Chapter 10 Marketing Channels and Supply Chain Management

Chapter 10

Marketing Channels and Supply Chain Management

Copyright 2007, Prentice Hall, Inc. 10-2

Roadmap: Previewing the Concepts

1. Explain why companies use distribution channels and discuss the functions these channels perform.

2. Discuss how channel members interact and how they organize to perform the work of the channel.

3. Identify the major channel alternatives open to a company.

4. Explain how companies select, motivate, and evaluate channel members.

5. Discuss the nature & importance of marketing logistics and supply chain management.


Background Caterpillar dominates the

world’s markets for heavy construction and mining equipment.

Independent dealers are key to success, providing customer service, market intelligence, and more.

Distribution system is a competitive advantage.

Caterpillar – The Vital Role of Caterpillar – The Vital Role of DealersDealers

Case StudyCase Study

Building Partnerships Distribution system is built

on a base of mutual trust and shared dreams.

Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance, and full, honest, and frequent communications.


Supply Chains

Producing and making products available to buyers requires building relationships with “upstream” and “downstream” partners.– Upstream: firms that supply the raw

materials, components, parts, and other elements necessary to create a good.

– Downstream: marketing channel partners that link the firm to the customer.


Marketing Channel or Distribution Channel

A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.– Wholesalers– Distributors– Dealerships– Retailers


How Channel Members Add Value

The use of intermediaries results from their greater efficiency in making goods available to target markets.

Offers the firm more than it can achieve on its own through the intermediaries:– Contacts– Experience– Specialization– Scale of operation


Key Channel Functions

Transaction Fulfilling:– Physical

distribution– Financing– Risk taking

Transaction Completing:– Information– Promotion– Contact– Matching– Negotiation


Number of Channel Levels

Number of intermediary levels indicates the length of a channel.– Direct marketing channels

• Have no intermediary levels between the manufacturer and the customer.

– Indirect marketing channels• Contains one or more intermediaries.

All channel institutions are connected by several types of flows.


Channel Behavior

The channel will be most effective when:– Each member is assigned tasks it can do best.– All members cooperate to attain overall channel

goals.

If this does not happen, conflict occurs:– Horizontal Conflict occurs among firms at the

same level of the channel (e.g., retailer to retailer).– Vertical Conflict occurs between different levels

of the same channel (e.g., wholesaler to retailer).

Some conflict can be healthy competition.


Vertical Marketing System

A distribution channel structure in which producers, wholesalers, and retailers act as a unified system.

One channel member owns the other, has contracts with them, or has so much power that they all cooperate.


Types of Vertical Marketing Systems

Corporate VMS Contractual VMS Franchise organization Administered VMS


Franchise Organizations

Manufacturer-Sponsored Retailer Franchise– Ford and its independent franchised dealers

Manufacturer-Sponsored Wholesaler Franchise– Coca-Cola’s licensed bottlers

Service-Firm Sponsored Retailer Franchise– McDonald’s, Avis, and Holiday Inn


Innovations in Marketing Systems

Horizontal Marketing System– Two or more companies at one level join

together to follow a new marketing opportunity.

Multichannel Distribution System– Occurs when a single firm sets up two or

more marketing channels to reach one or more customer segments.

– Also called hybrid marketing system.


Changing Channel Organization

Disintermediation: – Occurs when product and service

producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.


Channel Design Decisions

Analyzing Consumer Needs Setting Channel Objectives Identifying Major Alternatives Evaluating the Major Alternatives


Analyzing Consumer Needs

Answering key questions helps to determine customer needs:– Do consumers want to buy from nearby

locations or are they willing to travel?– Do they value breadth of assortment or do

they prefer specialization?– Do consumers want many add-on services?

Firm must balance needs against costs and consumer price preferences.


Setting Channel Objectives

State objectives in terms of targeted levels of customer service.

Channel objectives are influenced by:– Cost– Nature of the company– The firm’s products– Marketing intermediaries– Competitors– Environment


Identifying Major Alternatives

Types of Intermediaries– Company sales force– Manufacturer’s agency– Industrial distributors

Number of intermediaries– Intensive distribution– Exclusive distribution– Selective distribution

Responsibilities of intermediaries


Evaluating the Major Alternatives

Economic Criteria:– A company compares the likely sales,

costs, and profitability of different channel alternatives.

Control Issues:– How and to whom should control be

given? Adaptive Criteria:

– Consider long-term commitment vs. flexibility.


Channel Management Decisions

Selecting channel members Managing and motivating channel

members– Partner relationship management

Evaluating channel members


Public Policy and Distribution Decisions

Exclusive distribution Exclusive dealing Exclusive territorial agreements Tying agreements


Marketing Logistics

Planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Includes:– Outbound distribution– Inbound distribution– Reverse distribution


Goals of the Logistics System & Major Logistics Functions

Goals of the Logistics System:– Deliver a targeted level of customer

service at the least cost.

Major Logistics Functions:– Warehousing– Inventory management – Transportation– Logistics information management


Warehousing

How many, what types, and where? Storage warehouses Distribution centers Automated warehouses


Inventory Management

Must balance between too much and too little inventory.

Just-in-time logistics systems RFID or Smart Tag technology


Transportation

Trucks Railroads Water carriers Pipelines Air Internet Intermodal transportation

– Piggyback, fishyback, trainship


Integrated Logistics Management

The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.

Involves:– Cross-functional teamwork inside the company– Building logistics partnerships– Third-party logistics


Rest Stop: Reviewing the Concepts

1. Explain why companies use distribution channels and discuss the functions these channels perform.

2. Discuss how channel members interact and how they organize to perform the work of the channel.

3. Identify the major channel alternatives open to a company.

4. Explain how companies select, motivate, and evaluate channel members.

5. Discuss the nature & importance of marketing logistics and supply chain management.

Chapter 10 Marketing Channels and Supply Chain Management

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