermediary to bring together large companies with often small buyers (consumers) 2.They physically transport and store goods 3.They provide setup, repair, and maintenance services for products carried 4.They standardize payment terms, delivery schedules, prices, and purchase lots 5.They facilitate the exchange process by cutting the # of contacts necessary (for consumers & manufacturers) – see slide 6

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall 15-7 Figure 15.4 Reducing Transactions via Intermediaries

Direct Selling vs. Using Intermediaries Direct Selling: The producer does business directly with the final user, establishing a “contract” Channel Strategy Decisions

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall 15-9 Distributing Direct Internet channels allow for global expansion (Salami.com) and mass customizationSalami.com Vermont Teddy Bear

15-10 Direct Selling vs. Using Intermediaries Using Marketing Intermediaries: companies that operate between producers and consumers or business users (aka “middlemen”) Wholesaler: Marketing intermediary that takes title to goods and then distributes these goods to another wholesaler or a retailer (aka “jobber” or “distributor”) Retailer: Marketing intermediary that takes title to goods and then distributes these goods to the consumer Broker/Agent: Marketing intermediary that doesn’t take title to goods

15-11 Types of Distribution Channels Consumer Goods

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Figure 15.5, Part B Different Types of Distribution Channels

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Figure 15.5, Part C Different Types of Distribution Channels

15-14 Channel Strategy Decisions 2. Determining Distribution Intensity Distribution intensity: the # of intermediaries through which a manufacturer distributes its goods

15-15 Intensive distribution Intensive distribution: channel policy in which a manufacturer of a product uses as many retailers as possible. Wrigley’s uses an Intensive distribution strategy for its products

15-16 Selective distribution Selective distribution: channel policy in which a firm chooses only a limited number of retailers to handle its product line

15-17 Exclusive distribution Exclusive distribution: channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area This Redken hair care product made only available at its NYC outlet

15-18 Channel Strategy Decisions 3. Determining Who Should Perform Channel Functions Each function needs to be performed by either the producer or an intermediary, such as:  Warehousing  Transporting  Financing  Customer service *The goal is to transfer costs to the other company while ensuring your goals are being met!

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Traditional Channels are Changing The new youth-oriented Scion gets delivered faster because Toyota’s streamlined distribution system lets buyers customize the car online

15-20 Logistics A company’s Logistics (physical distribution) system contains the following elements: 1.Transportation 2.Warehousing 3.Inventory Control 4.Order Processing 5.Protective packaging and materials handling 6.Customer Service The goal is to achieve specified customer service levels while minimizing the total costs of distribution

15-21 Logistics Expenditures Warehousing 22% Administrative Costs 5% Customer Service/Order Processing 6% Inventory Control 25% Transportation 42%

Transportation Major Modes Railroads – largest mode. Most efficient way to move bulky commodities long distances Motor Carriers – Versatile and relatively fast Water Carriers – slow, but cheap. Most international goods Pipelines – natural gas and oil products Air Freight – fast, but expensive Intermodal coordination – combination of two or more modes Internet: services such as banking, news, and entertainment

15-23 UPS: Offering a form of intermodal coordination between motor carriers and air carriers when speed is needed.

15-24 FedEx – another intermodal coordinator.

15-25 Comparison of Major Modes of Transport ModeSpeedDepend- ability in Meeting Schedules Frequency of Shipments Availabil- ity in Different Locations Flexibility in Handling Cost RailAverage Low HighAverage WaterVery slowAverageVery lowLimitedVery highVery low TruckFastHigh Very extensive AverageHigh PipelineSlowHigh Very limited Very lowLow AirVery fastHighAverage LowVery high

Warehousing Storage Warehouse: warehouse that holds goods for moderate to long periods prior to shipment, usually to buffer seasonal demand Distribution Warehouse: facility designed to assemble and then redistribute goods in a way that facilitates rapid movement to purchasers (usually holds goods <24 hours) Locating Warehouses: Cost factors – size, land, labor, shipping Customer service factors – delivery time

Inventory Control Systems “There’s only a one unit difference between too much inventory and not enough” Some firms attempt to keep inventory levels under control by implementing just-in-time production (JIT).

Order Processing Major Activities 1.Conducting a credit check 2.Keeping a record of the sale 3.Making the right accounting entries 4.Locating orders, shipping them, and adjusting inventory records

Protective Packaging & Materials Handling Materials Handling: set of activities that move products within plants, warehouses, and transportation terminals Unitizing: process of combining individual materials into large loads for easy handling (using pallets & strapping or shrink-wrapping usually) Containerization: process of combining several unitized loads into a single, well-protected load = lower costs and less damage

Customer Service Customer Service Standards - Customer Service Standards - Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers. * Conclusion - Companies must find ways to meet Customer Service Standards while orchestrating the other 5 physical distribution methods at the lowest possible cost