Unit 4: Marketing Channels and Supply Chain

Order Processing

The receipt and transmission of sales order information When carried out quickly and accurately, order processing contributes to customer satisfaction, decreased costs and cycle time, and increased profits.

Disadvantages of a manufacturers agent

The seller has little control over the actions of manufacturers' agents. Because they work on commission, manufacturers' agents prefer to concentrate on larger accounts. They are often reluctant to spend time following up with customers after the sale, putting forth special selling efforts, or providing sellers with market information because they are not compensated for these activities and they reduce the amount of productive selling time. Because they rarely maintain inventories, manufacturers' agents have a limited ability to provide customers with parts or repair services quickly.

Competition

The success or failure of a competitor's marketing channel may encourage or dissuade an organization from taking a similar approach. In a highly competitive market, it is important for a company to maintain low costs so it can offer lower prices than its competitors if necessary to maintain a competitive advantage.

Multichannel Distribution

The use of a variety of marketing channels to ensure maximum distribution The primary reason for using a multichannel strategy is to reach target customers wherever and whenever they may choose to interact with a company or its products. Some consumers may prefer to shop in a brick-and-mortar store where they can personally compare and sample products, while others prefer the instant gratification of shopping for an item on their smartphone as soon as they recognize a need for the product.

Dual Distribution

The use of two or more marketing channels to distribute the same product to the same target market

Advantages of a manufacturers agent

They usually possess considerable technical and market information and have an established set of customers. For an organizational seller with highly seasonal demand, a manufacturers' agent can be an asset because the seller does not have to support a year-round sales force. The fact that manufacturers' agents are typically paid on a commission basis may also be an economical alternative for a firm that has highly limited resources and cannot afford a full-time sales force.

When a manufacturer is a channel captain

it determines that it must increase sales volume to achieve production efficiency, it may encourage growth through offering channel members financing, business advice, ordering assistance, advertising services, sales and service training, and support materials. These benefits usually come with requirements related to sales volume, service quality, training, and customer satisfaction.

Marketing channels create utility

Time Utility Place Utility Possession Utility Form Utility

Intermodal transportation

Two or more transportation modes used in combination

Difference between industrial distributor and a manufacturer agent

Unlike an industrial distributor, a manufacturers' agent does not acquire title to the products and usually does not take possession. Acting as a salesperson on behalf of the producers, a manufacturers' agent has little or no latitude in negotiating prices or sales terms.

Exclusive Distribution (Specialty products)

Using a single outlet in a fairly large geographic area to distribute a product This method is suitable for products purchased infrequently, consumed over a long period of time, or that require a high level of customer service or information. It is also used for expensive, high-quality products with high profit margins, such as Porsche, BMW, and other luxury automobiles. It is not appropriate for convenience products and many shopping products because an insufficient number of units would be sold to generate an acceptable level of profits on account of those products' lower profit margins.

Intensive distribution (convenience products)

Using all available outlets to distribute a product Appropriate for products that have a high replacement rate, require almost no service, and are bought based on price cues. Minimal search time and readily available. Ex: convenience products like bread, chewing gum, soft drinks, and newspapers are marketed through intensive distribution. To satisfy consumers seeking to buy these products, they must be available at a store nearby and be obtained with minimal search time. soaps, detergents, food and juice products, and personal-care products) because consumers want ready availability.

Selective distribution (Shopping products)

Using only some available outlets in an area to distribute a product Appropriate for shopping products, which include durable goods like televisions or computers. Shopping products are more expensive than convenience goods, and consumers are willing to spend more time and possibly visit several retail outlets and websites to compare prices, designs, styles, and other features. Selective distribution is often used to motivate retailers to provide adequate service. Dealers can offer higher-quality customer service when products are distributed selectively. ex: most perfume and cosmetics

Airplanes

Very High Cost Very fast Speed High Dependability Low Load flexibility Average Accessibility Average Frequency Products carried: Flowers, food (highly perishable), technical instruments, emergency parts and equipment, overnight mail ir transportation is the fastest but most expensive form of shipping

Waterways

Very low Cost Very low Speed Average Dependability Very high Load flexibility limited Accessibility Very low Frequency Products carried: Chemicals, bauxite, grain, motor vehicles, agricultural implements cheapest method of shipping heavy, low-value, nonperishable goods

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. In these instances, the company may choose another channel member to handle its products, it may select a new intermediary, or it might choose to eliminate intermediaries altogether and perform the functions itself.

