1. Part 5 Distribution Decisions
marketing 16e
Part 5 Distribution Decisions
Hult | Pride | Ferrell

2. 14: Supply-Chain Management and Marketing Channels
15: Retailing, Wholesaling, and Direct Marketing
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3. Learning Objectives
To describe the foundations of supply-chain management
To explore the role and significance of marketing channels and supply chains
To identify types of marketing channels
To understand factors that influence marketing channel selection
To identify the intensity of market coverage
To examine strategic issues in marketing channels, including leadership, cooperation, and conflict
To examine physical distribution as a part of supply- chain management
To explore legal issues in channel management
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4. Foundations of the Supply Chain
All the activities associated with the flow and transformation of product from raw materials through to the end consumer
Operations Management
The total set of managerial activities used by an organization to transform resource inputs into products
Logistics Management
Planning, implementing and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption
Supply Management
The processes that enable the progress of value from raw materials to final customer and back to redesign and final disposition
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5. Supply-Chain Management
A set of approaches used to integrate the functions of operations management, logistics management, supply management and marketing channel management so products are produced and distributed in the right quantities, the right locations and at the right time
The goal is to achieve optimal levels of efficiency and service
The supply chain includes all entities that facilitate product distribution and benefit from cooperative efforts
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6. Key Tasks in Supply Chain Management
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7. Supply Chain Management Issues
Technology
Information technology has created almost seamless distribution processes
Information sharing has reduced costs
Increased speed, flexibility, and cooperation
Technology has improved service
Increasing number of innovative goods
Increased involvement of firms in management supply chain
Effective supply-chain management is closely linked to a market orientation
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8. The Role of Marketing Channels in Supply Chains
Marketing Channel (Channel of Distribution, Distribution Channel)
A group of individuals and organizations that direct the flow of products from producers to customers within the supply chain
Marketing Intermediaries
Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangement or through the purchase and reselling of products
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9. Discussion Question
Which marketing channels does Dunkin’ Donuts use for its packaged coffee?
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10. Marketing Channel Activities Performed by Intermediaries
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11. The Significance of Marketing Channels
Marketing channel decisions influence the rest of the marketing mix
Channel decisions determine:
A product’s market presence
Buyer’s accessibility to the product
Effective marketing channels required for organizational success
Entail long-term commitments among a variety of firms
Difficult to change/undo marketing channel decisions
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12. Firms to Know: Pepsi Beverages Company
Formed from the merger of Pepsi Bottling Group and PepsiAmericas
Focus on the North American beverages market
Received the Supply Chain Innovation Award from the Council of Supply Chain Management Professionals
Utilized technology to reduce the labor required for in-store delivery
Improved quality, service and return on investment
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13. Marketing Channels Create Utility
Time Utility
Having products available when the customer wants them
Place Utility
Making products available in locations where customers wish to purchase them
Possession Utility
Customers have access to the product to use now or store for future use
Form Utility
Formed by assembling, preparing, or otherwise refining the product to suit customer needs
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14. Marketing Channels Facilitate Exchange Efficiencies
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15. Typical Marketing Channels for Consumer Products
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16. Think About It: Banana Republic
Banana Republic has retail stores across the country, as well as offers sales through its website
Banana Republic and The Gap recently began offering sales in Europe through their websites
What distribution channels do you think Banana Republic utilizes to sell its goods?
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17. Typical Marketing Channels for Business Products
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18. Think About It
The Internet and smartphones have created new distribution channels
Magazines and newspapers sell content via smartphone and iPad apps
How does this change the distribution system for print media?
From a marketers perspective, what are potential problems with selling books, magazines, and newspaper via apps?
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19. Channels for Business Products
Industrial Distributor: An independent business that takes title to products and carries inventories
Usually sells standardized items, although some carry a wide variety of items
Cost effective when a product has broad market appeal, is easily stocked and serviced, is sold in small quantities and is needed on demand
Manufacturers’ Agent: An independent businessperson who sells complementary products and is compensated by commissions
Does not acquire title or take possession
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20. Multiple Marketing Channels and Channel Alliances
Dual Distribution
The use of two or more marketing channels to distribute the same product to the same target market
Strategic Channel Alliance
The products of one organization are distributed through the marketing channels of another
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21. Selecting Marketing Channels
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22. Selecting Marketing Channels continued
Customer Characteristics
Consumer market or business market?
