Chapter 8Marketing channels and

logistics decisions

Lesson objectives

1 Explain what a marketing channel is and why intermediaries are needed

2 Define the types of channel intermediaries and describe their functions and activities

3 Describe the channel structures for consume and business-to-business products and discuss alternative channel arrangements

Lesson objectives (cont.)

4 Discuss the issues that influence channel strategy

5 Explain channel leadership,conflict and partnering

6 Discuss logistics and supply chain management and their evolution into distribution practice

7 Discuss the concept of balancing logistics service and cost

Lesson objectives (cont.)

8 Describe the integrated functions of the supply chain

9 Discuss new technology and emerging trends in logistics

10 Identify the special problems and opportunities associated with distribution in service organisations

11 Discuss channel structure and logistics issues in global markets

Learning objective 1

Define the term marketingExplain what a marketing

channel is and why

intermediaries are needed

Marketing channels

Marketingchannel

Supplychain

A set of interdependent organisations that ease the transfer of ownership as

products move from producer to business user or consumer.

The connected chain of all the business entities, both internal and external to the company, that perform or support

the logistics function.

1

Marketing channel functions1

Channels fulfill three important functions:

• specialisation and division of labour

• overcoming discrepancies• providing contact efficiency.

Specialisation and division of labour

1

• Provides economies of scale

• Aids producers who lack resources to market directly

• Builds good relationships with customers

Overcoming discrepancies

Discrepancyof

quantity

Discrepancyof

assortment

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.

1

Overcoming discrepancies

Temporaldiscrepancy

Spatialdiscrepancy

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.

1

Contact efficiencyLG Sony Sharp Toshiba

LG Sony Sharp Toshiba

Harvey Norman

1

Learning objective 2

Describe four marketing management philosophies.

Define the types of channel

intermediaries and describe

their functions and activities

Channel intermediaries

Retailer

Merchantwholesaler

Agents andbrokers

A channel intermediary that sells mainly to customers.

An institution that buys goods from manufacturers, takes title

to goods, stores them and resells and ships them.

Wholesaling intermediaries who facilitate the sale of a product by representing a channel member.

2

Channel intermediaries (cont.)

2

RetailersTake title to goods

Merchant wholesalersTake title to goods

Agents and brokersDo not take title to goods

Channel functions performed by intermediaries

2

Facilitatingfunction

Transactionalfunctions

Logistical functions

Contacting/promotion

Negotiating

Risk-taking

Researching

Financing

Physically distributing

Storing

Sorting

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.

2

Learning objective 3

Describe four marketing management philosophies.

Describe the channel

structures for consumer

and business-to-business

products and discuss

alternative channel

arrangements

Direct channel

A distribution channel in

which producers sell

directly to consumers.

3

Channels for consumer products

Producer Producer Producer Producer

Consumers Consumers Consumers

Retailers Retailers

Wholesalers

Agents orbrokers

Wholesalerchannel

Retailerchannel

Directchannel

Agent/brokerchannel

3

Consumers

Retailers

Wholesalers

Channels for business-to-business products

Producer Producer Producer Producer

Industrialuser

Industrialuser

Industrialuser

Industrialuser

Industrialdistributor

Industrialdistributor

Agents orbrokers

Agents orbrokers

Agent/brokerchannel

Industrialdistributor

Directchannel

Producer

Governmentbuyer

Directchannel

Agent/brokerindustrialchannel

3

Alternative channel arrangements

3

• Multiple channels

• Non-traditional channels

• Adaptive channels

• Strategic channel alliances

Learning objective 4

Discuss the issues

that influence

channel strategy

Supply chain management

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.

4

Supply chain management (cont.)

4

Results of supply chain management:

• focus on innovative solutions

• competitive with focus on customer satisfaction

• sychronised flow

• customer value.

• Communicator of customer demand from point of sale to supplier

• Physical flow process that engineers the movement of goods

Role of supply chain management

4

Supply chain management activities

• Determine channel strategy and level of distribution intensity

• Manage relationships in the supply chain

• Manage the logistical components of the supply chain

• Balance the costs of the supply chain with the service level demanded by customer

4

Benefits of supply chain management

4

• Reduced costs

• Improved service

• Enhanced revenues

Learning objective 5

Explain channel leadership, conflict and partnering

Channel strategy decisions

Issues that influencechannel strategy

Producer factors

Product factors

Market factors

Factors affectin

g channel choice

Exclusive distribution

Selective distribution

Intensive distribution

Levels ofdistribution

intensity

5

Market factors5

• Customer profiles

• Consumer or industrial customer

• Size of market

• Geographic location

Product factors5

• Product complexity

• Product price

• Product life cycle

• Product delicacy

Producer factors5

• Producer resources

• Number of product lines

• Desire for channel control

Levels of distribution intensity

Intensity level Number of intermediaries

Intensive

Selective

Exclusive

Many

Several

One

5

Objective

Achieve mass-market selling. Convenience

goods.