Customer Characteristics

When manufacturers think about how to best get their products to the end consumer. They consider several issues such as customer needs and expectations

Restricted sales territories

a manufacturer may try to prohibit intermediaries from selling outside of designated sales territories. Intermediaries themselves often favor this practice, because it provides them with exclusive territories where they can minimize competition.

full-line forcing

a supplier requires that channel members purchase the supplier's entire line to obtain any of the supplier's products. ensure that intermediaries accept new products and that a suitable range of products is available to customers.

bonded storage

a warehousing arrangement in which imported or taxable products are not released until the products' owners pay U.S. customs duties, taxes, or other fees. Bonded warehouses enable firms to defer tax payments on such items until they are delivered to customers.

Business Products

like expensive equipment

Place Utility

making products available in locations where customers wish to purchase them. Whether that is down the street at our local Walmart or even delivered straight to our doorstep, online

Logistics management

all activities designed to move the product through the marketing channel to the end user. Including warehousing and inventory management involves 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.

Marketing channel management

all activities related to selling, service, and the development of long-term customer relationships

Field public warehouses

are established by public warehouses at the owner's inventory location.

Form Utility

assembling, preparing, or otherwise refining the product to suit individual customer needs. In what format is the project assembled or what's it combined with, which gives added benefit to the end consumer How (in what combination)

Railroads

moderate cost average speed average dependability High load flexibility high accessibility low frequency Products carried: Coal, grain, lumber, paper and pulp products, chemicals carry heavy, bulky freight that must be shipped long distances over land. Railroads commonly haul minerals, sand, lumber, chemicals, and farm products, as well as automobiles and low-value manufactured goods.

Contractual VMS

most popular type of vertical marketing system. Channel members are linked by legal agreements spelling out each member's rights and obligations. Franchise organizations, such as McDonald's and KFC, are contractual VMSs.

unit loading

one or more boxes are placed on a pallet or skid. These units can then be loaded efficiently by mechanical means, such as forklifts, trucks, or conveyer systems.

3 tasks of order processing

order entry order handling order delivery.

Operations management

organizational and system-wide coordination of operations and partnerships to meet customers' product needs The total set of managerial activities used by an organization to transform resource inputs into products, services, or both

Order entry

begins when customers or salespeople place purchase orders via customer-service counter, telephone, regular mail, e-mail, or website.

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.

Containerization

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

Refusal to deal

courts have held that producers have the right to choose or reject the channel members with which they will do business. Within existing distribution channels, however, suppliers may not legally refuse to deal with wholesalers or dealers merely because these wholesalers or dealers resist policies that are anticompetitive or in restraint of trade. Suppliers are further prohibited from organizing some channel members in refusal-to-deal actions against other members that choose not to comply with illegal policies.

Reorder point

he inventory level that signals the need to place a new order.

Outsourcing

is the contracting of physical distribution tasks to third parties. can reduce marketing channel costs and boost service and customer satisfaction for all supply-chain partners.

Stockouts

. When too few products are carried in inventory, or shortages of products. can result in customer dissatisfaction that leads to lower sales, even loss of customers and brand switching. Goal is to minimize stockouts A firm might keep a lot of stock on hand so that they'll never run out but it is expensive to keep a lot of stock on hand That's why adjusting time inventory system is so appealing as long as it runs efficiently to avoid stockouts

Advantages of an Industrial distributor

1.) They can perform the needed selling activities in local markets at a relatively low cost to a manufacturer and reduce a producer's financial burden by providing customers with credit services. 2.) Also, because industrial distributors usually maintain close relationships with their customers, they are aware of local needs and can pass on market information to producers. 3.) By holding adequate inventories in local markets, industrial distributors reduce producers' capital requirements.

