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Objectives Know why companies use distribution channels and understand the functions that these channels perform. Learn how channel members interact and.

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Presentation on theme: "Objectives Know why companies use distribution channels and understand the functions that these channels perform. Learn how channel members interact and."— Presentation transcript:

0 Marketing Channels and Supply Chain Management
Chapter 13

1 Objectives Know why companies use distribution channels and understand the functions that these channels perform. Learn how channel members interact and how they organize to perform the work of the channel. Know the major channel alternatives that are open to a company.

2 Objectives Comprehend how companies manage (select, motivate, and evaluate) channel members. Understand the nature and importance of marketing logistics and integrated supply chain management.

3 c Caterpillar Dominates world’s markets for heavy construction and mining equipment. Independent dealers are key to success Dealer network is linked via computers Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications

4 What is a Distribution Channel?
Your idea of distribution channels A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the End-User.

5 Why are Marketing Intermediaries Used?
Greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: Contacts Experience Specialization Scale of operation Match supply and demand.

6 How Channel Members Add Value
Figure 13-1: How Channel Members Add Value

7 Nature & Importance of Marketing Channels
How Channel Members Add Value to You Intermediaries Require fewer contacts to move the product to the final purchaser. Help match product assortment demand with supply. Help bridge major time, place, and possession gaps

8 Distribution Channel Functions
This CTR relates to the material on pp Distribution Channel Functions All Use Up Scarce Resources All May Often Be Performed Better Through Specialization All Can Often Be Shifted Among Channel Members Risk Taking Information Financing Promotion Distribution Channel Functions Information. This function involves gathering and distributing marketing research and intelligence about the environment for planning purposes. Discussion Note: The use of scanner technology has dramatically changed this function in the last few years. Promotion. This involves developing and spreading persuasive communications about an offer. Contact. Contact involves finding and communicating with prospective buyers. Matching. This function consists of shaping and fitting the offer to the buyer’s needs by manufacturing, grading, assembling, and packaging. Negotiation. This involves reaching an agreement on price and other terms. Physical Distribution. This function consists of the transporting and storing of goods. Financing. This function addresses the acquiring and using of funds to cover the costs of channel work. Risk Taking. This function assumes the risk of carrying out the channel work. Discussion Note: Students often assume business is risk-free. You might expand upon the link between risk and value-added services as the justification for profits. Contact Physical Distribution Negotiation Matching

9 Distribution Channels
Manufacturer Flow physical information promotion payment ownership Wholesaler Jobber Retailer Consumer

10 Conventional Versus Vertical Marketing System
Figure 13-3: Conventional Versus Vertical Marketing System

11 Types of Vertical Marketing Systems
Corporate Common Ownership at Different Levels of the Channel Types of Vertical Marketing Systems This CTR relates to the discussion on pp Types of Vertical Marketing Systems Greater Contractual Contractual Agreement Among Channel Members Channel Organization As traditional channel organization lacks a specified controlling authority, new approaches have been developed: Vertical Marketing Systems. A vertical marketing system consist of producers, wholesalers, and retailer acting in as a unified system. Three main types of VMS are: Corporate VMS. The corporate combines successive stages of production and distribution under a single ownership. Contractual VMS. The contractual VMS consists of independent firms at different levels of production and distribution to obtain more economies and sales than members could achieve alone. Three types of contractual VMS are wholesaler-sponsored chain, retailer cooperative, franchise organization. Administered VMS. This coordinates distribution by the power exerted by of one of its members in the marketplace, not by contract or ownership. Degree of Direct Control Administered Leadership is Assumed by One or a Few Dominant Members Conventional channel vs. VMS: Conventional channel: efforts to coordinate the actions of channel members are unimportant. VMS: channel members emphasize coordination of behaviors and programs Lesser

12 Vertical Marketing Systems
Systems (VMS) Administered VMS Corporate VMS Contractual VMS Wholesaler Sponsored Voluntary Chain Retailer Cooperatives Franchise Organizations Wholesaler sponserd chain: IGA, Western autoparts, sentry hardware Retailer coop: Ace hardware. Manufacturer sponsered retail franchise: car dealers Manufacturer sponsored wholesaler franchise: Coke bottlers Serve firm sponsored franchise system: car rental agencies. Manufacturer- Sponsored Retailer Franchise System Manufacturer- Sponsored Wholesaler Franchise System Service-Firm- Sponsored Franchise System

13 Recent Changes Downstream Channel + Upstream Channel
 Value Delivery Network The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system.

