Ch.10 Marketing Channels Delivering Customer Value

Inbound logistics

(moving products and materials from suppliers to the factory)

Outbound logistics

(moving products from the factory to resellers and ultimately to customers)

Reverse logistics

(reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers)

Transportation

-Trucks have increased their share of transportation steadily and now account for 40 percent of total cargo ton-miles moved in the United States -Railroads account for another 40 percent of the total cargo ton-miles moved. They are one of the most cost-effective modes for shipping large amounts of bulk products—coal, sand, minerals, and farm and forest products—over long distances

3 types of franchises:

1) The first type is the manufacturer-sponsored retailer franchise system—for example, Ford and its network of independent franchised dealers 2) The second type is the manufacturer-sponsored wholesaler franchise system—Coca-Cola licenses bottlers (wholesalers) in various world markets that buy Coca- Cola syrup concentrate and then bottle and sell the finished product to retailers locally 3) The third type is the service-firm-sponsored retailer franchise system—for example, Burger King and its nearly 12,300 franchisee-operated restaurants around the world

Horizontal marketing system

A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

Conventional distribution channel (Pg.337)

A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.

Vertical marketing system (Vms)

A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.

Franchise organization

A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process.

Multichannel distribution system

A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Distribution center

A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

Channel level

A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Indirect marketing channel

A marketing channel containing one or more intermediary levels.

Direct marketing channel

A marketing channel that has no intermediary levels.

Value delivery network

A network composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value

Marketing channel (or distribution channel) (Pg.333)

A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

Contractual Vms

A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts.

Corporate Vms

A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership.

Administered Vms (Pg.339)

A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties.

Third-party logistics (3Pl) provider

An independent logistics provider that performs any or all of the functions required to get a client's product to market.

Both parties can benefit from exclusive arrangements: The seller obtains more loyal and dependable outlets, and the dealers obtain a steady source of supply and stronger seller support (Pg.349)

But exclusive arrangements also ex- clude other producers from selling to these dealers. This situation brings exclusive dealing contracts under the scope of the Clayton Act of 1914

Multimodal transportation

Combining two or more modes of transportation.

Marketing channel design

Designing effective marketing channels by analyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.

Channel conflict

Disagreements among marketing channel members on goals, roles, and rewards—who should do what and for what rewards.

Marketing channels are part of the overall customer value-delivery network

Each channel member and level adds value for the customer.

________ include the channel intermediaries available, the competitor's distribution structure, and whether the target customers have access to the available intermediaries.

External factors

Companies use third-party logistics providers for several reasons:

First, because getting the product to market is their main focus, using these providers makes the most sense, as they can often do it more efficiently and at lower cost -Outsourcing typically results in a 15 to 30 percent cost savings Second, outsourcing logistics frees a company to focus more intensely on its core business Finally, integrated logistics companies understand increasingly complex logistics environments

Companies today are placing greater emphasis on logistics for several reasons:

First, companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices Second, improved logistics can yield tremendous cost savings to both a company and its customers Third, the explosion in product variety has created a need for improved logistics management

Exclusive distribution

Giving a limited number of dealers the exclusive right to distribute the company's products in their territories. Exclusive distribution is often found in the distribution of luxury brands -When the seller allows only certain outlets to carry its products, this strategy For example, Breitling watches—positioned as "Instruments for Professionals" and selling at prices from $5,000 to more than $100,000—are sold by only a few authorized dealers in any given market area

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.

The company must sell not only through the intermediaries but also to and with them.

Most companies see their intermediaries as first-line customers and partners. They practice strong partner relationship management to forge long-term partnerships with channel members. -This creates a value delivery system that meets the needs of both the company and its marketing partners

Marketing logistics (or physical distribution)

Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit

Full-line forcing

Producers of a strong brand sometimes sell it to dealers only if the dealers will take some or all of the rest of its line. -Such tying agreements are not necessarily illegal, but they violate the Clayton Act if they tend to lessen competition substantially -The practice may prevent consumers from freely choosing among competing suppliers of these other brands -Producers are free to select their dealers, but their right to terminate dealers is somewhat restricted

Marketing channel management

Selecting, managing, and motivating individual channel members and evaluating their performance over time. -When selecting intermediaries, the company should determine what characteristics distinguish the better ones

Intensive distribution

Stocking the product in as many outlets as possible. These products must be available where and when consumers want them. For example, toothpaste, candy, and other similar items are sold in millions of outlets to provide maximum brand exposure and consumer convenience

Disintermediation

The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries.

