Ch t 12 Chapter

Distribution Channels andSupplyChain Management

Copyright2008PearsonEducationCanada PrinciplesofMarketing,SeventhCanadian Edition

LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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Marketing - chapter 12 - 20 pages

CaseStudy Caterpillar
Dominatesworlds marketsforheavy constructionandmining equipment. Independentdealersare keytosuccess Dealernetworkislinked viacomputers

Caterpillar p stresses dealerprofitability, extraordinarydealer support,personal relationships,dealer performanceandfull, h honest, and dfrequent f communications

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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SupplyChainsandtheValue DeliveryNetwork
Asupplychainconsistsofupstreamand downstreampartners Marketershavetraditionallyfocusedonthe downstreamside
Supplychain makeandsellview Demandchain senseandrespondview

ValueDeliveryNetwork
Thenetworkmadeupofthecompany,suppliers, distributors,andultimatelycustomerswhopartner witheachothertoimprovetheperformanceofthe entiresystem.
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Nature&Importanceof DistributionChannels
Marketingchannel
Setofinterdependentorganizationsinvolved intheprocessofmakingaproductorservice availableforuseorconsumptionbythe consumerorbusinessuser.

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Nature&Importanceof MarketingChannels
Channelchoicesaffectotherdecisionsin th marketing the k ti mix i
Pricing,marketingcommunications

Astrongdistributionsystemcanbea competitiveadvantage Channeldecisionsinvolvelongterm commitmentstootherfirms

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Nature&Importanceof MarketingChannels
HowChannelMembersAddValue
Fe Fewer e contacts. o ta t Matchproductassortmentdemandwithsupply. Bridge,time,place,andpossessiongapsthatseparate productsfromusers.

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HowChannelMembersAddValue
Channelmembersaddvaluebybridging th major the j ti time,place, l and dpossession i gaps. Keyfunctions:
Information Promotion Contact Matching Negotiation
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PhysicalDistribution Financing Risktaking Environmental sustainability

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Nature&Importanceof MarketingChannels
NumberofChannelLevels
Thenumberofintermediarylevelsindicates thelengthofamarketingchannel.
DirectChannels IndirectChannels

Producerslosemorecontrolandfacegreater channel h lcomplexity l i asadditional ddi i lchannel h l levelsareadded.

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ChannelMembersareConnected ViaaVarietyofFlows
PhysicalFlow PaymentFlow InformationFlow PromotionFlow FlowofOwnership

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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ChannelBehaviourand Organization
ChannelConflict
Occurswhenchannelmembersdisagreeon roles,activities,orrewards. TypesofConflict:
Horizontalconflict:occursamongfirmsatthe samechannellevel Vertical V ti lconflict: fli t occursamongfirms fi at tdifferent diff t channellevels

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ChannelBehaviourand Organization
ConventionalDistributionChannels
Consist o i of o one o eor o more o eindependent i epe e channel a e members Eachseekingtomaximizeitsownprofits Oftenresultinpoorperformance

VerticalMarketingSystems
Producers,wholesalers,andretailersactasaunified system One O channel h lmember b owns,h hascontracts t t with, ith orh has somuchpowerthattheyallcooperate Benefitsshouldincludegreatercontrol,lessconflict, andeconomiesofscaleduetothesizeofthesystem

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ChannelBehaviourand Organization
VerticalMarketSystem (VMS)
CorporateVMS ContractualVMS AdministeredVMS

Integratessuccessive stagesofproductionand distributionundersingle ownership channel ownershipisestablished throughcommon ownership Coordination oo i a io a andconflict o i throughregular organizationalchannels

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ChannelBehaviourand Organization
VerticalMarketSystem (VMS)
CorporateVMS ContractualVMS AdministeredVMS

Individualfirmswhojoin throughcontracts Franchiseorganizations

Manufacturersponsored retailerfranchisesystem Manufacturersponsored wholesalerfranchise system Servicefirmsponsored retailerfranchisesystem

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ChannelBehaviourand Organization
VerticalMarket System(VMS)
CorporateVMS ContractualVMS AdministeredVMS

Leadershipthrough thesizeandpowerof dominantchannel members Leadershipcouldbe manufactureror retailer

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ChannelBehaviourand Organization
HorizontalMarketingSystems
Co Companies a ie atthesame a ele level elwork o ktogether to ethe with ith channelmembers

MultichannelDistributionSystems
Alsocalledhybridmarketingchannels Occurswhenafirmusestwoormoremarketing channels

ChangingChannelOrganization
Disintermediation

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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ChannelDesignDecisions
Step1:AnalyzingConsumerNeeds
Costandfeasibilityofmeetingneedsmustbe considered

Step2:SettingChannelObjectives
Setchannelobjectivesintermsoftargetedlevelof customerservice Manyfactorsinfluencechannelobjectives
Natureofthecompany(size/financialposition)andits products Marketingintermediaries Competition Marketingenvironment

