1 Principles of Marketing Global Edition Kotler and Armstrong Chapter 12: Marketing Delivering Customer Value Channels Lecturer: Szilvia Bíró-Szigeti, PhD Department of Management and Corporate Economics Copyright 2016 Pearson Education, Inc.
3 Supply Chains and the Value Delivery Network Supply Chain Upstream partners are firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product or service. Downstream partners include the marketing channels or distribution channels that look toward the customer, including retailers and wholesalers. Marketers
4 Supply Chains and the Value Delivery Network 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.
5 Supply Chains and the Value Delivery Network Value delivery network is composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system.
6 The Nature and Importance of Marketing Channels Marketing channel (distribution channel) is a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.
7 The Nature and Importance of Marketing Channels How Channel Members Add Value 1. Transform the assortment of products into assortments wanted by consumers 2. Bridge the major time, place, and possession gaps that separate goods and services from users
8 The Nature and Importance of Marketing Channels How Channel Members Add Value
9 The Nature and Importance of Marketing Channels Members of the marketing channel perform many key functions Information Promotion Contact Matching Negotiation Physical distribution Financing Risk taking
10 The Nature and Importance of Marketing Channels How Channel Members Add Value Information gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange. Promotion developing and spreading persuasive communications about an offer. Contact finding and communicating with prospective buyers. Matching shaping and fitting the offer to the buyer s needs, including activities such as manufacturing, grading, assembling, and packaging.
11 The Nature and Importance of Marketing Channels How Channel Members Add Value Negotiation reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Physical distribution transporting and storing goods. Financing acquiring and using funds to cover the costs of the channel work. Risk taking assuming the risks of carrying out the channel work.
12 The Nature and Importance of Marketing Channels Number of Channel Levels The number of intermediary levels indicates the length of a channel. Direct marketing channel, has no intermediary levels. Indirect marketing channels, containing one or more intermediaries.
13 The Nature and Importance of Marketing Channels Number of Channel Levels
14 The Nature and Importance of Marketing Channels Number of Channel Levels Connected by several types of flows: Physical flow of products Flow of ownership Payment flow Information flow Promotion flow Explain why companies use marketing channels and discuss the functions these channels perform.
15 Channel Behavior and Organization Channel Behavior Marketing channels consist of firms that have partnered for their common good with each member playing a specialized role.
16 Channel Behavior and Organization Channel Behavior Channel conflict refers to disagreement among channel members over goals, roles, and rewards. Horizontal conflict: occurs among firms at the same level of the channel. Vertical conflict: occurs between different levels of the same channel.
17 Channel Behavior and Organization Vertical Marketing Systems Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers, each separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.
18 Channel Behavior and Organization Vertical Marketing Systems Vertical marketing systems (VMSs) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system. Corporate marketing systems Contractual marketing systems Administered marketing systems
19 Channel Behavior and Organization Vertical Marketing Systems Corporate vertical marketing systems combine successive stages of production and distribution under single ownership. Contractual vertical marketing systems consist of independent firms at different levels of production and distribution who join together through contracts.
20 Channel Behavior and Organization Vertical Marketing Systems Franchise organization is a contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the productiondistribution process. The manufacturer-sponsored retailer franchise system for example, Ford and its network of independent franchised dealers. The manufacturer-sponsored wholesaler franchise system Coca-Cola licenses bottlers (wholesalers) in various markets who buy Coca- Cola syrup concentrate and then bottle and sell the finished product to retailers in local markets. The service-firm-sponsored retailer franchise system examples are found in the auto-rental business (Avis), the fast-food service business (McDonald s).
21 Channel Behavior and Organization Vertical Marketing Systems An administered vertical marketing system is a VMS that coordinates successive stages of production and distribution through the size and power of one of the parties.
22 Channel Behavior and Organization Horizontal Marketing Systems Horizontal marketing system is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.
23 Channel Behavior and Organization Multichannel Distribution Systems Multichannel distribution systems are systems in which a single firm sets up two or more marketing channels to reach one or more customer segments.
