MKTG301 -- chapter 12: Marketing channel, delivering customer values

Outbound logistics

distributes goods and services to customers

How Channel Members Add Value

- Transform the assortment of products into assortments wanted by consumers. - Bridge the major time, place, and possession gaps that separate goods and services from users. In making products and services available to consumers, channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who use them. Members of the marketing channel perform many key functions. -- 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. -- 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 The question is not whether these functions need to be performed—they must be—but rather who will perform them. To the extent that the manufacturer performs these functions, its costs go up; therefore, its prices must be higher. When some of these functions are shifted to intermediaries, the producer's costs and prices may be lower, but the intermediaries must charge more to cover the costs of their work. In dividing the work of the channel, the various functions should be assigned to the channel members who can add the most value for the cost.

number of marketing intermediaries

1) intensive distribution 2) selective distribution 3) Exclusive distribution Intensive: convenience good—long channel selective: For example, outdoor power equipment maker STIHL doesn't sell its chain saws, blowers, hedge trimmers, and other products through mass merchandisers such as Lowe's, Home Depot, or Sears. Instead, it sells through a select corps of independent hardware and lawn and garden dealers. By using selective distribution, STIHL can develop good working relationships with dealers and expect a better-than-average sell- ing effort. Selective distribution also enhances the STIHL brand's image and allows for higher markups resulting from greater value-added dealer service. "We count on our select dealers every day and so can you," says one STIHL ad. Exclusive: like tesla, like there's only one channel consumers can have access to the purchase

Major logistics functions

1. Warehousing 2. Inventory Management 3. Transportation 4. Logistics Information Management eg. Fedex stick to the past, while UPS grew by partnering with online retailers such as amazon as a critical part (outbound logistic) of Amazon's supply chain

Channel level

A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. *The number of intermediary levels indicates the length of a channel. Companies can design their distribution channels to make products and services available to customers in different ways. Each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer is a channel level. Because both the producer and the final consumer perform some work, they are part of every channel.

reverse logistics

The area of logistics that involves bringing goods back to the manufacturer because of defects or for recycling materials. eg. amazon partners with Kohl's for returns, Kohl's benefits from the partnership because people who usually don't shop at Kohl's might walk around the shop after they returned their amazon products.

inbound logistics

The area of logistics that involves bringing raw materials, packaging, other goods and services, and information from suppliers to producers.

multichannel distribution systems

are systems in which a single firm sets up two or more marketing channels to reach one or more customer segments. In the past, many companies used a single channel to sell to a single market or market segment. These days, almost every large company and many small ones distribute through multiple channels. For example, John Deere sells its familiar green-and-yellow lawn and garden tractors, mowers, and outdoor power products to consumers and commercial users through several channels, including John Deere retailers, Lowe's home improvement stores, and online. It sells and services its tractors, combines, planters, and other agricultural equipment through its premium John Deere dealer network. And it sells large construction and forestry equipment through selected large, full-service John Deere dealers and their sales forces.

Corporate vertical marketing systems

combine successive stages of production and distribution under single ownership. Coordination and conflict management are attained through regular organizational channels. eg. Zara: takes total control of the chain. Send spies to Milan to note down the latest fashion trends, and then send the intel to corporate, They can change their supplies so nimbly

vertical channel conflict

conflict between different levels of the same channel, is even more common. Eg. McDonald's has recently faced growing conflict with its corps of almost 3,000 independent franchisees. In a recent company Webcast, based on rising customer complaints that service isn't fast or friendly enough, McDonald's told its franchisees that their cashiers need to smile more. At the same time, it seems, the franchisees weren't very happy with McDonald's, either. Much of the conflict stems from a recent slowdown in systemwide sales that has both sides on edge. The most basic conflicts are financial. McDonald's makes its money from franchisee royalties based on total system sales. In contrast, franchisees make money on margins—what's left over after their costs.

Marketing channels

consist of firms that have partnered for their common good with each member playing a specialized role.

contractual vertical marketing systems

consist of independent firms at different levels of product and distribution who join together through contracts. eg. subway

conventional marketing system

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. so each level of the system makes individual decision without shared knowledge of others' circumstance 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. eg. check text book

indirect marketing channel

containing one or more intermediaries. using indirect channels, the company uses one or more levels of intermediaries to help bring its products to final buyers. producer--> wholesaler-->retailer--> consumer Eg. Most of the things you buy--everything from toothpaste to cameras to cars.