14 Channel Behavior and Organization
Horizontal Marketing Systems Two or more companies at one level join together to follow a new marketing opportunity. Nestle and General Mills work together to market cereal outside of North America

15 In building its value delivery network, Palm manages a whole community of suppliers, assemblers, resellers and complementors who must work effectively together.

16 Multichannel Distribution System
Figure 13-4: Multichannel Distribution System

17 Channel Behavior and Organization
Multichannel Distribution Systems Also called hybrid marketing channels Occurs when a firm uses two or more marketing channels Hybrid marketing has many advantages

18 Channel Behavior and Organization
Changing Channel Organization Disintermediation has hurt many established companies

19 Channel Behavior and Organization
Disintermediation: Traditional brick and mortar travel agencies face competition from online travel agencies, airlines, and reverse auction web sites such as Priceline. Clicking the WWW icon will open your web browser and link to the web site pictured in the screen shot. See how Sunflower Travel has tried to adapt

20 Channel Design Decisions*
Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Channel Design Decisions This CTR relates to the material on pp Channel Design Decisions* Identifying Major Alternatives Responsibilities of Channel Members Evaluating the Major Alternatives Selecting the Best Alternative Identifying Major Alternatives Number of Channel Members Intensive Distribution. This approach utilizes as many outlets as possible and is especially appropriate for convenience goods and common raw materials. Exclusive Distribution. This approach consists of a very limited number of outlets hold all the rights to distribute a product line. This strategy is appropriate for many high prestige goods. Distributor selling effort is usually very strong. Selective Distribution. This approach uses more than one outlet per market but less than all available outlets. This strategy gains good market coverage and gains better than average selling effort. Teaching Tip: Ask students to name their favorite store for: gifts, computer supplies, sporting goods, hobbies. Many will name selective distribution outlets. Consumer needs in channels: lot size, spatial convenience, waiting or delivery time; assortment or variety

21 Three Evaluative Criteria
Economic Criteria Control Criteria Adaptability Criteria

22 Types of Middleman Company Salesforce
Assign own salespeople to territory Manufacturer's Agency Hire an independent firm with salespeople (Industrial) Distributors find distributors to buy and carry your product

23 Number of Channel Levels
The number of intermediary levels indicates the length of a marketing channel. Direct Channels Indirect Channels Producers lose more control and face greater channel complexity as additional channel levels are added.

24 Consumer Marketing Channels
Figure 13-2a: Consumer Marketing Channels

25 Business Marketing Channels
Figure 13-2b: Business Marketing Channels

26 Intensity of distribution
Intensive Distribution stock products in as many outlets as possible Selective Distribution select a number of dealers from those willing to carry product Exclusive Distribution give limited number of dealers exclusive rights to distribute many few

27 Channel Design Decisions
Step 1: Analyzing Consumer Needs Cost and feasibility of meeting needs must be considered

28 Channel Design Decisions
Step 2: Setting Channel Objectives Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives

29 GEICO’s channel objectives led them to sell direct via telephone and the Web in order to serve those who are looking to save money. Geico

30 Channel Design Decisions
Step 3: Identifying Major Alternatives Types of Intermediaries Company sales force Manufacturer’s agency Industrial distributors

31 Channel Design Decisions
Step 3: Identifying Major Alternatives Number of marketing intermediaries Intensive distribution Selective distribution Exclusive distribution Responsibilities of channel members

32 Channel Design Decisions
Step 4: Evaluating Major Alternatives Economic criteria Sales, costs, profitability Control issues Adaptive criteria

33 Channel Management Decisions
Selecting Channel Management Decisions Channel Management Decisions This CTR relates to the material on pp Motivating Channel Management Decisions Selecting Channel Members. Choosing middlemen will vary in difficulty be product and producer. Very large and well known companies often have more qualified middlemen seeking to carry their products than the company can effectively use. Some new products will be resisted by existing channels and may require adopting new channel members to carry the line. Motivating Channel Members. Channel members must be motivated to perform. Positive motivators come from high margins, special deals, premiums, cooperative advertising allowances, display allowances, and sales contests. Negative motivators may include threatening margins, delaying delivery, or ending the relationship. Long term cooperation is enhanced by distribution programming which involves building a planned, professionally managed, VMS that meets al channel member needs. Evaluating Channel Members. Assessing channel members requires regular measurement of performance against established criteria such as sales quotas, inventory levels, customer delivery time, training, and overall customer service for each channel member. Effective channel management rewards superior performance and seeks to improve substandard performance in a cooperative professional partnership. Channel member replacement should be used as a last resort with sincere efforts to improve performance have not succeeded. FEEDBACK Evaluating

34 Distributor Selection Criteria
Financial Health Sales and Market factors Knowledge of the market Market coverage Number and quality of sales personnel Previous Success (or Enthusiasm for the product)

35 Channel Management Decisions
Evaluating Channel Members Performance should be checked against standards Channel members should be rewarded or replaced as dictated by performance

36 Channel Behavior and Organization
Channel Conflict Occurs when channel members disagree on roles, activities, or rewards. Types of Conflict: Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels

37 Physical Distribution Market Logistics
planning, implementing, and controlling the physical flow of materials and final goods from point of origin to the end user.

