1Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Marketing Channels and Supply Chain Management Prepared by Deborah Baker Texas Christian University Chapter 12

2Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objectives 1.Explain what a marketing channel is and why intermediaries are needed. 2. Define the types of channel intermediaries and describe their functions and activities.

3Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objectives (continued) 3. Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements. 4.Define supply chain management and discuss its benefits. 5. Discuss the issues that influence channel strategy.

4Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objectives (continued) 6. Explain channel leadership, conflict, and partnering. 7.Describe the logistical components of the supply chain. 8.Discuss new technology and emerging trends in supply chain management.

5Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objectives (continued) 9.Discuss channels and distribution decisions in global markets. 10.Identify the special problems and opportunities associated with distribution in service organizations.

6Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Explain what a marketing channel is and why intermediaries are needed. 1 1 On Line On Line

7Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Marketing Channels Marketing Channel Marketing Channel Supply Chain Supply Chain A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function. 1 1

8Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Marketing Channel Functions Specialization and Division of Labor Specialization and Division of Labor Channels Fulfill Three Important Functions Channels Fulfill Three Important Functions Overcoming Discrepancies Overcoming Discrepancies Providing Contact Efficiency Providing Contact Efficiency 1 1

9Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Specialization and Division of Labor  Provides efficiency and cost savings  Attains economies of scale  Aids producers who lack resources to market directly  Builds good relationships with customers 1 1

10Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Overcoming Discrepancies Discrepancy of Quantity Discrepancy of Quantity Discrepancy of Assortment Discrepancy of Assortment The difference between the amount of product produced and the amount an end user wants to buy. The difference between the amount of product produced and the amount an end user wants to buy. The lack of all the items a customer needs to receive full satisfaction from a product or products. The lack of all the items a customer needs to receive full satisfaction from a product or products. 1 1

11Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Overcoming Discrepancies Temporal Discrepancy Temporal Discrepancy Spatial Discrepancy Spatial Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. A situation that occurs when a product is produced but a customer is not ready to buy it. The difference between the location of a producer and the location of widely scattered markets. The difference between the location of a producer and the location of widely scattered markets. 1 1

12Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Contact Efficiency 1 1

13Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Define the types of channel intermediaries and describe their functions and activities. 2 2

14Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Intermediaries Retailer Merchant Wholesaler Merchant Wholesaler Agents and Brokers Agents and Brokers A channel intermediary that sells mainly to customers. A channel intermediary that sells mainly to customers. An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Wholesaling intermediaries who facilitate the sale of a product by representing channel member. 2 2

15Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Intermediaries RetailersRetailers MerchantWholesalersMerchantWholesalers AgentsandBrokersAgentsandBrokers Take Title to Goods Do NOT Take Title to Goods 2 2

16Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Factors Suggesting Type of Wholesaling Intermediary to Use 2 2

17Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Functions Performed by Intermediaries Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Function Transactional Functions Logistical Functions Logistical Functions 2 2

18Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 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. 2 2

19Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements. 3 3

20Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Direct Channel A distribution channel in which producers sell directly to consumers. 3 3

21Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channels for Consumer Products Producer Consumers Retailers Wholesalers Agents or BrokersWholesalerChannelRetailerChannelDirectChannelAgent/BrokerChannel 3 3

22Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channels for Business-to-Business Products Producer Industrial User DirectChannel Producer Govt. BuyerDirectChannel Producer Industrial User Industrial Distributor Agents or Brokers Agents or BrokersAgent/BrokerChannel Industrial Distributor Agent/Broker Agent/Broker Industrial Channel 3 3

23Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Business-to-Business Exchanges on the Internet  Linking buyers and sellers  Dropping the middleman from the supply chain  Creating “private exchanges” to automate the supply chain 3 3 On Line On Line

24Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Alternative Channel Arrangements Multiple Channels Strategic Channel Alliances Nontraditional Channels 3 3

25Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Define supply chain management and discuss its benefits. 4 4

26Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Supply Chain Management A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption. 4 4

27Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Physical flow process that engineers the movement of goods Physical flow process that engineers the movement of goods Communicator of customer demand from point of sale to supplier Communicator of customer demand from point of sale to supplier Role of Supply Chain Management 4 4

28Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Benefits of Supply Chain Management Greater Supply Chain Flexibility Improved Customer Service Higher Revenues Reduced Costs 4 4 On Line On Line

29Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Discuss the issues that influence channel strategy. 5 5

30Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Strategy Decisions Producer Factors Product Factors Market Factors FactorsAffectingChannelChoiceFactorsAffectingChannelChoice Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity 5 5

31Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Market Factors Market Factors That Affect Channel Choices Market Factors That Affect Channel Choices Customer Profiles Consumer or Industrial Customer Consumer or Industrial Customer Size of Market Geographic Location 5 5

32Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Product Factors Product Factors That Affect Channel Choices Product Factors That Affect Channel Choices Product Complexity Product Price Product Life Cycle Product Delicacy 5 5

33Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Producer Factors Producer Factors That Affect Channel Choices Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control 5 5

34Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Levels of Distribution Intensity Intensity Level ObjectiveObjective Number of Intermediaries Intensive Selective Exclusive Achieve mass market selling. Convenience goods. Achieve mass market selling. Convenience goods. Work with selected intermediaries. Shopping and some specialty goods. Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Work with single intermediary. Specialty goods and industrial equipment. Many Several One 5 5 On Line On Line

35Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Explain channel leadership, conflict, and partnering. 6 6

36Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Managing Channel Relationships Channel Partnering Channel Conflict Channel Leadership Channel Control Channel Power Social Dimensions of Channels 6 6

37Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Power, Control, and Leadership Channel Power Channel Power Channel Control Channel Control Channel Leader A channel member’s capacity to control or influence the behavior of other channel members A situation that occurs when one marketing channel member intentionally affects another member’s behavior. A member of a marketing channel that exercises authority/power over the activities of other members. A member of a marketing channel that exercises authority/power over the activities of other members. 6 6

38Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Conflict A clash of goals and methods between distribution channel members. Horizontal Conflict Horizontal Conflict Occurs among channel members on the same level Vertical Conflict Vertical Conflict Occurs among channel members at different levels 6 6

39Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage. 6 6

40Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Transaction- Based Partnership-Based Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers ManyFew Information Sharing MinimalHigh Investment Required MinimalHigh Transaction- vs. Partnership-Based Firms 6 6

41Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Describe the logistical components of the supply chain. 7 7

42Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Integrated Logistical Components of the Supply Chain Sourcing & Procurement Production Scheduling Order Processing & Customer Service Inventory Control Supply Chain Team Warehouse & Materials Handling Transportation Logistics Information System 7 7

43Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Sourcing and Procurement Negotiate Service Levels Negotiate Service Levels Negotiate Price Negotiate Price Select Suppliers Select Suppliers Develop Specifications Develop Specifications Plan Purchasing Strategies Role of PurchasingDepartments PurchasingDepartments 7 7

44Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Production Scheduling Push / Pull Strategy Strategy Traditional Focus Push Start of Production ManufacturingManufacturing Inventory-Based Mass Production Customer Focus Pull Customer-Order Based Mass Customization 7 7

45Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Just-in-Time Manufacturing A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line. 7 7

46Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Benefits of JIT  Reduces raw material inventories  Shortens lead times  Creates better supplier relationships  Reduces production and storeroom costs  Reduces paperwork 7 7

47Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning JIT Requirements RequirementsforManufacturers Using JIT RequirementsforManufacturers Receive High-Quality Parts Meet Supplier Delivery Commitments Have a Crisis Management Plan 7 7

48Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Electronic Data Interchange Information technology that replaces paper documents that accompany business transactions. 7 7 On Line On Line

49Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Inventory Control System A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand. 7 7

50Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning MRP and DRP Materials Requirement Planning Materials Requirement Planning Distribution Resource Planning Distribution Resource Planning An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer. 7 7

51Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Warehouse and Materials-Handling MaterialsHandlingFunctionsMaterialsHandlingFunctions Receive goods into warehouse Dispatch the goods to temporary storage Recall, select, or pick the goods for shipment Identify, sort, and label goods 7 7

52Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Transportation Cost Transit Time Reliability Capability Accessibility Traceability Criteriafor Transportation Mode ChoiceCriteriafor Choice 7 7

53Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Criteria for Ranking Modes of Transportation Relative Cost Transit Time Reliability Capability Accessibility Traceability HighestLowest Air WaterPipeRailTruck WaterRailPipeTruckAir PipeTruckRailAirWater Truck RailTruckAirPipe RailAirWaterPipe AirTruckRailWaterPipe 7 7

54Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Discuss new technology and emerging trends in supply chain management. 8 8

55Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Trends in Supply Chain Management Electronic Distribution Outsourcing of Logistics Functions Advanced Computer Technology Advanced Computer TechnologyTrends Affecting the LogisticsIndustryTrends LogisticsIndustry 8 8

56Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Discuss channels and distribution decisions in global markets. 9 9

57Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channels and Distribution Decisions for Global Markets Global Supply Chain Management Awareness of trade legalities Transportation Issues Global Channel Development Development Channel structure and type differ Gray marketing channels 9 9 On Line On Line

58Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Learning Objective Identify the special problems and opportunities associated with distribution in service organizations. 10

59Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Channels and Distribution Decisions for Services Areas of Focus for Service Distribution Areas of Focus for Service Distribution Minimizing wait times Managing service capacity Improving service delivery 10