Upstream partners

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. Eg. Walmart. Walmart make the downstream distribution more cost effective in the 90s to grow fast Target copied Walmart Walmart has a distribution center like how airport function. In the retail space, retailers have more power over the producers In retailers, the two biggest costs are inventory and employments Just In Time is fluid. Sell at a moment and restock right after. can't do just in time everywhere. Eg. Amazon. Most retailers are working toward just in time. Just in case: granola, out of stock for 2 weeks. So just in case it runs out of inventory, stock up and get the supply chain going. Get more inventory than I need. At the end of the year, when there's a lot of leftovers, do a end of the sales. The retailers can also push some tasks, such as printing prices stickers and packaging, to the manufactures in order to save cost within the operation of the retailers.

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. Eg. At any given time, GM has hundreds of millions of tons of finished vehicles and parts in transit, running up an annual logistics bill of about $8 billion. Even small savings can be substantial

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 In an administered VMS, leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members. Manufacturers of a top brand can obtain strong trade cooperation and support from resellers. For example, GE, P&G, and Apple can command unusual cooperation from many resellers regarding displays, shelf space, promotions, and price policies. In turn, large retailers such as Walmart, Home Depot, Kroger, and Walgreens can exert strong influence on the many manufacturers that supply the products they sell. For example, in the normal push and pull between Walmart and its consumer goods suppliers, giant Walmart—the biggest grocer in the United States with a 25 percent share of all U.S. grocery sales—usually gets its way so maintaining a strong relationship with the giant retailer is crucial. P&G needs Walmart more than Walmart needs P&G. After the recession, Walmart miscalculated and falsely predicted that consumers will be frugal. Walmart sell more a P&G product than expected but didn't stock as much. Gotta come back to beg P&G to send more inventory

Franchise organization

is a contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process. Eg. Through franchising,Two Men and a Truck—"Movers Who Care"—grew quickly from two high school students with a pickup truck to an international network of over 380 franchise locations that's experienced record growth over the past six years. *The franchise organization is the most common type of contractual relationship. In the United States alone, some 770,000 franchise outlets account for more than $830 billion of economic output. Industry analysts estimate that a new franchise outlet opens somewhere in the United States every eight minutes and that about one out of every 12 retail business outlets is a franchised business.

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. *The longer the channel, the more partners to share the costs with. *If there's a channel partner in the channel, they are saving you money. *If Coca Cola get rid of Costco(retailer), CC will have to do Costco's job, which would likely to create severe inefficiency

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 eg. Pepsi. in making and marketing even just its classic colas, Pepsi manages a huge network of people within the company plus thousands of outside suppliers, bottlers, retailers, and marketing service firm that must work together to create customer value and establish the brand's "Pepsi: Live for Now" positioning.

Disintermediation

is the cutting out of marketing channel intermediaries by producers or the displacement of traditional resellers by new intermediaries. Changes in technology and the explosive growth of direct and online marketing are having a profound impact on the nature and design of marketing channels. One major trend is toward disintermediation—a big term with a clear message and important consequences. Thus, in many industries, traditional intermediaries are dropping by the wayside, as is the case with online marketers taking business from traditional brick-and-mortar retailers. For example, online music download services such as iTunes and Amazon MP3 have pretty much put traditional music-store retailers out of business. In turn, streaming music services such as Spotify and Vevo are now disintermediating digital download services. Similarly, Amazon.com almost single-handedly bankrupted the nation's number-two bookseller, Borders, in less than 10 years. And the burgeoning online-only merchant has recently forced highly successful store retailers such as Best Buy to dramatically rethink their entire operating models. In fact, many retailing experts question whether stores like Best Buy can compete in the long run against online rivals. Like resellers, to remain competitive, product and service producers must develop new channel opportunities, such as the Internet and other direct channels. However, developing these new channels often brings them into direct competition with their established channels, resulting in conflict. To ease this problem, companies often look for ways to make going direct a plus for the entire channel. For example, Black & Decker knows that many customers would prefer to buy online but this would create conflicts with important and powerful retail partners, such as Home Depot, Walmart, Sears, and Amazon.com. So, although Black & Decker's online site provides detailed information about the company's products, you can't buy a Black & Decker cordless drill, laser level, leaf blower, power garden shears, or anything else there. Instead, the Black & Decker site refers you to resellers' sites and stores. Thus, Black & Decker's direct marketing helps both the company and its channel partners.

Supply Chain Management

managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers

direct marketing channel

no intermediary level. the manufacturer sells directly to the buyer Producer--> consumer eg. GEICO and Amway

horizontal channel conflict

occurs among firms at the same level of the channel. Eg. some firms may complain others steal sales from them by pricing too low or advertising outside their assigned territories. Other complaints may involve overcharging or giving poor service, hurting the overall image of the channel members.

vertical marketing system

provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system. - Corporate marketing systems - Contractual marketing systems - Administered marketing systems eg. check text book

Goal of marketing logistics

should be to provide a targeted level of customer service at the least cost. eg. Walmart manages the whole system because it developed its in house system

length of the channel

the number of intermediary levels