Business customers often prefer to deal directly with producers; are more likely to buy complex products and in large quantities
Product Attributes
Complex/Expensive or standardized?
Durable or Fragile?
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23. Selecting Marketing Channels continued
Type of Organization
Large or small?
Large firms are often in a better position to have more distribution centers, which reduce delivery times
Smaller firms may be in a better position to serve smaller-scale regional needs
Degree of Competition
High or low?
Highly competitive markets require companies to keep costs and prices low
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24. Selecting Marketing Channels continued
Environmental Forces
Economic considerations will force organizations to make compromises
Technology may help a firm modify/improve its channel strategy
Government regulations and trade agreements can affect channel strategy
Characteristics of Intermediaries
If an intermediary is not adequately promoting an organization’s products, it may reconsider channel choices
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25. Intensity of Market Coverage
Intensive
Uses all available outlets to distribute a product
For most convenience products
Multiple channels may be used
Selective
Uses only some available outlets to distribute a product
For shopping products
Desirable when a special effort is important to customers
Exclusive
Uses a single outlet in a fairly large geographic area
For products purchased infrequently, consumed over a long period of time, or requiring service and information
Only authorized dealers are used
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26. Discussion Question
Wrigley’s Doublemint gum is a classic choice for gum lovers
What intensity of coverage is most common for the distribution of a convenience product like chewing gum?
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27. Intensity of Market Coverage continued
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28. Discussion Question
What level of intensity of market coverage would you select for products sold by the following brands?
Montblanc
Carhartt
Reebok
Chanel
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29. Strategic Issues in Marketing Channels
Channel Integration
Channel Leadership, Coordination, and Conflict
Competitive Priorities
Strategic Issues
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30. Competitive Priorities in Marketing Channels
Supply chains can provide a competitive advantage for many marketers
Supply chain decisions cut across all functional areas of a business
An effective and efficient supply chain can sustain a business in a variety of competitive environments
Inefficient supply chains can lead to increased costs
Integrated supply chains lead to a holistic view of the supply chain
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31. Channel Leadership Channel Captain (Channel Leader)
The dominant leader of a marketing channel or a supply chain
May be a producer, wholesaler, or retailer
Channel Power
The ability of one channel member to influence other channel members’ goal achievements
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32. Channel Cooperation
Cooperation is vital if each channel member is to gain something from the others
Enables retailers, wholesalers, suppliers and logistics providers to:
Speed up inventory replenishment
Improve customer service
Cut the costs of bringing products to customers
A marketing channel should be viewed as a unified supply chain
Members should work toward common objectives
Channel member tasks must be clearly defined
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33. Channel Conflicts Channel conflict occurs when:
Self-interest creates misunderstanding about role expectations of channel members
Communication is poor between channel members
There is increased use of multiple channels has increased the chance for miscommunication and conflict
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34. Vertical Channel Integration
Combines two or more stages of the marketing channel under one management
Participants coordinated efforts to reach a desired target market
Often effective against competition because of increased bargaining power and shared information and responsibilities
Vertical Marketing Systems (VMSs): A single channel member coordinates or manages channel activities to achieve low-cost distribution aimed at satisfying target market customers
Takes on corporate, administered, or contractual forms
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35. Horizontal Channel Integration
Combines organizations at the same level of operation under one management
Creates economies of scale
Not the best method for improving distribution
Large size may decrease flexibility, increase coordination problems and require additional research and planning
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36. Physical Distribution in Supply-Chain Management
Physical Distribution (Logistics)
Activities used to move products from producers to consumers and other end users
Outsourcing
The contracting of physical distribution tasks to third parties
Most distribution activities can be outsourced to firms with expertise in specific areas
Cycle Time
The time needed to complete a process
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37. Goals of Physical Distribution
Right Goods
Right Place
Right Price
Right Time
Right Quantity
Right Support System
Cycle Time
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38. Proportional Cost of Each Physical Distribution Function as a % of Total Distribution Cost
