1. M A R K E T I N G
Real People, Real Choices
Fourth Edition
CHAPTER 15 Creating Value Through Supply Chain Management: Channels of Distribution, Logistics, and Wholesaling

2. Place: The Final Frontier
Parity in product, promotion and price
Place offers opportunity for differentiation
E.g. Netflix, Walmart, I-tunes
Managing distribution can spell enormous cost savings and profits

3. Supply Chain Management
The supply chain – firms involved in all activities from raw material procurement to delivering the final product to the consumer
Supply chain management – management of flows among the firms in a supply chain to maximize total profitability
E.g. Hewlett Packard (Identify the flows)

4. What Is a Distribution Channel?
Series of firms or individuals that facilitate the movement of a product from the producer to the final customer
Direct
Indirect
Channel Intermediaries

5. Functions of Distribution Channels
Time, place, and ownership utilities
Logistics functions
Transportation and storage
Efficiency creation
Breaking bulk
Creating assortments
Facilitating functions
Repairs and replacements
Credit and financing
Risk taking
Information flow & research

6. Creating Efficiencies
Breaking bulk – channel members purchase large quantities from manufacturers and sell smaller quantities to many different customers
Creating assortments – channel members provide a variety of products in one location

7. The Internet
Small firms selling products distributable over the Internet (e.g. software, music, books, magazines, newspapers, etc.)
Small firms completing the sale over the Internet but outsourcing logistics and transportation functions
Disintermediation - process by which traditional intermediaries are eliminated

8. Types of Wholesaling Intermediaries
Wholesaling intermediaries – firms that handle the flow of products from the manufacturer to retailer or business user
Independent
Merchant wholesalers (assume title and full risks, earn profits)
Agents and brokers (merely bring buyers and sellers together; earn commissions)
Manufacturer owned
Sales branches, offices and showrooms

9. Independent Intermediaries
Merchant wholesalers
Full-service
Limited-service
Cash-and-carry wholesalers
Truck jobbers
Drop shippers
Mail-order wholesalers
Rack jobbers
Merchandise Agents or Brokers
Manufacturers’ agents
Selling agents
Commission merchants
Merchandise brokers

10. Types of Distribution Channels
Consumer channels
Direct (e.g. farmers market, Internet)
Manufacturer-retailer-consumer (e.g. HP’s computers through Best Buy)
Manufacturer-wholesaler-retailer-consumer (e.g. Breyers ice cream)
Business-to-business channels
Direct (most high value industrial products)
Manufacturer-industrial distributor-business customer (smaller industrial products, e.g. valves, etc.)

11. Dual Distribution Systems
Multiple channel usage
Example:
pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers
Hybrid marketing systems
Using several channels at the same time

12. Deciding on a channel strategy
Profit potential
Control over distribution, promotion and pricing
Resources availability

13. Marketing Systems
Conventional – multi-level distribution channel in which members work independently of one another
Vertical – channel in which there is cooperation among channel members at two or more different levels of the channel
Horizontal – two or more firms at the same channel level agree to work together (e.g. Smaller stores in Walmart; banks inside grocery stores)

14. Vertical Marketing Systems
Administered – channel members remain independent but voluntarily work together
Corporate – single firm owns manufacturing, wholesaling, and retailing operations (e.g. Sears)
Contractual – cooperation is enforced by contracts that spell out member rights and the terms of cooperation (e.g. IGA food stores ; Ace Hardware)

15. Contractual VMS
Wholesaler-sponsored – wholesalers get retailers to work together under their leadership in a voluntary chain (e.g. IGA)
Retailer-cooperative – group of retailers with a wholesaling operation to help them compete more effectively with large chains (e.g. True Value Hardware)
Franchise organizations – cooperation is explicitly defined and strictly enforced by franchiser (e.g. McDonalds)

16. Distribution Intensity
Intensive distribution
Maximize coverage by using all available outlets (e.g. gum, sodas, milk, bread, etc.)
Exclusive distribution
Limited outlets in a region
Generally for high priced products (e.g. cars, jewelry, pianos, etc.)
Selective distribution
In between (e.g. house hold appliances, electronic equipment, etc.)

17. Managing the Channel
Selecting channel partners
Managing the channel of distribution
Channel leader is the dominant firm that controls the channel (channel captain)
Channel leaders have some form of power relative to other members

18. Logistics and Customer Satisfaction
Traditionally, logistics was thought of as physical distribution
order processing, warehousing, materials handling, transportation, and inventory control
objective to deliver product at lowest cost
Now, deliver products at the lowest cost provided, expected service quality is maintained

19. Logistics Functions
Order processing
Warehousing
Materials handling
Transportation
Inventory Control

20. Transportation Mode Considerations
Dependability
Cost
Speed of Delivery
Accessibility
Capability
Traceability

21. Modes of Transportation
Rail
Water
Truck
Air
Pipeline
Internet