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.