Ch. 15: Managing Marketing Channels and Supply Chains

Which assigned article gives an example of a strategic channel alliance?

"Big Beer, A Moral Market & Innovation"

Which assigned article discusses the advantages of vertical marketing systems?

"Companies More Prone to Go 'Vertical'"

Which assigned article is a good example of vertical conflict?

"Dr. Pepper vs. Dr. Pepper"

Which assigned article is an example of a company that uses intensive distribution?

"Twinkie Returns with Less Baggage"

Which assigned article is a good example of showrooming?

"Whatever Happened to Showrooming?"

Define the supply chain customer service component of dependability.

-Dependability is the consistency of replenishment -Is broken into 3 elements: consistent lead time, safe delivery, and complete delivery.

Define the supply chain customer service component of time.

-Refers to order cycle/replenishment time for an item (time b/w ordering of an item and when it is received and ready for use or sale) -Current emphasis is to reduce order cycle time to minimize inventory levels of customers & make process of reordering and receiving products as simple as possible, often through inventory systems called quick response and efficient consumer response delivery systems

How are internet marketing channels similar to and different from common consumer product channels?

-Similar: Electronic intermediaries perform transactional & facilitating functions effectively and at low cost -Different: Electronic intermediaries are incapable of performing logistical functions

What is density and why is it relevant?

-The number of stores in a geographical area -attention to density is required to achieve the best coverage of a target market when selecting a marketing strategy.

Define the supply chain customer service component of convenience.

-There should be a minimum effort on the part of the buyer in doing business with the seller -Vendor-Managed Inventory: The supplier determines the product amount and assortment a customer (such as a retailer) needs and automatically delivers the appropriate items

What are some characteristics of a responsive supply chain?

-relies on more expensive express transportation -achieves product variety and manufacturing efficiency by designing common platforms across several products and using common components Ex. Dell

What are some characteristics of an efficient supply chain?

-uses inexpensive but slower modes of transportation -emphasize economies of scale in its production process by reducing the variety of system configurations offered -limit assembly and inventory storage facilities to a single location ~uses cross-docking to achieve above: practice that involves unloading products from suppliers, sorting products for individual stores, and quickly reloading products onto its trucks for a particular store. No warehousing/storing of products for longer than a few hours. -Ex. Walmart

What are the 3 major types of vertical marketing systems?

1) Corporate -forward integration -backward integration 2) Contractual -wholesaler-sponsored voluntary chains -retailer-sponsored cooperatives -franchising 3) Administered

What are the most important components of what logistics do?

1) Deals with decisions needed to move a product from the source of raw materials to consumption (the FLOW of the product) 2) Makes sure these decisions are COST EFFECTIVE 3) Ensures that firm does not drive down logistics cost to a point where it can no longer deliver expected CUSTOMER SERVICE

What types of marketing channels are used for consumer products? What type of products are best suited to each marketing channel?

1) Direct Channels: Producer performs all channel functions. -Producer --> consumer 2) Indirect channels -Producer --> Retailer --> Consumer (used when retailer is large & can buy in large quantities from a producer/inventory cost makes wholesaler too expensive) -Producer --> Wholesaler --> Retailer --> Consumer (used for low-cost, low-unit items frequently purchased by consumers such as candy) -Producer --> Agent --> Wholesaler --> Retailer --> Consumer (used when there are many small manufacturers and many small retailers; longest channel)

What types of marketing channels are used for business products? (explain when used & what intermediary does in each channel)

1) Direct channels - producer --> industrial user (large and well-defined buyers, sales effort requires lengthy negotiation, products have high unit value and require hands-on expertise for installment or use) 2) Indirect channels -producer --> industrial distributor --> industrial user (industrial distributor performs selling, stocking, delivering & financing) -producer --> agent --> industrial user (agent is independent selling arm of producers, represents producer to industrial users) -producer --> agent --> industrial distributor --> industrial user (longest channel)

What forms of influence can a channel captain have over channel members?

1) Economic influence: Arises from ability of a firm to reward other members b/c of its strong financial position or customer franchise. 2) Expertise 3) Identification: When channel members desire to be identified with another channel member giving this channel influence over the other. 4) Legitimate Right: Influence can arise from the legitimate right of one channel member to direct the behavior of other members. Likely in contractual vertical marketing systems.

What are two ways in which supply chains differ from marketing channels?

1) In terms of the firms involved: Supply chain includes suppliers that provide raw material inputs to a manufacturer as well as the wholesaler and retailers that deliver finished products to consumers. 2) In terms of the management process: Supply chain management is the integration and organization of information and logistics activities ACROSS FIRMS in a supply chain for the purpose of creating and delivering products and services that provide value to consumers. Applies sophisticated info technology letting companies share & operate systems for order processing, transportation scheduling, & inventory and facility management.

What buyer interests do companies look at when selecting a marketing channel?

