Chapter 11. Marketing Channels and Supply Chain Management

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1 Chapter 11 Marketing Channels and Supply Chain Management Dr. Manoochehr Najmi Graduate School of Management and Economics Sharif University of Technology (2) 11-1 Road Map: Previewing the Concepts Explain why companies use distribution channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and supply chain management

2 What is a Distribution Channel? Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user Why are Marketing Intermediaries Used? The use of intermediaries results from their greater efficiency in making goods available to target markets. Offers the firm more than it can achieve on its own through the intermediaries: Contacts, Experience, Specialization, Scale of operation. Purpose: match supply from producers to demand from consumers

3 A Distributor Reduces the Number of Channel Transactions (Fig. 11-1) 11-5 Distribution Channel Functions These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively. Risk Taking Information Financing Promotion Physical Distribution Contact Negotiation Matching

4 Number of Channel Levels (Fig. 11-2) 11-7 Channel Behavior & Organization The channel will be most effective when: each member is assigned tasks it can do best. all members cooperate to attain overall channel goals and satisfy the target market. When this doesn t happen, conflict occurs: Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer. Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer. Each channel member s role must be specified and conflict must be managed

5 Conventional Distribution Channel Vs. a Vertical Marketing System (Fig. 11-3) 11-9 Types of Vertical Marketing Systems Corporate VMS Common Ownership at Different Levels of the Channel i.e. Sears Degree of Direct Control Contractual VMS Contractual Agreements Among Channel Members i.e Western Auto Administered VMS Leadership is Assumed by One or a Few Dominant Members i.e. Kraft

6 Types of Vertical Marketing Systems Vertical Marketing Systems (VMS) Corporate VMS Contractual VMS Administered VMS Wholesaler Sponsored Voluntary Chain Retailer Cooperatives Franchise Organizations Manufacturer- Sponsored Wholesaler Franchise System Manufacturer- Sponsored Retailer Franchise System Service-Firm- Sponsored Retailer Franchise System Innovations in Marketing Systems Horizontal Marketing System Two or or More Companies at at One Channel Level Join Together to to Follow a New Marketing Opportunity. Example: Banks in in Grocery Stores Hybrid Marketing System A Single Firm Sets Up Up Two or or More Marketing Channels to to Reach One or or More Customer Segments. Example: Retailers, Catalogs, and Sales Force

7 Toys R Us Partner Western Publishing Group partners with Toys R Us to create mini-bookstore sections called Books R Us within each store. This helps to build channel partnerships that benefit both companies Hybrid Marketing Channel (Fig. 11-4)

8 Changing Channel Organization A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Types of Intermediaries Number of Intermediaries Responsibilities of Intermediaries Evaluating the Major Alternatives Designing International Distribution Channels

9 Number of Marketing Intermediaries Intensive Distribution Selective Distribution Exclusive Distribution Channel Management Decisions Selecting Channel Members Motivating Channel Members FEEDBACK Evaluating Channel Members

10 Marketing Logistics and Supply Chain Management Involves getting the right product to the right customers in the right place at the right time. Marketing logistics addresses: Outbound distribution, Inbound distribution, Reverse distribution, Entire supply chain management Supply Chain Management (Fig. 11-5)

11 Goals of the Logistics System Higher Distribution Costs; Higher Customer Service Levels Goal: To Provide a Targeted Level of Customer Service at the Least Cost. Lower Distribution Costs; Lower Customer Service Levels Major Logistics Functions Costs Minimize Costs of of Attaining Logistics Objectives Transportation Rail, Truck, Water, Pipeline, Air, Intermodal Logistics Functions Inventory When to to order How much to to order Just- in- in- time Order Processing Received Processed Shipped Warehousing Storage Distribution Automated

12 Transportation Modes Rail Rail Nation s largest carrier, cost-effective for for shipping bulk products Truck Flexible in in routing & time schedules, efficient for for short-hauls of of high value goods Water Low cost for for shipping bulky, low-value, non-perishable goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to to markets Air Air High cost, ideal when speed is is needed or or distance markets have to to be be reached Integrated Logistics Management Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations. Involves: Cross- functional teamwork inside the company Building channel partnerships Third- party logistics

2 Most producers use to bring their products to market. A detailers B intermediaries C expediters D agents

2 Most producers use to bring their products to market. A detailers B intermediaries C expediters D agents MULTIPLE CHOICE QUESTIONS 1.Caterpillar (famous for earth moving equipment) has a powerful partnership with its dealers. Which of the following is one of the basic principles upon which this successful