Copyright © Houghton Mifflin Company. All rights reserved. 14–1 Marketing Channels and Supply-Chain Management Marketing Channel –A group of individuals and organizations directing products from producers to customers Supply Chain Management –Long term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies in the marketing channel to satisfy customers

Copyright © Houghton Mifflin Company. All rights reserved. 14–2 Marketing Channels Consist of Intermediaries Marketing Intermediary –An intermediary linking producers to other intermediaries or to ultimate consumers through contractual arrangements or through the purchase and resale of products Direct Channel Producer Customer Producer Customer Indirect Channel Producer Customer Intermediary Producer Customer Intermediary

Copyright © Houghton Mifflin Company. All rights reserved. 14–3 Marketing Channels Form a Supply Chain Supply-Chain Management –Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers –Optimizes costs throughout the whole channel for efficiency and service –Includes all entities that facilitate product distribution and benefit from cooperative efforts –Arises from the need to achieve a more competitive position

Copyright © Houghton Mifflin Company. All rights reserved. 14–4 Marketing Channels Create Utility Time Utility –The product is available when the customer wants it (newspaper delivery). Place Utility –The product is available in locations where customers wish to purchase it (convenience stores). Possession Utility –The customer has access to the product to use or to store for future use (raincoats). Form Utility –The product is assembled, prepared or otherwise refined to suit customer needs.

Copyright © Houghton Mifflin Company. All rights reserved. 14–5 Marketing Channels Facilitate Exchange Efficiencies Reduce the overall costs of market exchanges Reduce search costs for customers Maintain order in the marketplace

Copyright © Houghton Mifflin Company. All rights reserved. 14–6 Efficiency in Exchanges Provided by an Intermediary FIGURE 14.1

Copyright © Houghton Mifflin Company. All rights reserved. 14–7 Important Terms Distribution –The activities that make products available to customers when and where they want to purchase them Marketing Channel –A group of individuals and organizations directing products from producers to customers

Copyright © Houghton Mifflin Company. All rights reserved. 14–8 Important Terms Marketing Intermediary –A middleman linking producers to other middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products Supply-Chain Management –Long-term partnerships among marketing channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers

Copyright © Houghton Mifflin Company. All rights reserved. 14–9 Typical Marketing Channels for Consumer Products FIGURE 14.2

Copyright © Houghton Mifflin Company. All rights reserved. 14–10 Typical Marketing Channels for Business Products FIGURE 14.3

Copyright © Houghton Mifflin Company. All rights reserved. 14–11 Distribution Intermediaries Industrial Distributor –An independent business that takes title to business products and carries inventories Manufacturers’ Agent –An independent businessperson who sells, on commission, the complementary products of several producers; does not takes title to or hold inventories.

Copyright © Houghton Mifflin Company. All rights reserved. 14–12 Multiple Marketing Channels and Channel Alliances Dual Distribution –The use of two or more channels to distribute the same product to the same target market Strategic Channel Alliance –An agreement whereby the products of one organization are distributed through the marketing channels of another

Copyright © Houghton Mifflin Company. All rights reserved. 14–13 Channel Leadership, Cooperation, and Conflict Channel Captain –A dominant member (producer, wholesaler, or retailer) of a marketing channel or supply chain Establishes channel policies and coordinates development of the marketing mix Channel Power –The ability of one channel member to influence another member’s goal achievement

Copyright © Houghton Mifflin Company. All rights reserved. 14–14 Channel Conflict Sources of Channel Conflict –Disagreements arising among channel members –Communication difficulties jeopardizing coordination –Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers –Intermediaries diversifying into and offering competing products –Producers attempting to circumvent intermediaries and dealing directly with retailers

Copyright © Houghton Mifflin Company. All rights reserved. 14–15 Channel Cooperation Improving Channel Cooperation –Unifying channel to maintain market order –Agreeing to direct efforts toward common objectives –Precisely defining each channel member’s tasks

Copyright © Houghton Mifflin Company. All rights reserved. 14–16 Channel Integration Vertical Channel Integration –Two or more stages of the marketing channel are under one management. –Channel members coordinate their efforts to reach a target market. Vertical Marketing System (VMS) –A marketing channel managed by a single channel member to achieve efficient, low-cost distribution Corporate VMS Administered VMS Contractual VMS

Copyright © Houghton Mifflin Company. All rights reserved. 14–17 Channel Integration (cont’d) Horizontal Integration –Organizations at the same level of operation are combined under one management.