Integrated logistics management (Pg.356)

The logistics concept that emphasizes teamwork—both inside the company and among all the marketing channel organizations—to maximize the performance of the entire distribution system.

The goal of marketing *logistics* should be to provide a targeted level of customer service at the least cost

The objective is to maximize profits, not sales

Exclusive territorial agreements

The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory

Selective distribution

The use of more than one but fewer than all of the intermediaries that are willing to carry the company's products. -Selective distribution gives producers good market coverage with more control and less cost than does intensive distribution

All the institutions in the channel are connected by several types of flows:

These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow

A better term would be demand chain because it suggests a sense-and-respond view of the market

Under this view, planning starts by identifying the needs of target customers, to which the company responds by organizing a chain of resources and activities with the goal of creating customer value

Exclusive dealing

When the seller requires that these dealers not handle competitors' products.

________ are a common intermediary in the distribution channel who stock different products from different manufacturers and sell them to the retailer/consumers.

Wholesalers

Multichannel distribution systems offer many *advantages* to companies facing large and complex markets:

With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments Disadvantage... But such multichannel systems are harder to control, and they can generate conflict as more channels compete for customers and sales

Economic criteria

a company uses to compare the likely sales, costs, and profitability of different channel alternatives

Airtruck

air and trucks

Using intermediaries usually means giving them some control over the marketing of the product,

and some intermediaries take more control than others

Logistics effectiveness has a major impact on

both customer satisfaction and company costs

Producers make narrow assortments of products in large quantities, but consumers want

broad assortments of products in small quantities

Air

carriers transport less than 1 percent of the cargo ton-miles of the nation's goods, they are an important transportation mode

The Internet

carries digital products from producer to customer via satellite, cable, phone wire, or wireless signal. Software firms, the media, music and video companies, and education all make use of the Internet to transport digital products. The Internet holds the potential for lower product distribution cost

Vertical conflict

conflict between different levels of the same channel, is even more common

3 major types of VMSs:

corporate, contractual, and administered

Piggyback

describes the use of rail and trucks

The ________ is a common intermediary in the distribution channel who generally stocks up on a specific type of product.

distributor

The goal of integrated supply chain management is to

harmonize all of the company's logistics decisions

Horizontal conflict

occurs among firms at the same level of the channel

In designing an effective channel strategy, which of the following would evaluate the justification of costs after using the distribution channel?

sales

The movement of raw materials, technology, people, and information as they flow from their original source to the end customer as a fully developed product is called a ________

supply chain

Electronic data interchange (EDI),

the digital exchange of data between organizations, which primarily is transmitted via the Internet

When a manufacturer is deciding on a distribution strategy, ________ is determined by the number of intermediaries at each level, and generally depends on the type of product that the manufacturer is trying to sell.

the intensity

The number of intermediary levels indicates

the length of a channel

Marketers, however, have traditionally focused on the downstream side of the supply chain—

the marketing channels (or distribution channels) that look toward the customer. The term supply chain may be too limited, as it takes a make-and-sell view of the business

The company's channel objectives are also influenced by

the nature of the company, its products, its marketing intermediaries, its competitors, and the environment.

When the company has defined its channel objectives, it should next identify its major channel alternatives in terms of

the types of intermediaries, the number of intermediaries, and the responsibilities of each channel member

From the economic system's point of view, the role of marketing intermediaries is

to transform the assortments of products made by producers into the assortments wanted by consumers

In shipping goods to its warehouses, dealers, and customers, the company can choose among 5 main transportation modes:

truck, rail, water, pipeline, and air, along with an alternative mode for digital products—the Internet

One of the biggest channel developments over the years has been the emergence of

vertical marketing systems that provide channel leadership

Major logistics functions:

warehousing, inventory management, transportation, and logistics information management

Trainship

water and rail

Fishyback

water and trucks

Water carriers,

which account for less than 5 percent of the cargo ton-miles, transport large amounts of goods by ships and barges on U.S. coastal and inland waterways

Members of the marketing channel perform many key functions. Some help to complete transactions:

● Information: Gathering and distributing information about consumers, producers, and other 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 offers to meet the buyer's needs, including activities such as manufacturing, grading, assembling, and packaging. ● Negotiation: Reaching an agreement on price and other terms so that ownership or possession can be transferred. Others help to fulfill the completed transactions: ● 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.