mkt chapter 14

Strategic Issues in Marketing Channels

-Competitive Priorities -Channel Integration -Channel Leadership, Coordination, and Conflict

horizontal channel integration problems that come with increased size

-Decreases flexibility -difficulties coordinating among members -the need for additional marketing research and large-scale planning

Efficient procedures and techniques for materials handling:

-Minimize inventory management costs -Reduce the number of times a good is handled -Improve customer service -Increase customer satisfaction

Three main tasks of order processing

-Order Entry: begins when the customer or salespeople place the order - Order Handling: product availability and customer credit-worthiness is verified; order assembly occurs - Order delivery: Delivery is scheduled with an appropriate carrier

Technology enables companies to

-avoid expensive mistakes -reduce costs -generate increased revenues

Advantages of using industrial distributers:

-can perform needed selling actives in local markets at a relatively low cost to a manufacturer -can reduce producers financial burden by providing customers with credit services -Are aware of local needs -reduce producers capitol requirements by holding adequate inventories in local markets

Exclusive dealing is only considered legal if the:

-exclusive deal blocks competitors from less than 15 percent of the market -the sales volume is small -the producer is smaller than the retailer

Disadvantages of using industrial distributers:

-may be difficult to manage because they're independent firms -Often stock competing brands -incur expenses from maintaining inventories -are less likely to handle bulky or slow-selling items such a specialty hard to sell items -may lack specialized knowledge necessary to sell and service technical products

Disadvantages of using manufacturers' agents:

-seller has little control over their actions -prefer to concentrate on larger accounts due to their commissions -often reluctant to spend time following up with the customers as it wastes selling time -have limited ability to provide customers with parts or repair services quickly because they rarely maintain inventory

Although there is no single method for resolving conflict, partnerships can be reestablished of two conditions are met:

-the role of each channel member is clearly defined and followed -members of channel partnerships must agree on means of coordinating channels, which requires strong, but not prioritizing, leadership

Courts accept tying agreements when:

-the supplier is the only firm able to provide products of a certain quality -the intermediary is free to carry competing products as well -a company has just entered the market Most other tying agreements are illegal

Advantages of using manufacturers' agents:

-usually posses considerable technical and market information and have and established set of customers -can be an asset to an organizational seller with highly seasonal demand so seller doesn't have to support year-round sales force - are typically paid on commission basis, which can good for company that cant afford a full-time sales force

Marketing channels create ___ types of utility

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Electronic Data Interchange (EDI)

A computerized means of integrating order processing with production, inventory, accounting, and transportation. Functions as information system that links marketing channel member and outsourcing firms together

Vertical marketing system (VMS)

A marketing channel managed by a single channel member to achieve efficient, low-cost distribution aimed at satisfying target market customers. Takes on three forms.

Physical distribution activities may be performed by...

A producer, wholesaler, or retailer, or they may he outsourced

The "total cost approach" in supply-chain management:

A total cost approach to physical distribution tale into account different functions and shifts view of physical distribution from lowing the cost of individual activities to minimizing overall costs. This is because lowering one area usually raises another.

Competitive priorities in marketing channels

A) Supply chains can provide a competitive advantage and a strong market orientation B) Building the most effective and efficient supply chain can sustain a business C) Supply chains driven by firm-established goals focus on the "competitive priorities" of speed, quality, cost, or flexibility as the performance objective

strategic channel alliance

An agreement whereby the products of one organization are distributed through the marketing channels of another

Just-in-time (JIT)

An inventory-management approach in which supplies arrive just when needed for production or resale.

Customer Characteristics

Business customers often prefer to deal directly with producers; are more likely to buy complex products and in large quantities Consumers generally buy limited quantities of a product, purchases from retailers, and often do not mind limited customer service

Contractual VMS

Channel members are linked by legal agreements spelling out each member's rights and obligations

Competition

Company must maintain low costs so it can offer lower prices that competitors if necessary to maintain a competitive advantage

private warehouses

Company-operated facilities for storing and shipping products

Intensive Market Coverage

Convenience products (Coke, Pringles, Duracell Batteries) --Available in MANY retail outlets

Digital Distribution

Delivering content through the Internet to a computer or other device

Inventory management

Developing and maintaining adequate assortments of products to meet customers' needs

Environmental Forces

Economic conditions, technology, and government regulations can affect channel selection