Disadvantages of an Industrial distributor

1.) They may be difficult to manage because they are independent firms. 2.) They often stock competing brands, so a producer cannot depend on them to sell its brand aggressively. 3.) Industrial distributors incur expenses from maintaining inventories and are less likely to handle bulky or slow-selling items, or items that need specialized facilities or extraordinary selling efforts. 4.) In some cases, industrial distributors lack the specialized knowledge necessary to sell and service technical products.

Reorder point formula

=(lead time x usage rate) + safety stock

Forward Vertical Integration

A company owns another company to get closer to the ultimate consumer in the supply chain. ex: A manufacturer of an electronic devices opens a chain of electronic retail stores is an example of forward vertical integration

Backward Vertical Integration

A company such as a manufacturer owns companies that supply inputs to the businesses manufacturing process ex: For instance, a hamburger franchise chain owns a potato farm company to ensure that it will have a constant supply of potatoes to make French fries

Electronic Data Interchange (EDI)

A computerized means of integrating order processing with production, inventory, accounting, and transportation

Marketing Channel (channel of distribution or distribution channel)

A group of individuals and organizations that direct the flow of products from producers (manufacturers) to customers within the supply chain

Vertical Marketing System

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

Exclusive dealing

A situation in which a manufacturer forbids an intermediary from carrying products of competing manufacturers If the exclusive dealing blocks competitors from as much as 15 percent of the market, the sales volume is large, and the producer is considerably larger than the retailer, then the arrangement is considered anticompetitive. If dealers and customers in a given market have access to similar products or if the exclusive-dealing contract strengthens an otherwise weak competitor, the arrangement is allowed.

Physical distribution

Activities used to move products from producers to consumers and other end users (logistics) These activities include order processing, inventory management, materials handling, warehousing, and transportation. warehousing, transportation, inventory management, and information technology

Warehouse Robot video

Advances in technology, warehouse robots) helps meet customers' needs by improving distribution processes.

Marketing Environmental Forces

Adverse economic conditions might force an organization to use a low-cost channel, even though it reduces customer satisfaction. In contrast, a growing economy may allow a company to choose a channel that previously had been too costly. The introduction of new technology might cause an organization to add or modify its channel strategy. Government regulations can also affect channel selection. As labor and environmental regulations change, an organization may be forced to modify its existing distribution channel structure to comply with new laws. Firms might choose to enact the changes before they are mandated in order to appear proactive

Supply Chain

All the activities associated with the flow and transformation of products from raw materials through to the end customer

Tying agreements

An agreement in which a supplier sells a product to a channel member with the agreement that the channel member must purchase other products as well Suppliers may institute tying agreements as a means of getting rid of slow-moving inventory

Industrial distributor

An independent business organization that takes title to industrial products and carries inventories usually sell standardized items, such as maintenance supplies, production tools, and small operating equipment.

Manufacturers Agent

An independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions

Just in time

An inventory-management approach in which supplies arrive just when needed for production or resale can maintain low inventory levels and purchase products and materials in small quantities only when needed. no safety stock

Marketing information

Analyze sales data and other information in databases and information systems. Perform or commission marketing research.

Typical Marketing Channels for Consumer Products

Channel A Channel B Channel C Channel D

Typical Marketing Channels for Business Products

Channel E Channel F Channel G Channel H

Channel conflict

Channel conflict causes: Self-interest of members Poor communication Increased used of multiple channels Causes inefficiencies in the distribution channel and leads to an increased use of multiple channels, even if adding channel is not the most efficient option.

Channel Integration

Channel members can either combine and control activities or pass them to another channel member.

Facilitating exchanges

Choose product assortments that match the needs of customers. Cooperate with channel members to develop partnerships.

Vertical Channel Integration

Combines two or more stages of the marketing channel under one management This may occur when one member of a marketing channel purchases the operations of another member or simply performs the functions of another member, eliminating the need for that intermediary.

