principles of marketing - marketing channels & supply chain management

Copyright © 2009 Pearson Education South Asia Pte Ltd 12-1

Marketing Channels and Supply Chain

Management

A Global A Global PerspectivePerspective

1212

Philip KotlerPhilip KotlerGary ArmstrongGary ArmstrongSwee Hoon AngSwee Hoon Ang

Siew Meng LeongSiew Meng LeongChin Tiong TanChin Tiong Tan

Oliver Yau Hon-Oliver Yau Hon-MingMing

PowerPoint slides adapted by Peggy Su

12-2 Copyright © 2009 Pearson Education South Asia Pte Ltd

Learning ObjectivesAfter studying this chapter, you should be able to:

1. Explain how companies use marketing 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 and importance of marketing logistics and integrated supply chain management


Chapter Outline1. Supply Chains and the Value Delivery Network

2. The Nature and Importance of Marketing Channels

3. Channel Behavior and Organization

4. Channel Design Decisions

5. Channel Management Decisions

6. Public Policy and Distribution Decisions

7. Marketing Logistics and Supply Chain Management


Supply Chains and the Value Delivery Network

Supply Chain Partners

• Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service.

• Downstream partners include the marketing channels or distribution channels that look toward the customer.



Supply Chain Views

• Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity.

• Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer and the firm responds to these needs by organizing a chain of resources and activities with the goal of creating customer value.



Value Delivery Network

• The value delivery network is the firm’s suppliers, distributors, and ultimately, customers who partner with each other to improve the performance of the entire system.


Marketing Channel Questions

• What is the nature of marketing channels and why are they important?

• How do channel firms interact and organize to do the work of the channel?

• What role do physical distribution and supply chain management play in attracting customers?



The Nature and Importance of Marketing Channels

Marketing Channel Defined

• A marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the consumer or business users.



How Channel Members Add Value

• Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.




• Producers use intermediaries because they create greater efficiency in making goods available to target markets.




• Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations.

• From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers.




• Promotion refers to the development and spreading persuasive communications about an offer.

• Contacts refers to finding and communicating with prospective buyers.




• Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.

• Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.




• Physical distribution refers to transporting and storing goods.

• Financing refers to acquiring and using funds to cover the costs of carrying out the channel work.

• Risk taking refers to assuming the risks of carrying out the channel work.



Number of Channel Members

• Channel level refers to each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

• Direct marketing channel has no intermediary levels; the company sells directly to consumers.

• Indirect marketing channels contain one or more intermediaries.



Number of Channel Members

• Connected by types of flows:

• Physical flow of products

• Flow of ownership

• Payment flow

• Information flow

• Promotion flow


Channel Behavior and OrganizationChannel Behavior

• A marketing channel consists of firms that have partnered for their common food with each member playing a specialized role.


Channel Behavior

• Channel conflict refers to disagreement over goals, roles, and rewards by channel members.

• Horizontal conflict

• Vertical conflict

Channel Behavior and Organization


Channel Behavior and OrganizationChannel Behavior

• Horizontal conflict is conflict among members at the same channel level.

• Vertical conflict is conflict between different levels of the same channel.


Channel Behavior and OrganizationConventional Distribution Systems

• Consist of one or more independent producers, wholesalers, and retailers.

• Each seeks to maximize its own profits and there is little control over the other members.

• No formal means for assigning roles and resolving conflict.


Vertical Marketing Systems

• Vertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of:

• Corporate marketing systems

• Contractual marketing systems

• Administered marketing systems



Channel Behavior and OrganizationVertical Marketing Systems

• Corporate vertical marketing system integrates successive stages of production and distribution under single ownership.


Vertical Marketing Systems

• Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone.

• Most common form is the franchise organization




• Franchise organizations link several stages in the production distribution process.

• Manufacturer-sponsored retailer franchise system

• Manufacturer-sponsored wholesaler franchise system

• Service firm-sponsored retailer franchise system



• Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power.


Channel Behavior and OrganizationHorizontal Marketing Systems

• Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity.

• Companies combine financial, production, or marketing resources to accomplish more than any one company could alone.


Channel Behavior and OrganizationMultichannel Distribution Systems

• Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments.

Customer

Firm

Customer



A multichannel distribution system


Hybrid Marketing Channels

• Advantages

• Increased sales and market coverage

• New opportunities to tailor products and services to specific needs of diverse customer segments

• Challenges

• Hard to control

• Create channel conflict



Channel Behavior and OrganizationChanging Channel Organization

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


Analyzing Consumer Needs

• Designing a channel system requires:

• Analyzing consumer needs

• Setting channel objectives

• Identifying major channel alternatives

• Evaluation

Channel Design Decisions


Channel Design DecisionsAnalyzing Consumer Needs

• Designing a marketing channel starts with finding out what target consumers want from the channel.


Channel Design DecisionsSetting Channel Objectives

• In terms of:

• Targeted levels of customer service

• What segments to serve

• Best channels to sue

• Minimizing the cost of meeting customer service requirements


Channel Design DecisionsSetting Channel Objectives

• Objectives are influenced by

• Nature of the company

• Marketing intermediaries

• Competitors

• Environment


Channel Design DecisionsIdentifying Major Alternatives

• In terms of

• Types of intermediaries

• Number of intermediaries

• Responsibilities of each channel member



• Types of intermediaries refers to channel members available to carry out channel work. Examples include

• Company sales force

• Manufacturer’s agency

• Industrial distributors



• Company sales force strategies

• Expand direct sales force

• Assign outside salespeople to territories

• Develop a separate sales force

• Telesales



• Manufacturer’s agencies are independent firms whose sales forces handle related products from many companies in different regions or industries.