24 Channel Behavior and Organization Multichannel Distribution Systems
25 Channel Behavior and Organization Changing Channel Organization Disintermediation is the cutting out of marketing channel intermediaries by producers or the displacement of traditional resellers by new intermediaries. Discuss: how channel members interact and how they organize to perform the work of the channel.
26 Channel Design Decisions The company must balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences. Analyzing consumer needs Setting channel objectives The company s channel objectives are influenced by the nature of the company, its products, its marketing intermediaries, its competitors, and the environment. Companies should state their marketing channel objectives in terms of targeted levels of customer service. Identifying channel alternatives Evaluating channel alternatives The company should decide which segments to serve and the best channels to use in each case.
27 Channel Design Decisions Analyzing Consumer Needs Find out what target consumers want from the channel Identify market segments Determine the best channels to use Minimize the cost of meeting customer service requirements
28 Channel Design Decisions Setting Channel Objectives 1. Determine targeted levels of customer service 2. Balance consumer needs against costs and customer price preferences
29 Channel Design Decisions Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Most companies face many channel member choices.
30 Channel Design Decisions Identifying Major Alternatives Number of Marketing Intermediaries Intensive distribution Exclusive distribution Selective distribution ideal for producers of convenience products and common raw materials. It is a strategy in which they stock their products in as many outlets as possible. is when producers purposely limit the number of intermediaries handling their products. The producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. is the use of more than one, but fewer than all, of the intermediaries who are willing to carry a company s products.
31 Channel Design Decisions Identifying Major Alternatives Responsibilities of Channel Members A producer and the intermediaries need to agree on Price policies Conditions of sale Territory rights Specific services
32 Channel Design Decisions Evaluating the Major Alternatives Economic criteria: Control issues: Adaptability criteria: Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. Control issues must be considered. Using intermediaries means giving them some control over the marketing of the product, and some intermediaries take more control than others. Adaptability criteria must be applied. Companies want to keep the channel flexible so that it can adapt to environmental changes.
33 Designing International Distribution Channels Channel systems can vary from country to country. Marketers must be able to adapt channel strategies to structures within each country. Channel Design Decisions
34 Video Case 1. Apply the concept of the supply chain to Gavina. 2. Sketch out as many consumer and business channels for Gavina as you can. 3. How has Gavina distribution strategy affected its product mix?
35 Channel Management Decisions The company must sell not only through the intermediaries but to and with them. Most companies practice strong partner relationship management (PRM) to forge long-term partnerships with channel members. Selecting channel members Managing channel members Motivating channel members Evaluating channel members When selecting intermediaries, the company should determine what characteristics distinguish the better ones. The company should recognize and reward intermediaries who are performing well and adding good value for consumers. Those who are performing poorly should be assisted or, as a last resort, replaced.
36 Public Policy and Distribution Decisions Exclusive distribution is when the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Exclusive dealing is when the seller requires that the exclusive distribution sellers not handle competitor s products. Exclusive territorial agreements are where producer or seller limit territory. Tying agreements are agreements where the dealer must take most or all of the line.
37 Marketing Logistics and 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. outbound distribution (moving products from the factory to resellers and ultimately to customers), inbound distribution (moving products and materials from suppliers to the factory), and reverse distribution (moving broken, unwanted, or excess products returned by consumers or resellers).
38 Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics
39 Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Supply chain management involves managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers. Goal of marketing logistics should be to provide a targeted level of customer service at the least cost.
40 A company must decide on how many and what types of warehouses it needs and where they will be located. Trucks Railroads Water carriers Pipelines Air carriers Internet carries Marketing Logistics and Supply Chain Management Major Logistics Functions Warehousing Transportation Inventory management Logistics information management Just-in-time logistics systems: Producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. - Electronic data interchange (EDI) - Vendormanaged inventory (VMI) - Continous inventory replenishment
41 Marketing Logistics and Supply Chain Management Integrated Logistics Management Integrated logistics management is the recognition that providing customer service and trimming distribution costs requires teamwork internally and externally.
42 Amazon's High-Tech Distribution Center https://www.youtube.com/watch?v=utba9yvzbjm
Chapter Twelve Marketing Channels: Delivering Customer Value Marketing Channels: Delivering Customer Value Topic Outline Supply Chains and the Value Delivery Network The Nature and Importance of Marketing
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