Horizontal Channel Integration

Combining organizations at the same level of operation under one management Creates economies of scale Not the best method for improving distribution ex: . The owner of a dry-cleaning firm, for example, might buy and combine several other existing dry-cleaning establishments. size of firm may reduce efficiency

Private warehouses

Company-operated facilities for storing and shipping products A firm usually leases or purchases a private warehouse when its warehousing needs in a given geographic market are substantial and stable enough to warrant a long-term commitment to a fixed facility. face fixed costs, such as insurance, taxes, maintenance, and debt expense. They limit firms' flexibility if they wish to move inventories to different locations.

Strategic Issues in Marketing Channels

Competitive Priorities Channel leadership, cooperation and conflict Channel Integration

Marketing Channel Selection

Customer Characteristics Product Attributes Type of Organization Competition Marketing Environmental Forces Characteristics of Intermediaries

Digital Distribution

Delivering content through the Internet to a computer or other device For example, when you watch a TV show on Netflix or Hulu or listen to music on Pandora or Spotify, those networks stream the content to your device so that you can consume them at the same time.

Importance of Marketing Channels

Determine a product's market presence and accessibility. Entail long-term commitments among a variety of firms (Least flexible component to change) Once a firm commits to a distribution channel, it is difficult to change Creates utility

Inventory management

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

Legal issues in the Channel Management

Dual distribution Restricted sales territories Exclusive dealing Tying agreements Refusal to deal

Channel cooperation

Enables retailers, wholesalers, suppliers and logistic providers to: Speed up inventory replenishment Improve customer service Cut the costs of bringing products to customers Channel cooperation leads to greater trust among channel members and improves the overall functioning of the channel. Cooperation also leads to more satisfying relationships among channel members.

Price

Establish pricing policies and terms of sales

Marketing management

Establish strategic and tactical plans for developing customer relationships and organizational productivity.

HEB Vertical Integration Example (Video)

Example of Backward Vertical Integration HEB (in Houston) bought a tomato farm Naturally grown tomatoes with no pesticides or chemicals They go from farm to store in under 24 hours Their tomatoes are only at HEB

Megacarriers

Freight transportation firms that provide several modes of shipment including rail, truck, and air service.

Time Utility

Having the product available when we want it. ex:Services like Netflix allow customers to watch a movie whenever they want.

Trucks

High cost Fast Speed High dependability Average Load flexibility Very high Accessibility High frequency Products carried: Clothing, computers, books, groceries and produce, livestock

Order delivery

If the customer pays for rush service, overnight delivery by an overnight carrier is used. The customer is sent an invoice, inventory records are adjusted, and the order is delivered.

Technology has improved service

Increased number of innovative goods Increased involvement (and cooperation) of firms in management supply chain Allows companies to be responsive to customers' needs

Information technology

Information technology has improved previous methods of distribution and reduced costs, while increasing speed and flexibility

Supply-Chain Management

Integrating the function of operations management, logistic management, supply management and marketing channel management so products are produced and distributed in the right quantities, the right locations and at the right time

Distribution centers

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

Type of Organization

Larger firms are in a better position to deal with vendors or other channel members. They are also likely to have more distribution centers, which reduce delivery times to customers. A smaller company that uses regional or local channel members, on the other hand, might be in a strong position to cater its marketing mix to serve customers in that particular area, compared with a larger and less-flexible organization. However, smaller firms may not have the resources to develop their own sales force, ship their products long distances, maintain a large inventory, or extend credit. In such cases, they might consider including other channel members that have the resources to provide these services to customers

Pipelines

Low cost Low speed High dependability Very low Load flexibility Very limited accessibility Very high frequency Products carried: Oil, processed coal, natural gas

Physical distribution

Manage transportation, warehousing, materials handling, inventory control, and communication.

Channel Leadership

Many marketing channel decisions are determined through channel member compromise with a better marketing channel as an end goal.

