© 2001 South-Western College Publishing1 CHAPTER TEN MARKETING CHANNELS AND LOGISTICS DECISIONS Prepared by Jack Gifford Miami University (Ohio)

© 2001 South-Western College Publishing2 MARKETING CHANNELS (A marketing channel can be viewed as a large canal or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer from the point of origin. ORIGIN FINAL CONSUMER

© 2001 South-Western College Publishing3 MARKETING CHANNELS ACHIEVE EFFICIENCIES THROUGH SPECIALIZATION AND DIVISION OF LABOR (According to the concept of specialization and division of labor, breaking down a complex task into smaller, simpler ones and allocating them to specialists will create greater efficiency and lower average production costs. (A number of channel members have evolved to provide these efficiencies between manufacturers and final consumers. They often take the form of wholesalers and retailers. M W R C

© 2001 South-Western College Publishing4 MARKETING CHANNELS ALSO AID IN OVERCOMING DISCREPENCIES OF…. (QUANTITY DISCREPANCY (ASSORTMENT DISCREPANCY (TEMPORAL DISCREPANCY (SPACIAL DISCREPANCY Manufacture in large quantities, but consume individually in smaller quantities. Manufacture water skis but individuals want a variety of boating supplies. Grow blueberries 3 months a year in Michigan, but wish to consume 12 months a year throughout the USA

© 2001 South-Western College Publishing5 MARKETING CHANNEL MEMBERS HELP TO OVERCOME CONTACT INEFFICIENCIES Manufacturer B Manufacturer A Manufacturer C Manufacturer D Manufacturer E Manufacturer F Manufacturer G Consumer one stop shopping for any electronic or entertainment needs

© 2001 South-Western College Publishing6 CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS (Retailers (Discussed in the next chapter) (Merchant wholesalers (Facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers (Take title to the goods they sell (Usually operate one or more warehouses MMMMMMMM Merchant Wholesaler Govt. Retailers Resellers Institutions

© 2001 South-Western College Publishing7 CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS (Agents and Brokers (Facilitate the movement of products and services from the manufacturer to end users by representing retailers, wholesalers or manufacturers (Do not take title to the goods they sell (Little input into the terms of sale (Receive a fee or commission based upon sales volume MMMMMMMM Agents and Brokers Retailers Wholesalers Manufacturers

© 2001 South-Western College Publishing8 CHANNEL FUNCTIONS PERFORMED BY INTERMEDIARIES (Transactional functions (Contacting and promoting (Negotiating (Risk-taking (Logistical functions (Physically distributing (Storing (Sorting (Facilitating functions (Researching (Financing (Marketing intelligence (Sorting out (Breaking down a heterogeneous supply into separate homogeneous stocks (Accumulation (Combining similar stocks into a larger homogeneous supply (Allocation (Breaking a homogeneous supply into smaller lot (Assortment (Combining collections buyers want at one place

© 2001 South-Western College Publishing9 CHANNEL STRUCTURES FOR CONSUMER PRODUCTS DIRECT RETAILER WHOLESALER AGENT/BROKER CHANNEL CHANNEL Consumers Retailers Wholesalers Agents or Brokers Producer

© 2001 South-Western College Publishing10 CHANNEL STRUCTURES FOR BUSINESS-TO- BUSINESS AND INDUSTRIAL PRODUCTS DIRECT INDUSTRIAL AGENT/BROKER AGENT/BROKER CHANNEL DISTRIBUTOR CHANNEL INDUSTRIAL Indu strial Government Industrial Distributor Wholesalers Agents or Brokers Producer Agents or Brokers

© 2001 South-Western College Publishing11 ALTERNATIVE CHANNEL ARRANGEMENTS (Dual distribution systems (Nontraditional channels (Adaptive channels (Using more than one channel for similar goods or services (Internet, mail-order, or infomercials (Variations on traditional channels to meet a member need

© 2001 South-Western College Publishing12 STRATEGIC CHANNEL ALLIANCES (One manufacturer shares another manufacturer’s distribution channels, creating savings through economies of scale for both (Strategic channel alliances are also common for selling in global markets where cultural differences, distance, or other barriers can inhibit channel establishment CHINA Kraft Cheeses Yoplait Yogurt

