Marketing chapter 3 good customers

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Marketing Channels and Supply Chain

Management

12 Principles of Marketing

Learning Objectives

After 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

organise 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

Chapter Outline

1 Supply Chains and the Value Delivery Network

2 The Nature and Importance of Marketing Channels

3 Channel Behaviour and Organisation

4 Channel Design Decisions

5 Channel Management Decisions

6 Public Policy and Distribution Decisions

7 Marketing Logistics and Supply Chain Management

1 Supply Chain and the Value Delivery

Network

Supply Chains and the Value Delivery Network

+ 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

Company

Supply Chains and the Value Delivery Network

+ Supply chain “make and sell” view includes the firm’s

raw materials, productive inputs, and factory capacity It suggests that these components should serve as the

starting point for market planning.

+ 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

organising a chain of resources and activities with the

Supply Chains and the 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

Company

Supply Chains and the Value Delivery Network

Marketing Channel Questions

• What is the nature of marketing channels and

why are they important?

• How do channel firms interact and organise to

do the work of the channel?

• What role do physical distribution and supply

chain management play in attracting customers?

2 The Nature and Importance of Marketing

Channels

The Nature and Importance of

Marketing Channels

+ Marketing channel (distribution channel) is a

set of independent organisations that help make a product or service available for use or

consumption by the consumer or business users

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,

specialisation, and scale of operations

The Nature and Importance of

Marketing Channels

How Channel Members Add Value

+ Information refers to the gathering and distributing

research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange

+ Promotion refers to the development and

spreading persuasive communications about an offer

+ Contacts refers to finding and communicating with

The Nature and Importance of

Marketing Channels

How Channel Members Add Value

+ 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

The Nature and Importance of

Marketing Channels

How Channel Members Add Value

+ Physical distribution refers to transporting and

storing goods

+ Financing refers to acquiring and using funds to

cover the costs or carrying out the channel work

+ Risk taking refers to assuming the risks of carrying

out the channel work

The Nature and Importance of

Marketing Channels

Number of Channel Members

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 channel contains one or more

intermediaries

The Nature and Importance of

Marketing Channels

Number of Channel Members

Connected by types of flows:

• Physical flow of products

3 Channel Behaviour and Organisation

Channel Behaviour and Organisation

+ Marketing channel consists of firms that have

partnered for their common good with each member playing a specialised role

+ Channel conflict refers to disagreement over

goals, roles, and rewards by channel members

• Horizontal conflict

• Vertical conflict

Channel Behaviour and Organisation

+ Conventional distribution systems consist of

one or more independent producers, wholesalers, and retailers Each seeks to maximise its own

profits and there is little control over the other members and no formal means for assigning roles and resolving conflict

Channel Behaviour and Organisation

Wholesaler

Channel Behaviour and Organisation

+ 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

Wholesaler

Producer

Retailer

Consumer

Channel Behaviour and Organisation

+ Corporate vertical marketing system integrates

successive stages of production and distribution

under single ownership

+ 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

Channel Behaviour and Organisation

The most common form is

the franchise organisation

+ Franchise organisation links several stages in

the production distribution process

• Manufacturer-sponsored retailer franchise system

• Manufacturer-sponsored wholesaler franchise

system

• Service firm-sponsored retailer franchise system

Channel Behaviour and Organisation

+ Administered vertical marketing system has a

few dominant channel members without common ownership Leadership comes from size and power

Channel Behaviour and Organisation

+ 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 Behaviour and Organisation

+ Multichannel distribution system (Hybrid

marketing channels) exist when a single firm sets

up two or more marketing channels to reach one

or more customer segments

Channel Behaviour and Organisation

Multichannel Distribution Systems

• 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 Behaviour and Organisation

Changing Channel Organisation

+ 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

Channel Behaviour and Organisation

4 Channel Design Decisions

Channel Design Decisions

+ Designing a channel system requires:

Setting channel objectives

Analysing consumer needs

Identifying major channel alternatives

Evaluation

Channel Design Decisions

+ Designing a marketing channel starts with finding out what target customers want from the channel

Analysing

consumer

needs

• Targeted levels of customer service

requirements

Channel Design Decisions

Setting channel

objectives

+ Objectives are influenced by:

objectives

Channel Design Decisions

Identifying Major Alternatives

alternatives

Channel Design Decisions

+ Types of intermediaries refers to channel

members available to carry out channel work

alternatives

+ Number of marketing intermediaries to use at

alternatives

Channel Design Decisions

+ Responsibilities of Channel Members, producers

and intermediaries need to agree on:

alternatives

Channel Design Decisions

+ Each alternative should be evaluated against:

and profitability of different channel members

the marketing of the product

flexible to adapt to environmental changes

Evaluation

+ Designing 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 Design Decisions

5 Channel Management Decisions

Channel Management Decisions

+ Channel management involves:

Managing channel members

Selecting channel members

Motivating channel members

Evaluating channel members

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

+ Selecting intermediaries that are sales agents involves evaluating:

• Number and character of other lines carried

• Size and quality of sales force

Selecting

channel

+ Selecting intermediaries that are retail stores that want exclusive or selective distribution involves

Channel Management Decisions

Managing and Motivating Channel Members

+ Partner relationship management (PRM) and supply chain management (SCM) software are used to forge long-term partnerships with channel members and to recruit, train, organise, manage, motivate, and evaluate channel members

Managing

channel

members

Motivating channel members

+ Regularly check channel member performance:

- Recognise and reward

Channel Management Decisions

Evaluating

channel members

6 Public Policy and Distribution Decisions

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

the sellers not handle competitor’s products

+ Benefits of exclusive distribution include:

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, while not necessarily illegal as long

as they do not substantially lessen competition, 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

Public Policy and Distribution Decisions

7 Marketing Logistics and Supply Chain

Management

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

Goals of the logistics system

Nature and importance

of logistics

Major logistics functions

Integrated supply chain management

+ 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 and Supply Chain Management

Outbound logistics

+ Importance of logistics:

service at lower prices

for distribution efficiency

Marketing Logistics and Supply Chain Management

Nature and

importance

of logistics

Goals of the Logistics System

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

Major Logistics Functions

functions

Marketing Logistics and Supply Chain Management

+ Warehousing is the storage function that

overcomes differences in need quantities and

timing, ensuring that the products are available

when customers are ready to buy them

• Storage warehouses: are designed to store

goods, not move them

• Distribution centres: are designed to move

goods, not store them

Major logistics

functions

Marketing Logistics and Supply Chain Management

+ Inventory management balances carrying too

little and too much inventory

• Just-in-time logistics systems: systems allow

producers and retailers to carry small amounts

of inventories of parts or 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

Marketing Logistics and Supply Chain Management

+ Transportation affects the pricing of products,

delivery performance, and condition of the goods when they arrive

functions

Marketing Logistics and Supply Chain Management

+ Intermodal transportation combines two or

more modes of transportation

• Piggyback uses rail and truck

• Fishyback uses water and truck

• Airtruck uses air and truck

Major logistics

functions

Marketing Logistics and Supply Chain 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)

Major logistics

functions

Marketing Logistics and Supply Chain 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

Chapter 12 - Kotler, P and Armstrong, G (2008)

Principles of Marketing, 12th edition, Pearson Prentice

Hall.