Product Attributes

Marketers of complex and expensive products (like automobiles) will likely employ short channels, as will marketers of perishable products (such as dairy and produce). Less-expensive standardized products with long shelf lives, such as soft drinks and canned goods, can go through longer channels with many intermediaries. Fragile products that require special handling are likely to be distributed through short channels to minimize the amount of handling and risk of damage. Firms that desire to convey an exclusive image for their products may wish to limit the number of outlets available.

Marketing channel activities performed by Marketing intermediaries

Marketing information Marketing management Facilitating exchanges Promotion Price Physical distribution

Marketing intermediaries

Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products ex: Wholesalers and retailers Wholesalers buy and resell products to other wholesalers, retailers, and industrial customers. Retailers purchase products and resell them to end consumers.

Order handling

Once an order is entered, it is transmitted to a warehouse to verify product availability and, if necessary, to the credit department to set terms and prices and to check the customer's credit rating. If the credit department approves the purchase, warehouse personnel assemble the order. In many warehouses, automated machines carry out this step. If the requested product is not in stock, a production order is sent to the factory, or the customer is offered a substitute.

freight forwarders

Organizations that consolidate shipments from several firms into efficient lot sizes for lower costs Because large shipments also require less handling, freight forwarders can reduce delivery time and the likelihood of shipment damage

Channel H

Producer → . Agents → Industrial Distributors → Organizational Buyers Includes both a manufacturers' agent and an industrial distributor. This channel may be appropriate when the producer wishes to cover a large geographic area, but maintains no sales force due to highly seasonal demand or because it cannot afford one. This channel can also be useful for a business marketer that wants to enter a new geographic market without expanding its sales force.

Channel D

Producer → Agents of Brokers → Wholesalers → Retailers → Consumers Wherein goods pass from producer, to agents, to wholesalers, to retailers, and finally to consumers, is used frequently for products intended for mass distribution, such as processed foods. ex: Consequently, to place its Wheat Thins crackers in specific retail outlets, supply-chain managers at Nabisco may hire an agent (or a food broker) to sell the crackers to wholesalers. Wholesalers then sell the Wheat Thins to supermarkets, vending-machine operators, and convenience stores.

Channel G

Producer → Agents →Organizational Buyers Employs a manufacturers' agent

Channel A

Producer → Consumer depicts the direct movement of products from producer to consumers. ex: a haircut received at a barber shop moves through Channel A because there is not intermediary between the person performing the service and the on receiving it

Channel F

Producer → Industrial Distributors →Organizational Buyers An industrial distributor facilitates exchanges between the producer and the customer.

Channel E

Producer → Organizational buyers illustrates the direct channel for business products Business customers prefer to communicate directly with producers, especially when expensive or technically complex products are involved ex: Xerox printers

Channel B

Producer → Retailer → Consumer Moves goods from the producer to a retailer and then to customers ex: Walmart and Target sell items that were purchased directly from the producers

Channel C

Producer → Wholesaler → Retailers → Consumers It takes goods from the producer to a wholesaler, then to a retailer, and finally to consumers. ex: Kitchen Aid appliances

Goals of Physical Distribution

Right Goods Right Place Right time Right quantity Right support system Cycle time: The time needed to complete a process Companies that offer the right goods, in the right place, at the right time, in the right quantity, and with the right support services are able to sell more than competitors that do not.

Promotion

Set promotional objectives. Coordinate advertising, personal selling, sales promotion, publicity, and packaging.

SKU

Stock keeping unit The identification number of a product that allows it to be tracked for inventory purposes So, when products are scanned at the grocery store, for example, that SKU information can be related to inventory control so that more product can be placed on the shelf It helps retailers track what consumers purchase and enables specific targeting, for example, when you buy a carton of orange juice at the grocery store, you might get a coupon printed at checkout for something kind of related product, the scanner knows to print out that specific coupon because of the SKU of the product you just bought

public warehouses

Storage space and related physical distribution facilities that can be leased by companies They sometimes provide distribution services, such as receiving, unloading, inspecting, filling orders, financing, displaying products, and coordinating shipments. They are also useful for firms that are testing or entering new markets or require additional storage space. public warehouses offer variable (and possibly lower) costs because users rent space and purchase warehousing services only as needed.