© 2001 South-Western College Publishing13 CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE (Market factors (Target market considerations (Industrial or consumer products (Geographical location and size of market (Product factors (Security needs (Special handling requirements (Product life cycle (Perishable nature of the product (Sensitivity to fashion obsolescence

© 2001 South-Western College Publishing14 CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE (Producer factors (Level of financial, managerial and marketing resources (Breadth and depth of product line(s) (Level of control desired over pricing, image and customer support (Level of distribution intensity desired (Intensive (Selective (Exclusive

© 2001 South-Western College Publishing15 CHANNEL RELATIONSHIPS (A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members. (Channel power (Channel control (Channel leadership (Channel conflict and cooperation (Channel partnering (In the end, a channel is only as strong as its weakest link!

© 2001 South-Western College Publishing16 LOGISTICS AND SUPPLY CHAIN MANAGEMENT (Logistics = the process of strategically managing the efficient flow and storage of raw materials, in- process inventory, and finished goods from point of origin to point of consumption (Supply chain = the connected chain of all of the business entities, both internal and external, that perform or support the logistics function. (Supply chain management = integrates and coordinates the logistics and supply chain into a seamless process

© 2001 South-Western College Publishing17 SUPPLY CHAIN MANAGEMENT INCLUDES... (Management of the movement of information (Movement of raw materials and parts from their source to production site(s) (Flow within and between manufacturing, warehouses and distribution centers (Forecasting demand and scheduling production (Planning and coordinating the physical distribution of finished goods to intermediaries and final buyers (Maintain the strategic partnerships of the chain

© 2001 South-Western College Publishing18 BENEFITS OF SUPPLY CHAIN MANAGEMENT (Reduced costs of inventories, transportation, warehousing and packaging (Improved service levels (Time based delivery (Made-to-order merchandise (Enhanced revenues (Increased profits (Improved positioning and market share

© 2001 South-Western College Publishing19 BALANCING LOGISTICS SERVICE AND COST: THE TOTAL COST APPROACH (The art of effective and efficient logistics management is the balancing of the service levels desired by each member of the chain, and the associated costs of providing those services Pre-ticketing JIT delivery Drop Ship Etc.

© 2001 South-Western College Publishing20 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Logistics Information System Supply Chain Team

© 2001 South-Western College Publishing21 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Reduce costs through negotiation Enhanced vendor relations Information integration

© 2001 South-Western College Publishing22 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Manufacturing customer “pull” environment Mass customization and built-to-order Individual orders electronically linked to manufacturing equipment

© 2001 South-Western College Publishing23 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Advanced order processing system Excellent internal and external information exchange Electronic Data Interchange systems Efficient Consumer Response processes

© 2001 South-Western College Publishing24 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Inventory control system Materials requirement planning Distribution resource planning Continuous replenishment Vendor managed inventory Efficient consumer response

© 2001 South-Western College Publishing25 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation Automated storage and retrieval systems Materials handling system Receiving goods Identify, sort and label Place in temporary storage areas Recall, selecting, picking, palletization

© 2001 South-Western College Publishing26 INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team (Sourcing and procurement of raw materials and supplies (Production scheduling (Order processing and customer service (Inventory control systems (Warehousing and materials-management (Transportation True cost Transit time Reliability Capability Accessibility Traceability Flexibility

© 2001 South-Western College Publishing27 TRENDS IN LOGISTICS (Automation (Outsourcing logistics functions (Electronic distribution (Service distribution (Focuses include: (Minimizing wait times (Managing service capacity (Improving delivery through new distribution channels

© 2001 South-Western College Publishing28 INTERNATIONAL SUPPLY CHAINS One important dimension of channels of distribution omitted from the chapter is the discussion of international channels

© 2001 South-Western College Publishing29 HOW ARE INTERNATIONAL CHANNELS DIFFERENT FROM DOMESTIC CHANNELS? (Political and legal constraints and regulations multiply (The flow of documentation is more complex and extensive (Channels tend to be longer and slower (The more developed the nation, the more levels of distribution usually exist (Power within a channel moves downward as a country becomes economically developed (Some foreign middlemen are less risk oriented, poorly financed and may not respect contractual agreements (Language, culture, and geographic distances make smooth channel relationships more difficult