38 Marketing Logistics and Supply Chain Management
Outbound distribution Inbound distribution Reverse distribution Involves the entire supply chain management system

39 Supply Chain Management
Figure 13-5: Supply Chain Management

40 Thought for the Day supply chain distribution accounts for 50 cents of every dollar spent promotion accounts for only 2 cents!

41 Goals of the Logistics System
Higher Distribution Costs; Higher Customer Service Levels Goal: To Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales Lower Distribution Costs; Lower Customer Service Levels

42 Logistics Systems Order Processing Costs Logistics Functions
This CTR relates to the material on pp Instructor’s Note: Transportation is covered separately on the following CTR. Logistics Systems Order Processing Submitted Processed Shipped Costs Minimize Costs of Attaining Logistics Objectives Nature of Logistics Systems Costs. Distribution costs stem from factors other than just size. How products are transported, stored, sorted, inventoried, ordered, and tracked can all affect distribution costs over and above the sheer volume being distributed. Modern facilities utilizing technology to help innovate what it means to physically distribute goods both save on costs and become a viable promotional tool in providing customer service. Order Processing. Processing orders is an area of distribution that benefits from the application of computer technology. Innovative applications of hardware and software can streamline order processing by connecting the salesperson with dispatchers and warehouses. Warehousing. Storage of products to best meet demand requires decisions on stocking locations, estimation of time to be stored and distinguishing between storage warehouse needs and distribution centers utilizing automation to move goods quickly. Inventory. The cost of holding inventory requires developing accurate knowledge on when to order and how much to order to meet demand but not overburden inventory processing capacity. Logistics Functions Warehousing Storage Distribution Transportation Water, Truck, Rail, Pipeline & Air Inventory When to order How much to order Just-in-time

43 Transportation Modes Rail Truck Water Pipeline Air
This CTR relates to the material on pp Transportation Modes Rail Nation’s largest carrier, cost-effective for shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Transportation Rail. Rail is the largest carrier mode with 37% of the total cargo shipped. Rail is especially cost effective for large amounts of bulk products shipped over long distances. Truck. Trucks account for some 25% of the total cargo shipped. Trucks are the largest movers of within city shipping. Truck are highly flexible in routing and scheduling. Trucks are an efficient short-haul mode. Water. Water is very inexpensive for shipping high bulk nonperishable goods but is also the slowest transportation mode. Pipeline. Pipelines are specialized modes for such goods as oil and natural gas. Pipelines are usually owned by companies that also own the raw materials being piped. Air. Air is the most expensive mode of transportation but also the quickest. Extremely perishable goods, high-value, low-bulk, and time-sensitive goods often require air transport. Containerization Containerization consists of putting goods in boxes or trailers that are designed for easy transfer between two transportation modes. Key forms include: Piggyback describes the use of rail and trucks. Fishyback refers to the use of water and trucks. Tranship involves water and rail. Airtruck combines air and trucks. Water Low cost for shipping bulky, low-value goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or to ship high-value, low-bulk items

44 Choosing Transportation Modes
This CTR corresponds to Table 13-2 on p. 416 and relates to the discussion on p. 416. Checklist for Choosing Transportation Modes 1. Speed. Choosing Transportation Modes Deregulation in the 1970s of the transportation industry has made each mode more flexible, competitive, and responsive to customer needs. In choosing transportation mode, shippers consider up to five criteria: Speed. Speed is measured in door-to-door delivery time. Dependability. Dependability involves meeting schedules on time. Capability. Capability refers to the ability to handle various products. Availability. Availability refers to the number of geographic points served. Cost. Costs are usually figured in per ton-mile. 2. Dependability. 3. Capability. 4. Availability. 5. Cost.

45 BusinessNow Celarix Video Clip
Arranging transportation for goods can be challenging Click the picture above to play video

46 Integrated Logistics Management
Cross-Functional Teamwork inside the Company Integrated Logistics Management Building Channel Partnerships Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations. Third-Party Logistics

47 Many companies use sophisticated, system-wide supply chain management software, such as that which is available from Oracle and other software providers.


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