1) Information: Important when buyers have limited knowledge or desire specific data about a product. 2) Convenience: Means different things to different buyers 3) Variety: More choices is attractive to consumers 4) Pre-/Post-Sale services: Important for products that require delivery, installment, and credit (such as large household appliances)

What are the 4 most popular types of franchise arrangements and how do they work?

1) Manufacturer-sponsored retail franchise systems: Prominent in automobile industry, where a manufacturer such as Ford licenses dealers to sell its cars subject to various sales and service conditions. 2) Manufacturer-sponsored wholesale franchise systems: Exist in soft-drink industry. Pepsi licenses wholesalers that purchase concentrate from Pepsi and then carbonate, bottle, promote and distribute its product to retailers and restaurants. 3) Service-sponsored retail franchise systems: Used by firms that have designed a unique approach for performing a service and wish to profit by selling the franchise to others. Ex. McDonalds. 4) Service-sponsored franchise systems: When franchisors license individuals or firms to dispense a service under a trade name and according to specific guidelines.

What are the terms and functions of some intermediaries?

1) Middleman: Any intermediary between the manufacturer and end-user markets. 2) Agent or broker: Any intermediary with legal authority to act on behalf of the manufacturer 3) Wholesaler: An intermediary who sells to other intermediaries, usually to retailers; term usually applies to consumer markets. 4) Retailer: An intermediary who sells to consumers. 5) Distributor: An imprecise term typically used to describe intermediaries who perform a variety of distribution functions (selling, maintaining inventories, extending credit etc.). May also be used to refer to wholesalers. 6) Dealer: A more imprecise term than distributor that can mean the same as distributor, retailer, wholesaler, and so forth.

What functions do intermediaries perform that make possible the flow of products from producers to ultimate consumers?

1) Transactional Functions: Buying and selling products or services. Includes assuming business risks in owning inventory that may not be sold. 2) Logistical functions: Gathering, sorting, storing and dispersing/physically transporting products 3) Facilitating functions: Make transactions easier for buyers (ex. VS Angel Cards--consumer can buy now and pay later) -Financing: Extending credit to customers -Grading: Inspecting, testing, or judging products and assigning them quality grades. -Marketing info & research: Providing info to customers and suppliers, including competitive conditions and trends.

What are the two types and sources of channel conflict?

1) Vertical: Occurs between different levels in a marketing channel. -Disintermediation -Disagreements over how profit margins are distributed among channel members -Manufacturers believe wholesalers or retailers are not giving their product sufficient attention. 2) Horizontal: Occurs between intermediaries at the same level in a marketing channel. -Conflict arises when a manufacturer increases its distribution coverage in a geographical area (and potentially encroaches on the area of another) -Dual distribution causes conflict when different types of retailers carry the same brands.

Name and define the 3 variations of a contractual vertical marketing system.

1) Wholesaler-sponsored voluntary chains: Wholesaler develops contractual relationship w/ small independent retailer to standardize & coordinate buying practices, merchandising programs, and inventory management efforts. Aims to achieve economies of scale and volume discounts in order to compete with chain stores. 2) Retailer-sponsored cooperatives: Small, independent retailers form an organization that operates a wholesale facility cooperatively. Collaborate on promotional and pricing activities through wholesaler. 3) Franchising: Contractual arrangement between a parent company (franchisor) & an individual or firm (franchisee). Allows franchisee to operate a certain type of business under an established name and by specific rules.

Channel captain

A channel member with the ability to influence the behavior of other members that coordinates, directs and supports other channel members. Can be producers, wholesalers or retailers. Help to secure cooperation in marketing channels.

Dual distribution

A distribution method in which a firm reaches different buyers by employing 2 or more different types of channels for the same basic product.

Dual Distribution

A potentially anti-competitive practice that most commonly arises when a manufacturer distributes through its own vertically integrated channel in competition with independent wholesalers and retailers that also sell its products.

Reverse logistics

A process of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution, or disposal. This is a supply chain working in reverse and can reduce waste in landfills and lower operating costs for companies.

Full-line forcing

A special kind of tying arrangement that involves a supplier requiring that a channel member carry its full line of products in order to sell a specific item in the supplier's line.

Define the supply chain customer service component of communication.

A two-way link between the buyer and supplier that helps in monitoring service and anticipating future needs.

Disintermediation

A type of vertical channel conflict in which a channel member bypasses another member and sells or buys products direct.

Administered vertical marketing systems

Achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.

Logistics

Activities that focus on making products available to consumers and industrial users in the right amount, at the right time and place and at the lowest possible cost.

Channel conflict

Arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.

How do business channels differ from consumer channels and why?

Business channels typically are shorter and rely on one or no intermediary at all because business users are fewer in number, tend to be more concentrated geographically, and buy in larger quantities.

What types of channel practices are monitored by the Federal Trade Commission and the Justice Department?