• Industrial distributors

• Find distributors in different regions or industries

• Exclusive distribution

• Margin opportunities

• Training

• Support



• Number of marketing intermediaries to use at each level

• Strategies

• Intensive distribution

• Exclusive distribution

• Selective distribution



• Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.



=

Identifying Major Alternatives

• Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g.

• Luxury automobiles

• High-end apparel



=

Identifying Major Alternatives

• Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products.

• Televisions

• Electrical appliances


Channel Design DecisionsResponsibilities of Channel Members

• Producers and intermediaries need to agree on

• Price policies

• Conditions of sale

• Territorial rights

• Services provided by each party


Channel Design DecisionsEvaluating the Major Alternatives

• Each alternative should be evaluated against

• Economic criteria

• Control

• Adaptive criteria


Channel Design DecisionsEvaluating the Major Alternatives

• Economic criteria compares the likely sales costs and profitability of different channel members.

• Control refers to channel members’ control over the marketing of the product.

• Adaptive criteria refers to the ability to remain flexible to adapt to environmental changes.


Channel Design DecisionsDesigning International Distribution

Channels

• Channel systems can vary from country to country.

• Must be able to adapt channel strategies to the existing structures within each country.


• Channel management involves

• Selecting channel members

• Managing channel members

• Motivating channel members

• Evaluating channel members

Channel Management Decisions


Selecting Channel Members

• Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members

• Years in business

• Lines carried

• Profit record

Channel Management Decisions


Channel Management DecisionsSelecting Channel Members

• Selecting intermediaries that are sales agents involves evaluating

• Number and character of other lines carried

• Size and quality of sales force


Channel Management DecisionsSelecting Channel Members

• Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating

• Store’s customers

• Store locations

• Growth potential


Channel Management DecisionsManaging and Motivating Channel Members

• Partner relationship management (PRM) and supply chain management (SCM) software are used to

• Forge long-term partnerships with channel members

• Recruit, train, organize, manage, motivate, and evaluate channel members


Public Policy and Distribution Decisions

• Exclusive distribution is when the seller allows only certain outlets to carry its products.

• Exclusive dealing is when the seller requires that sellers do not handle competitors’ products.



• Benefits of exclusive distribution include

• Seller obtains more loyal and dependable dealers

• Dealers obtain a steady and stronger seller support



• Exclusive territorial agreement refers to an agreement where the producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory.

• Tying agreements are agreements where there is a strong brand that producers sometimes sell to dealers only if the dealers will take some or all of the rest of the line.

• Not necessarily illegal as long as they do not substantially lessen competition.


Marketing Logistics and Supply Chain Management

• Nature and importance of logistics management in the supply chain

• Goals of the logistics system

• Major logistics functions

• Need for integrated supply chain management



Nature and Importance of Marketing Logistics

• Marketing logistics (physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit.




• Marketing logistics involves

• Outbound distribution: Moving products from the factory to resellers and consumers

• Inbound distribution: Moving products and materials from suppliers to the factory

• Reverse distribution: Moving broken, unwanted, or excess products returned by consumers or resellers




• Supply chain management is the process of managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers and final consumers.



Supply chain management




• Importance of logistics

• Competitive advantage by giving customers better service at lower prices

• Cost savings to the company and its customers

• Product variety requires improved logistics

• Information technology has created opportunities for distribution efficiency



Goals of the Logistics System

• To provide a targeted level of customer service at the least cost with the objective to maximize profit, not sales.



Major Logistics Functions

• Warehousing

• Inventory management

• Transportation

• Logistics information management




• Warehousing is the storage function that overcomes difference in need quantities and timing, ensuring that the products are available when customers are ready to buy them.

• Storage warehouses

• Distribution centers




• Storage warehouses are designed to store goods, not move them.

• Distribution centers are designed to move goods, not store them.




• Inventory management balances carrying too little and too much inventory.

• Just-in-time logistics systems

• RFID



• Just-in-time logistics systems allow producers and retailers to carry small amounts of inventories of parts of merchandise.

• RFID (radio frequency identification devices) are small transmitter chips embedded in or placed on products or packages to provide greater inventory control.



Major Logistics Functions• Transportation affects the pricing of products,

delivery performance, and condition of the goods when they arrive.• Truck

• Rail

• Water

• Pipeline

• Air

• Internet




• Intermodal transportation combines two or more modes of transportation.

• Piggyback uses rail and truck.

• Fishyback uses water and truck.

• Airtruck uses air and truck.



Logistics Information Management

• Logistics information management is the management of the flow of information, including customer orders, billing, inventory levels, and customer data.

• EDI (electronic data interchange)

• VMI (vendor-managed inventory)



Integrated Logistics Management

• Integrated logistics management is the recognition that providing customer service and trimming distribution costs require teamwork internally and externally.

• Cross-functional teamwork inside the company

• Building partner relationships




• Cross-functional teamwork inside the company refers to the inter-relationship of different departments within the company to achieve the goals of integrated supply chain management.

• Building partner relationships refers to the understanding that one company’s distribution is another company’s supply system.




• Third-party logistics is the outsourcing of logistics functions to third-party logistics providers (3PLs)

• Provide logistics functions more efficiently

• Provide logistics functions at lower cost

• Allow the company to focus on its core business

• Are more knowledgeable of complex logistics

principles of marketing - marketing channels & supply chain management

Documents