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ChannelDesignDecisions
Step3:IdentifyingMajorAlternatives
Typesofintermediaries
Companysalesforce,manufacturersagency, industrialdistributors

Numberofmarketingintermediaries
Intensive,selective,andexclusivedistribution

Responsibilities bl of fchannel h lmembers b

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ChannelDesignDecisions
Step4:EvaluatingMajorAlternatives
Economiccriteria Controlissues Adaptivecriteria

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ChannelDesignDecisions
DesigningInternationalDistribution Ch Channels l
Globalmarketersusuallyadapttheirchannel strategiestostructuresthatexistwithin foreigncountries Keychallenges:
Maybecomplexorhardtopenetrate Maybescattered,inefficient,ortotallylacking

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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ChannelManagementDecisions
Selectingchannel members Managingand motivatingchannel members Evaluatingchannel members Whichcharacteristics areimportant?
Yearsinbusiness Linescarried Growthandprofit record Cooperativeness p and reputation Typeofcustomer Location

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ChannelManagementDecisions
Selectingchannel members Managingand motivatingchannel members Evaluatingchannel members Partnerrelationship management(PRM) forlongterm partnerships Softwareavailableto coordinatemembers

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ChannelManagementDecisions
Selectingchannel members Managingand motivatingchannel members Evaluatingchannel members Checkchannel performanceof:
Sales Inventory Customerdelivery Promotionand g training Customerservice

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PublicPolicyand DistributionDecisions
Exclusivedealing. Sellerscannotdemandexclusivity fortheirproductfromresellersifitcanbeproven thatitwilllessencompetitionorcreateamonopoly Exclusiveterritories. Sellersmaygrantexclusive territories,butmayhavetroubledemandingthat resellersdealonlywithinthatexclusiveterritory y gagreements. g demanding gthatresellersbuy y Tying and/orstockallproductswithinaproductline,asa conditionofdoingbusiness.Notillegalbutasource ofmuchchannelconflict

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PublicPolicyand DistributionDecisions
Dealersrights. Producersarefreetoselect dealers butarelimitedintheirabilityto dealers, terminatedealers;theymustshowcause,and cannotdropdealerswhorefusetoparticipatein doubtfullegalarrangements Sourcesofsupply. Ethicalconcernsoversupply sourcesfromcountrieswithhumanrights violationsorusetheproceedstofundarmed conflict

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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MarketingLogisticsandSupply ChainManagement
Marketinglogistics(physicaldistribution).
Tasksinvolvedinplanning,implementing, andcontrollingthephysicalflowofmaterials, finalgoodsandrelatedinformation

Supplychainmanagement.
Managing g gupstream p anddownstreamvalue addedflowsofmaterials,finalgoods,and relatedinformationamongsuppliers,the company,resellers,andfinalconsumers
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MarketingLogisticsandSupply ChainManagement
MarketingLogistics
Outbounddistribution Inbounddistribution Reversedistribution Involvestheentiresupplychainmanagement y system

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MarketingLogisticsandSupply ChainManagement
WhyGreaterEmphasisisBeingPlacedon L i ti Logistics:
Offersfirmsacompetitiveadvantage Canyieldcostsavings Greaterproductvarietyrequiresimproved g logistics Improvementsindistributionefficiencyare possibleduetoinformationtechnology

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MarketingLogisticsandSupply ChainManagement
GoalsoftheLogisticsSystem
Nosystemcanbothmaximizecustomer serviceandminimizecosts. Thegoalofmarketinglogisticsshouldbeto provideatargetedlevelofcustomerserviceat theleastcost. Firmsmustfirstweighthebenefitsofhigher serviceagainstthecosts.

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MarketingLogisticsandSupply ChainManagement
MajorLogisticsFunctions
Warehousing InventoryManagement Transportation LogisticsInformationManagement

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MarketingLogisticsandSupply ChainManagement
TransportationCarrierOptions
Truck Rail Water Pipeline Air Internet

Intermodaltransportation isbecomingmorecommon

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MarketingLogisticsandSupply ChainManagement
IntegratedLogisticsManagement
Crossfunctionalteamworkinsidethe companyiscritical Logisticspartnershipsarealsobuiltthrough sharedprojects Outsourcingoflogisticsfirmstothirdparty firmsisbecomingmorecommon

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LearningGoals
1. Explainwhycompaniesusedistributionchannelsand discussthefunctionsthatthesechannelsperform 2. Discusshowchannelmembersinteractandhowthey organizetoperformtheworkofthechannel 3. Identifythemajorchannelalternativesopentoa company 4. Explainhowcompaniesselect,motivate,andevaluate channelmembers 5. Discussthenatureandimportanceofphysical distribution

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