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39. Order Processing
The receipt and transmission of sales order information
Order Entry: Begins when customers place orders
Order Handling: Product availability and customer credit-worthiness is verified; order assembly occurs
Order Delivery: Delivery is scheduled with a carrier
Electronic Data Interchange (EDI): A computerized means of integrating order processing with production, inventory, accounting and transportation
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40. Inventory Management
Developing and maintaining adequate assortment of products to meet customers’ needs
Stockouts: Shortages of products that can result in loss of customers
Reorder Point: The inventory level that signals the need to place a new order
Order Lead Time: The average time lapse between placing the order and receiving it
Usage Rate: The rate at which inventory is used/sold
Safety Stock: The extra inventory a firm keeps
Just-in-Time (JIT): An inventory-management approach in which supplies arrive just when needed for production or resale
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41. Materials Handling
The physical handling of tangible goods, supplies and resources
Also involves transportation from points of production to points of consumption
Efficient materials handling can reduce costs, the number of times a good is handled, improve customer service and increase customer satisfaction
Radio Frequency ID: Radio waves are used to track materials using scanners
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42. Warehousing
The design and operation of facilities for storing and moving goods
Creates time utility
Helps stabilize prices and the availability of seasonal items
The choice of warehouse is an important strategic consideration
The correct warehouse can reduce transportation and inventory costs and improve customer service
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43. Types of Warehouses Private Warehouses
Company-operated facilities for storing and shipping products
Public Warehouses
Storage space and related physical distribution facilities that can be leased by companies
Distribution Centers
Large, centralized warehouses that focus on moving rather than storing goods
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44. Transportation
The movement of products from where they are made to intermediaries and end users
The most expensive physical distribution function
Transportation Mode
Railroads
Heavy, bulky freight; long distances over land
Trucks
The most flexible schedules and routes; more expensive and vulnerable to weather; size and weight restrictions
Waterways
Cheapest method; heavy, low-value nonperishables; markets must be accessible by water
Airways
Fastest and most expensive; high-value, low-bulk, or perishable goods
Pipelines
Most automated; dependable; contents subject to shrinkage
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45. Characteristics and Ratings of Transportation Modes by Selection Criteria
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46. Coordinating Transportation
Intermodal Transportation
Two or more transportation modes are used in combination
Containerization: piggyback (truck and rail), fishyback (truck and water), birdyback (truck and air) modes
Freight Forwarders
Organizations that consolidate shipments from several firms into efficient lot sizes
Megacarriers
Freight transportation companies that offer several shipment methods
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47. Legal Issues in Channel Management
Dual Distribution
Runs the risk of being viewed as anti-competitive
Restricted Sales Territories
Courts have conflicting opinions on restricting intermediaries to certain sales territories
Tying Agreement
A supplier furnishes a product to a channel member with the stipulation that the channel member purchases other products
Courts only accept tying agreements when the supplier is the only one able to provide products of a certain quality and the intermediary can also carry competing products
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48. Legal Issues in Channel Management continued
Exclusive Dealing
A manufacturer forbids an intermediary to carry products of competing manufacturers
Only considered legal if the deal blocks competitors from less than 15% of the market, the sales volume is small and the producer is smaller than the retailer
Refusal to Deal
Producers have the right to choose channel members
Suppliers cannot legally refuse to do business with certain wholesalers because of their policies resist anticompetitive actions
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49. Important Terms Distribution Dual distribution Supply chain
Strategic channel alliance
Operations management
Intensive distribution
Logistics management
Selective distribution
Supply management
Exclusive distribution
Supply-chain management
Channel captain
Marketing channel
Channel power
Marketing intermediaries
Vertical channel integration
Industrial distributor
Vertical marketing systems
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50. Important Terms continued
Horizontal channel integration
Private warehouses
Physical distribution
Public warehouses
Outsourcing
Distribution centers
Cycle time
Transportation
Order processing
Intermodal transportation
Electronic data interchange (EDI)
Freight forwarders
Inventory management
Megacarriers
Just-in-time (JIT)
Tying agreement
Materials handling
Exclusive dealing
Warehousing
© 2012 South-Western, a part of Cengage Learning