Third Party Logistics (3PL)

Firms have special expertise in core physical distribution activities such as warehousing, transportation, inventory management, and information technology and can often perform these activities more efficiently

Crucial component in operating supply chains efficiently and effectively

Information

___ is an important consideration in materials handling

Internal packaging

Restricted sales territories

Manufacturer may use to try and tighten control over product distribution. Courts have conflicting opinions on restricting intermediaries to certain sales territories. This is because is can promote competition among dealers handling different brands

least flexible component of the marketing mix

Marketing channel. Once a firm commits to distribution channel it is difficult to change

marketing intermediaries

Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products

Although some of these functions may be performed by a single channel member,

Most functions are accomplished through both independent and joint efforts of channel members

Look at slide 73

Ok

To calculate the reorder point, the marketer must know the following

Order lead time Usage rate Safety stock

materials handling

Physical handling of tangible goods, supplies, and resources. Also involves transportation.

Logistics management

Planning, implementing, and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption to meet customers' needs and wants

Distribution system "upstream" in the supply chain

Producers and suppliers

Refusal to deal

Producers have the right to choose channel members Suppliers cannot legally refuse to do business with wholesalers or dealers merely because they resist policies that are anticompetitive or in restraint of trade.

maintaining too many products in inventory increases risk of

Product obsolesce, pilferage, and damage

Choosing appropriate warehouse facilities is an important strategic consideration and allows the company to

Reduce transportation and inventory costs and improve service to customers

Reorder point formula

Reorder Point = (Order Lead Time x Usage Rate) + Safety Stock

Practices subject to legal restraint

Restricted sales territories Tying agreements Exclusive dealing Refusal to deal

Selective Market Coverage

Shopping products such as iPods, televisions, DVD players, and shoes. Available in some outlets

Stockouts

Shortage of products

Exclusive Market Coverage

Specialty products such as haute couture, Mont Blanc pens, BMWs and Fendi handbags. Available in very few outlets

Trade-offs

Strategic decisions to combine (and recombine) resources for greatest cost-effectiveness. Goal isn't to find lowest cost, but the right balance of costs.

Channel power

The ability of one channel member to influence another member's goal achievement (channel captain must have)

Safety stock

The amount of extra inventory a firm keeps to guard against stockouts resulting from above-average usage rates and/or longer-than-expected lead times.

Containerization

The consolidation of many items into a single, large container that is sealed at its point of origin and opened at its destination

Outsourcing

The contracting of physical distribution tasks to third parties

Possession utility

The customer has access to the product to use or to store for future use

Distribution

The decisions and activities that make products available to customers when and where they want to purchase them

Channel captain (channel leader)

The dominant leader of a marketing channel or a supply channel May be a producer, wholesaler, or retailer

reorder point

The inventory level that signals the need to place a new order

Transportation

The movement of products from where they are made to intermediaries and end users.

Usage rate

The rate at which a product's inventory is used or sold during a specific time period

Operations management

The total set of managerial activities used by an organization to transform resource inputs into products, services, or both

multichannel distribution

The use of a variety of marketing channels to ensure maximum distribution

Selecting appropriate marketing channels is important because...

They are difficult to change once chosen

The most expensive physical distribution method

Transportation

Two common methods used in material handling

Unit loading and containerization

Selective distrubution

Using only some available outlets in an area to distribute a product. Appropriate for shopping products. Desirable when customer service is important.

Radio Frequency Identification (RFID)

Using radio waves to identify and track materials tagged with special microchips. Also useful for asset management and data collection.

Just-in-time (JIT) characteristics

Usually no safety stock requires high level of coordination between producers and suppliers eliminates waste reduces inventory costs

Characteristics of Intermediaries

When an organization believes that an intermediary is not promoting its products adequately or does not offer the correct mix of services, it may reconsider its channel choices

Distribution system "downstream" in supply chain

Wholesalers and retailers

marketing channel (channel of distribution or distribution channel)

a group of individuals and organizations that direct the flow of products from producers to customers within the supply chain

exclusive dealing

a situation in which a manufacturer forbids an intermediary from carrying products of competing manufacturers

Physical distribution (logistics)

activities used to move products from producers to consumers and other end users. Includes order processing, inventory management, materials handling, warehousing, transportation

supply chain

all the organizations and activities involved with the flow and transformation of products from raw materials through to the end customer