Work with selected intermediaries.

Shopping and some specialty goods.

Work with single intermediary.

Specialty goods and industrial equipment.

Managing channel relationships5

Social dimensions of channels

• Channel power

• Channel control

• Channel leadership

• Channel conflict

• Channel partnering

Channel power, control and leadership

Channelpower

Channelcontrol

Channel leader

A channel member’s capacity to control or influence the behaviour of other channel members

A situation that occurs when one marketing channel member intentionally affects another member’s behaviour.

A member of a marketing channel that exercises authority/power over the activities of other members.

5

Channel conflict

A clash of goals and methods between A clash of goals and methods between

distribution channel members.distribution channel members.

Horizontalconflict

Occurs among channel members on the same level.

Verticalconflict

Occurs among channel members at different levels.

5

Channel partnering

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage.

5

Learning objective 6

Discuss logistics and supply chain management and their evolution into distribution practice

Supply chain management

Management system that coordinates all of the activities performed by supply chain members from source to the point of consumption that results in enhanced customer and economic value.

6

Supply chain activities6

• Managing the movement of information and customer requirements up and down the supply chain.

• Managing the movement and storage of raw materials and parts from their sources to the production site.

• Managing the movement of raw materials, semi-manufactured products and finished products within and among plants, warehouses and distribution centres.

Supply chain activities (cont.)

6

• Planning production in response to consumer demand.

• Planning and coordinating the physical distribution of finished goods to intermediaries and final buyers.

• Cultivating and coordinating strategic partnerships with supply chain members.

Learning objective 7

Discuss the concept of

balancing logistics

service and costs

Customers want …7

• availability

• timeliness

• quality

• undamaged goods

• minimal order effort

• consistent delivery

… balanced with costs

Describe the

integrated functions

of the supply chain

Learning objective 8

Integrated logistical components of the supply chain

Sourcing & procurement

Production scheduling

Order processing & customer service

Inventory control

Warehouse & materials handling

TransportationLog

isti

cs in

form

ati

on

syst

em

8

Supplychainteam

Sourcing and procurement8

Role of purchasing departments

• Plan purchasing strategies

• Develop specifications

• Select suppliers

• Negotiate price

• Negotiate service levels

Just-in-time (JIT) manufacturing

A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.

8

Benefits of JIT

• Reduces raw material inventories

• Shortens lead times

• Creates better supplier relationships

• Reduces production and storeroom costs

• Reduces paperwork

8

Electronic data interchange

Information technology that replaces paper documents that accompany business transactions.

8

Stock control system

A method of developing and maintaining an adequate assortment of materials or products to meet customer’s demand.

8

Materials requirement planning

Stock control system that

manages the replenishment of

raw materials, supplies and

components from the supplier to

the manufacturer.

Distribution resource planning

Stock control system that

manages the replenishment of

goods from the manufacturer

to the final consumer.

Warehouse and materials-handling

8

Functions of materials handling

• Receive goods into warehouse

• Identify, sort and label goods

• Dispatch the goods to temporary storage

• Recall, select or pick the goods for shipment

Transportation8

Criteria for transportation mode choice

• Cost• Transit time• Reliability• Capability• Accessibility• Traceability

Criteria for rankingmodes of transportation

Relative cost

Transit time

Reliability

Capability

Accessibility

Traceability

Highest Lowest

Air WaterPipeRailTruck

Water Rail Pipe Truck Air

Pipe Truck Rail Air Water

Water

Truck

Rail Truck Air Pipe

Rail Air Water Pipe

Air Truck Rail Water Pipe

8

Discuss new technology

and emerging trends in

logistics

Learning objective 9

Trends in supply chain management

9

• Advanced computer technology

• Outsourcing of logistics functions

• Electronic distribution

Identify the special problems and opportunities associated with distribution in service organisations

Learning objective 10

Channels and distributiondecisions for services

10

Areas of focus for service distribution

• Minimising wait times

• Managing service capacity

• Improving delivery through new channels

Discuss channel structure and logistics issues in global markets

Learning objective 11

Channels and distribution decisions for global markets

Global channel development

11

Global supplychain management

Channel structure differs

Channel types differ

‘‘Grey’ marketing channels

Awareness of trade legalities

Transportation infrastructure