Competitive Priorities in Marketing Channels

Supply chains driven by firm-established goals focus on the "competitive priorities" of speed, quality, cost, or flexibility as the performance objective. Increasingly, firms are recognizing that supply chains can be a source of competitive advantage and a strong market orientation because supply-chain decisions cut across all functional areas of business. Building the most effective and efficient supply chain can sustain a business and help it to use resources effectively and be more efficient.

Channel Power

The ability of one channel member to influence another member's goal achievement

Warehousing

The design and operation of facilities for storing and moving goods Warehousing also helps to stabilize prices and the availability of seasonal items.

Channel captain (channel leader)

The dominant leader of a marketing channel or a supply channel May be a producer, wholesaler or retailer Drives a lot of the decisions and has a lot of power

Safety stock

The extra inventory a firm keeps to avoid stockouts

Farmers Insurance (Video)

The idea for Farmers Insurance to have a dual distribution system was also used to provide better customer services, a market orientation on how Farmers would reach customers the way they want to be reach (via independent agent or corporate representative agent) approaching customer how they want to be approached

Difference between Agents and Industrial Distributors

The key difference between an agent and an industrial distributor is that distributor is that distributors takes title to the goods and carry inventories, while agents do not. Agents just act as salespeople on behalf of manufacturers.

Does eliminating the middle man cut costs?

The main point to remember is that, regardless of the number of middlemen, the activities involved to get the product from manufacturer to consumer must still be done by someone So, cutting out one intermediary just means that someone else in the channel has to perform those duties. And this may or may not be the most efficient distribution channel if that channel member, for example, does not have the same skills or resources as the member who was cut.

Transportation

The movement of products from where they are made to intermediaries and end users most expensive distribution function basic transportation modes for moving physical goods are railroads, trucks, waterways, airways, and pipelines.

Strategic Channel Alliance

The products of one organization are distributed through the marketing channels of another Some organizations choose to cooperate with each other and from a strategic channel lines to distribute each other's products through their own distribution channels The products of the two firms are often similar with respect to target markets or uses, but they are not direct competitors. This may even be done by competing organizations if it's in their best interest to most effectively get products to market ex: A brand of bottled water might be distributed through a marketing channel for soft drinks

What variables do consumers take into account when purchasing products?

replacement rate, product adjustment (services), duration of consumption and time required to find the product

Supply management

sourcing of necessary resources, products and services from suppliers to support all supply-chain members 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

Customer relationship management (CRM)

systems exploit the information in supply-chain partners' information systems and make it available for easy reference. CRM systems can help all channel members make better marketing strategy decisions that develop and sustain desirable customer relationships.

Lead time

the average time between placing the order and receiving it.

Possession Utility

the customer has access to the product to use or to store for future use. How (access now vs. later)

Intensity of Market Coverage

the number and kinds of outlets in which a product will be sold. Intensive Selective Exclusive Distribution

Materials Handling

the physical handling of tangible goods, supplies, and resources

Usage Rate

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

Two common methods of material handling

unit loading and containerization

Radio Frequency ID

uses radio waves to identify and track materials tagged with special microchips—through every phase of handling. reduces cycle time

birdyback

using air carriers

piggyback

using truck trailers and railway flatcars

fishyback

using water carriers

Marketing Channels Facilitate Exchange Efficiencies

when four buyers seek products from four producers, 16 separate transactions are possible. If one intermediary serves both producers and buyers, the number of possible transactions is cut in half. Intermediaries are specialists in facilitating exchanges. They provide valuable assistance because of their access to and control over important resources used in the proper functioning of marketing channels.

Proportional cost of each physical distribution function as a % of Total Distribution Cost

• 45% Transportation • 22% Warehousing • 24% Inventory carrying • 6% Customer service/ order entry • 3% Administration Transportation and Warehousing make up in part the largest proportion of cost (67% of the total) • This shows again why eliminating the middleman may not reduce costs for the consumer. o These two stages in particular must be done by someone in the channel regardless of who it is