Tying agreement

an agreement in which a supplier furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well

Industrial distributer

an independent business organization that takes title to industrial products and carries inventories. Usually sells standardized items, although some carry a wide variety of product lines

manufacturers' agent

an independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions. Does not acquire title to the products and usually does not take possession

Administered VMS

channel members are independent, but informal coordination achieves a high level of inter-organizational management

Corporate VMS

combines all stages of the marketing channel, from producers to consumers, under a single owner

horizontal channel integration

combining organizations at the same level of operation under one management

vertical channel integration

combining two or more stages of the marketing channel under one management. Can be more effective against competition because of increased bargaining power and the ease of sharing info and responsibilities.

Marketing channels serve many functions, including:

creating utility and facilitating exchange efficiencies

Selecting Marketing Channels

customer characteristics product attributes type of organization competition marketing environmental forces characteristics of intermediaries

Customer Relationship Management (CRM) systems

exploit the information in supply-chain partners' information systems and make it available for easy reference. Can help all channel members

Form Utility

formed by assembling, preparing, or otherwise refining the product to suit customer needs

Megacarriers

freight transportation firms that provide several modes of shipment

Time Utility

having products available when the customer wants them

Supply management

in its broadest form, refers to the processes that enable the progress of value from raw material to final customer and back to redesign and final disposition

Levels of Market Coverage

intensive distribution, selective distribution, exclusive distribution

Distribution centers

large, centralized warehouses that focus on moving rather than storing goods

Place utility

making products available in locations where customers wish to purchase them

Unit loading

one or more boxes are placed on a pallet or skid

freight forwarders

organizations that consolidate shipments from several firms into efficient lot sizes

public warehouses

storage space and related physical distribution facilities that can be leased by companies

Order lead time

the average time lapse between placing the order and receiving it

Supply-Chain Management (SCM)

the coordination of all the activities involved with the flow and transformation of supplies, products, and information throughout the supply chain to the ultimate consumer

Warehousing

the design and operation of facilities for storing and moving goods. Helps stabilize prices and availability of seasonal items.

Intensity of Market Coverage

the number and kinds of outlets in which a product will be sold

order processing

the receipt and transmission of sales order information.

Cycle time

the time needed to complete a process

Major Role of Marketing Channels

to make products available at the right time at the right place in the right quantities

Birdyback

truck and air

Piggyback

truck and rail

Fishyback

truck and water

intermodal transportation

two or more transportation modes used in combination

exclusive distribution

using a single outlet in a fairly large geographic area to distribute a product. Suitable for products purchased infrequently and consumed over a long period of time. For expensive high quality products with high profit margins

intensive distribution

using all available outlets to distribute a product. Products that have high replacement rate, require almost no service, are bought based on price cues.

Channel integration

various channel stages may be combined, either horizontally or vertically, under the management of a channel captain. Such integration may stabilize supply, reduce costs, and increase channel member coordination

Channel Leadership, Cooperation, and Conflict

•Each channel member holds certain expectations of other channel members •Any one organization's failure to meet expectations can disrupt the entire supply chain •Channel partnerships can facilitate effective supply chain management when partners agree on objectives, policies, and procedures for physical distribution efforts associated with the supplier's products •Such partnerships eliminate redundancies and assign tasks for maximum system-wide efficiency •Channel cooperation reduces wasted resources, such as time, energy, or materials •A coordinated supply chain can also be more environmentally friendly

Type of Organization

•Larger firms are in a better position to deal with vendors or other channel members; are likely to have more distribution centers, which reduce delivery times to customers; and can use an extensive product mix as a competitive tool •Smaller firms may be in a better position to serve local or regional needs and may have to consider including other channel members that have the resources to provide services, such as shipping products long distances and extending credit, to customers that the firm cannot supply

Product Attributes

•Marketers of complex and expensive products, perishable products, and fragile products that require special handling will likely employ short channels •Less-expensive standardized products with long shelf lives can go through longer channels with many intermediaries

Channel conflict occurs when:

•Members disagree about the best methods for distributing products profitably and efficiently •Intermediaries overemphasize competing products or diversity into product lines traditionally handled by other intermediaries •Self-interest creates misunderstanding about role expectations of channel members •Communication is poor between channel members

Variables that affect the intensity of market coverage

•Replacement rate •Product adjustment (services) •Duration of consumption •Time required to find the product