Copyright © Houghton Mifflin Company. All rights reserved. 14–18 Important Terms Industrial Distributor –An independent business that takes title to business products and carries inventories Dual Distribution –The use of two or more channels to distribute the same product to the same target market Strategic Channel Alliance –An agreement whereby the products of one organization are distributed through the marketing channels of another Channel Power –The ability of one channel member to influence another member’s goal achievement

Copyright © Houghton Mifflin Company. All rights reserved. 14–19 Important Terms Vertical Channel Integration –Two or more stages of the marketing channel are under one management Vertical Marketing System (VMS) –A marketing channel managed by a single channel member to achieve efficient, low-cost distribution Horizontal Channel Integration –Two or more organizations at the same level of operations are combined under one management

Copyright © Houghton Mifflin Company. All rights reserved. 14–20 Intensity of Market Coverage Intensive Distribution –Uses all available outlets to distribute a product. Appropriate for convenience products with high replacement rates Provides availability and reduces search time

Copyright © Houghton Mifflin Company. All rights reserved. 14–21 Selective Distribution –Uses only some available outlets to distribute a product Appropriate for shopping products and durable goods with low replacement rates Desirable when special effort— such as customer service— is important Intensity of Market Coverage (cont’d) Tuscaloosa’s Only Authorized Dealer

Copyright © Houghton Mifflin Company. All rights reserved. 14–22 Intensity of Market Coverage (cont’d) Exclusive Distribution –Uses a single outlet in a fairly large geographic area to distribute a product Appropriate for expensive, high-quality products purchased infrequently

Copyright © Houghton Mifflin Company. All rights reserved. 14–23 Important Terms Intensive Distribution –Using all available outlets to distribute a product Selective Distribution –Using only some available outlets to distribute a product Exclusive Distribution –Using a single outlet in a fairly large geographic area to distribute a product

Copyright © Houghton Mifflin Company. All rights reserved. 14–24 Inventory Management Developing and maintaining adequate assortments of products to meet customers’ needs –Objective is to minimize inventory costs yet have on hand a sufficient supply of goods to satisfy customers Stockouts—inventory-related shortages of products Reorder point= (Order Lead Time x Usage Rate) + Safety Stock Just-in-Time –An inventory management in which supplies arrive just when needed for production or resale

Copyright © Houghton Mifflin Company. All rights reserved. 14–25 Materials Handling The physical handling of products in warehousing operations and the transportation from points of production to points of consumption –Unit loading—one or more boxes of product are placed on a pallet and handled by mechanical means (e.g., forklift) –Containerization—consolidation of many small items into a single large container providing increased handling efficiency and security in shipping

Copyright © Houghton Mifflin Company. All rights reserved. 14–26 Warehousing The design and operation of facilities for storing and moving goods –Enables compensation for dissimilar production and consumption rates –Helps stabilize prices and availability of seasonal items

Copyright © Houghton Mifflin Company. All rights reserved. 14–27 Important Terms Inventory Management –Developing and maintaining adequate assortments of products to meet customers’ needs Just-in-Time (JIT) –An inventory management in which supplies arrive just when needed for production or resale Materials Handling –The physical handling of products in warehousing operations and the transportation from points of production to points of consumption

Copyright © Houghton Mifflin Company. All rights reserved. 14–28 Important Terms Warehousing –The design and operation of facilities for storing and moving goods Private Warehouses –Company-operated warehouses for storing and shipping products Public Warehouses –Businesses that lease storage space and related physical distribution facilities to other firms Distribution Centers –Large centralized warehouses that focus on moving rather than storing goods

Copyright © Houghton Mifflin Company. All rights reserved. 14–29 Transportation The movement of products from where they are made to where they are used Transportation modes –Railroads—heavy, bulky full carloads of freight –Trucks—flexible schedules, speed and access –Waterways—heavy, low-value nonperishables –Airways—fast delivery, high-value or perishable goods –Pipelines—bulk petroleum and chemicals

Copyright © Houghton Mifflin Company. All rights reserved. 14–30 Proportion of Intercity Freight Carried by Various Transportation Modes FIGURE 14.5 Source: Bureau of the Census, Statistical Abstract of the United States , p. 675.

Copyright © Houghton Mifflin Company. All rights reserved. 14–31 Coordinating Transportation Intermodal Transportation –An integrated transportation approach in which two or more transportation modes are used in combination Containerization: piggyback, fishyback, birdyback modes Freight Forwarders –Organizations that consolidate shipments from several firms into efficient lot sizes Megacarriers –Freight transportation firms that provide several modes of shipment

Copyright © Houghton Mifflin Company. All rights reserved. 14–32 Important Terms Transportation –The movement of products from where they are made to where they are used Intermodal Transportation –An integrated transportation approach in which two or more transportation modes are used in combination Freight Forwarders –Organizations that consolidate shipments from several firms into efficient lot sizes Megacarriers –Freight transportation firms that provide several modes of shipment