1. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by Deborah Baker, Texas Christian University Lamb, Hair, McDaniel 2007-2008 Marketing Channels and Supply Chain Management 12 CHAPTER

2. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 2 LO 1 Marketing Channels A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Marketing Channels Marketing Channels

3. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3 LO 1 Marketing Channels The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function. Supply Chain

4. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 4 LO 1 Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency

5. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 5 LO 1 Specialization and Division of Labor  Creates greater efficiency  Provides lower costs  Achieves economies of scale  Aids producers who lack resources to market directly  Builds good relationships with customers

6. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 6 LO 1 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.

7. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 7 LO 1 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.

8. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 8 LO 1 Providing Contact Efficiency

9. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 9 REVIEW LEARNING OUTCOME LO 1 Marketing Channels Providing Specialization and Division of Labor Providing Specialization and Division of Labor Overcoming Discrepancies Providing Contact Efficiency Marketing Channel Supply Chain

10. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 10 Channel Intermediaries LO 2 Retailer A channel intermediary that sells mainly to customers. A channel intermediary that sells mainly to customers. Merchant Wholesaler Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members.

11. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 11 Channel Intermediaries LO 2 Retailers Merchant Wholesalers Merchant Wholesalers Agents and Brokers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods

12. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 12 Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Product characteristics Buyer considerations Market characteristics

13. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 13 Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 FactorMerchant Wholesalers Agents/ Brokers Nature of productStandardNonstandard, custom Technicality of productComplexSimple Product’s gross marginHighLow Frequency of orderingFrequentInfrequent Time between order and receipt of shipment Shorter lead timeLonger lead time Number of customersManyFew Concentration of customersDispersedConcentrated

14. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 14 Channel Functions Performed by Intermediaries LO 2 Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions Logistical Functions

15. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 15 LO 2 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.

16. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 16 REVIEW LEARNING OUTCOME LO 2 Channel Intermediaries and Functions CHANNEL INTERMEDIARIES Retailers Wholesalers Agents and Brokers Retailers Wholesalers Agents and Brokers CHANNEL FUNCTIONS Transactional Logistical Facilitating Transactional Logistical Facilitating Perform

17. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 17 Channels for Consumer Products LO 3 A distribution channel in which producers sell directly to consumers. Direct Channel Direct Channel

18. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 18 Channels for Consumer Products LO 3 Producer Consumers Retailers Wholesalers Agents or BrokersWholesalerChannelRetailerChannelDirectChannelAgent/BrokerChannel

19. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 19 Channels for Business Products LO 3 Producer Industrial User DirectChannel Producer Govt. Buyer DirectChannel Producer Industrial User Industrial Distributor Agents or Brokers Agents or Brokers Agent/BrokerChannel Industrial Distributor Agent/Broker Industrial Channel

20. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 20 Business-to-Business Exchanges on the Internet LO 3 Agents link buyers and sellers Companies drop the intermediary from the supply chain “Private exchanges” with select suppliers automate the supply chain Online http://www.sherwinwilliams.com

21. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 21 Alternative Channel Arrangements LO 3 Multiple channels Strategic channel alliances Nontraditional channels

22. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 22 Biz Flix LO 3 Casino

23. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 23 REVIEW LEARNING OUTCOME LO 3 Channel Structures CONSUMER CHANNELS  Direct  Retail  Wholesaler  Agent/broker  Direct  Retail  Wholesaler  Agent/broker BUSINESS CHANNELS  Direct  Industrial  Agent/broker  Agent/broker industrial  Direct  Industrial  Agent/broker  Agent/broker industrial ALTERNATIVE CHANNELS  Multiple  Nontraditional  Strategic alliances  Multiple  Nontraditional  Strategic alliances

24. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 24 LO 4 Supply Chain Management Supply Chain 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, resulting in enhanced customer and economic value.

25. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 25 LO 4 Role of Supply Chain Management 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

26. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 26 LO 4 Responsibilities of Supply Chain Managers  Channel strategy decisions  Sourcing and procurement of raw materials  Production schedules  Order processing  Inventory management  Finished goods/supplies transportation and storage  Customer service coordination  Supply chain information flow management  Partner relationships

27. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 27 LO 4 The Supply Chain Process

28. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 28 LO 4 Benefits of Supply Chain Management Means of differentiation Greater supply chain flexibility Improved customer service Higher revenues Reduced costs

29. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 29 REVIEW LEARNING OUTCOME LO 4 Supply Chain Management

30. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 30 Channel Strategy Decisions LO 5 FactorsAffectingChannelChoiceFactorsAffectingChannelChoice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity

31. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 31 Market Factors LO 5 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

32. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 32 Product Factors LO 5 Product Factors That Affect Channel Choices Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price

33. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 33 Product Factors LO 5 Producer Factors That Affect Channel Choices Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control

34. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 34 Levels of Distribution Intensity LO 5 Intensive A form of distribution aimed at having a product available in every outlet A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area A form of distribution that established one or a few dealers within a given area

35. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 35 Levels of Distribution Intensity LO 5 Intensive Achieve mass market selling. Convenience goods. Many Selective Exclusive Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Several One Intensity Level Objective Number of Intermediaries

36. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 36 REVIEW LEARNING OUTCOME LO 5 Issues Influencing Channel Strategy

37. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 37 Social Dimensions of Channels LO 6 Partnering Conflict Leadership Control Power

38. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 38 Channel Power, Control, and Leadership LO 6 Channel Power Channel Power A channel member’s capacity to control or influence the behavior of other channel members A channel member’s capacity to control or influence the behavior of other channel members Channel Control Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader 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

39. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 39 Channel Conflict and Partnering LO 6 Channel Conflict Channel Conflict A clash of goals and methods between distribution channel members Channel Partnering Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

40. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 40 Channel Conflict LO 6 Conflicts may occur if channel members:  Have conflicting goals  Fail to fulfill expectations of other channel members  Have ideological differences  Have different perceptions of reality

41. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 41 Channel Partnering LO 6 Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Transaction-Based Partnership-Based Information Sharing Minimal High Investment Required Minimal High

42. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 42 REVIEW LEARNING OUTCOME LO 6 Channel Leadership, Conflict, & Partnering Channel Relationship Synergy Channel Relationship Synergy Channel Conflict HorizontalVertical Channel Power, Control, Leadership Channel Partnering

43. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 43 Logistical Components of the Supply Chain LO 7 Supply Chain Team Sourcing & Procurement Production Scheduling Order Processing Inventory Control Warehouse & Materials Handling Transportation Logistics Information System

44. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 44 Sourcing and Procurement LO 7  Plan purchasing strategies  Develop specifications  Select suppliers  Negotiate price and service levels  Reduce costs The Role of Purchasing:

45. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 45 Production Scheduling LO 7 Push / Pull Strategy Traditional Focus Push Start of Production Manufacturing Inventory- Based Mass Production Customer Focus Pull Customer-Order Based Mass Customization

46. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 46 Just-in-Time Manufacturing LO 7 A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line. JIT

47. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 47 Benefits of JIT LO 7  Reduces raw material inventories  Shortens lead times  Creates better supplier relationships  Reduces production and storeroom costs  Reduces paperwork

48. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 48 JIT Requirements LO 7 Receive high-quality parts Meet supplier delivery commitments Have a crisis management plan

49. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 49 Order Processing LO 7 Information technology that replaces paper documents that accompany business transactions with electronic transmission of the information. Electronic Data Interchange http://www.walmartstores.com Online

50. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 50 Order Processing LO 7 A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand. Inventory Control System Inventory Control System

51. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 51 Order Processing LO 7 Materials Requirement Planning (MRP) Materials Requirement Planning (MRP) 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 raw materials, supplies, and components from the supplier to the manufacturer. Distribution Resource Planning (DRP) Distribution Resource Planning (DRP) An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer. An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.

52. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 52 Materials Handling Functions LO 7 Receive goods into warehouse Dispatch the goods to temporary storage Recall, select, or pick the goods for shipment Identify, sort, and label goods

53. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 53 Transportation LO 7 Airways Water Pipelines Motor Carriers Railroads

54. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 54 Transportation Mode Choice LO 7  Cost  Transit time  Reliability  Capability  Accessibility  Traceability

55. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 55 Criteria for Ranking Modes of Transportation LO 7 Relative Cost Transit Time Reliability Capability Accessibility Traceability HighestLowest Air WaterPipeRailTruck WaterRailPipeTruckAir PipeTruckRailAirWater Truck RailTruckAirPipe RailAirWaterPipe AirTruckRailWaterPipe

56. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 56 Trends in Supply Chain Management LO 8 Electronic distribution Outsourcing of logistics functions Advanced computer technology

57. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 57 Advanced Computer Technology LO 8  Automatic identification systems - Bar coding - Radio frequency technology  Communications technology  Supply chain software systems

58. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 58 Outsourcing Logistics Functions LO 8 Outsourcing Benefits  Reduce inventories  Locate stock at fewer plants and distribution centers  Provide same or better levels of service

59. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 59 LO 9 Channels and Distribution Decisions for Global Markets Global Channel Development Global Channel Development Channel structure and type differ Gray marketing channels Global Supply Chain Management Awareness of trade legalities Transportation Issues

60. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 60 REVIEW LEARNING OUTCOME LO 9 Global Market Channel & Distribution Decisions Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray” marketing channels Legal and infrastructure differences

61. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 61 Beyond the Book Channels and Distribution Decisions for Services NOTE: Supplemental content – not in book. Minimizing wait times Managing service capacity Improving service delivery

62. Chapter 12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 62 Beyond the Book Distribution in Service Organizations NOTE: Supplemental content – not in book.