Channel practices that restrain competition, create monopolies, or otherwise represent unfair methods of competition under the Sherman Act (1890) and Clayton Act (1914). 6 practices have received the most attention: -dual distribution -vertical integration -exclusive dealing -tying arrangements -refusal to deal (with existing channel members) -resale restrictions

Define, give examples and outline the (dis)advantages of corporate marketing systems.

Combines successive stages of production & distribution under a single ownership -forward integration: example of a corporate vertical marketing system in which a producer owns the intermediary at the next level down in the channel -backward integration: when a retailer owns a manufacturing operation -Advantages: reduce distribution costs, offer greater control over supply sources and resale of their products to companies. -Disadvantages: Increase company's capital investment and fixed costs

Marketing channel

Consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. Make possible the flow of products, through intermediaries, to a buyer.

How is the profitability of a marketing strategy/channel determined?

Determined by the margins earned (revenue - cost) for each channel member and for the channel as a whole.

What are some marketing channel costs relevant to a company's profitability?

Distribution, advertising, and selling expenses associated with different types of marketing channels. The extent to which channel members share these costs determines the margins received by each member and by the channel as a whole.

What is exclusive distribution and what type of products is it used with? Why is it preferred by retailers and industrial distributors?

Exclusive distribution is the extreme opposite of intensive distribution; only one retailer in a specific geographical area carries the firm's products. Typically chosen for specialty products or services (fragrance, apparel etc.). Exclusive distribution limits head-to-head competition for an identical product and provides a point of difference for a retailer or distributor.

Exclusive dealing

Exists when a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products. This practice sometimes lessens competition or creates monopolies and often arises in franchising.

What does total logistics cost include/what is the total logistics cost concept?

Expenses associated with transportation, materials handling and warehousing, inventory, stockouts (being out of inventory), order processing, and return products handling. Many of these costs are interrelated and so changes in one will impact the others.

What are the 3 degrees of distribution density?

Intensive, exclusive, and selective

How and based on what do marketers select a supply chain configuration?

Marketers use 3 steps to select a supply chain configuration based on a clearly defined marketing strategy: 1) Understand the customer: Identify needs of customer segment in order to help company define the relative importance of efficiency and responsiveness in meeting customer requirements. 2) Understand the supply chain: Know what a supply chain is designed to do well. Is it highly responsive to customer requirements and demand or focused on efficiency and supplying products at lowest possible price? Supply chain manager often makes trade-offs between the two. 3) Harmonize the supply chain with the marketing strategy: Ensure that what supply chain does well is consistent with company's targeted customers' needs & marketing strategy

Direct marketing channels

Marketing channels that allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson such as mail-order selling or catalog sales.

What are 3 criteria critical to examine when selecting a marketing strategy?

Marketing strategy must: -provide best coverage of target market (intensive, exclusive and selective degrees of distribution density) -best satisfy the buying requirements of the target market (info, convenience, variety, pre-/post-service) -be the most profitable

Multichannel/omnichannel marketing

Marketing that blends the different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop & buy in traditional intermediaries and online. Provide same shopping experience for customers in store, using catalog, or on website.

Tying arrangements

Occur when a supplier requires a distributor purchasing some products to buy others from them. This practice sometimes lessens competition or creates monopolies and often arises in franchising.

Vertical marketing systems

Professionally managed and centrally coordinated marketing channels designed to achieve greater efficiency in performing channel functions and greater marketing effectiveness.impact.

Resale restrictions

Refer to a supplier's attempt to stipulate to whom distributors may resell the supplier's products and in what specific geographical areas or territories they may be sold.

Customer service (within context of supply chain)

The ability of logistics management to satisfy users in terms of time, dependability, communication and convenience. Supply chain managers must balance these four customer service factors against total logistics cost factors.

Vertical integration

The combination in one company of two or more stages of production normally operated by separate companies. Sometimes viewed as an anti-competitive practice.

Who suffers the loss if stock is unsold, the intermediary or the producer?

The intermediary

Logistics management

The practice of organizing the cost-effective flow of raw materials, in-process inventory, finished goods, and related information from point of origin to point of consumption to satisfy customer requirements.

Supply chain

The various firms involved in performing the activities required to create and deliver a product or service to consumers or industrial users. A supply chain is a flow with an output that is the service delivered to customers.

What is unique about internet marketing channels?

They combine electronic & traditional intermediaries to provide value and utility to consumers.

How do marketing channels benefit consumers?

They help to create value for consumers through the four utilities.

What is the objective of logistics management in a supply chain?

To minimize total logistics costs while delivering the appropriate level of customer service.

How does a contractual vertical marketing system function?

Under a contractual vertical marketing system, independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone. Most popular type of vertical marketing system.

What is selective distribution and what type of products is it used with?

When a firm selects a few retailers in a specific geographical area to carry its products. Has market coverage advantage of intensive and advantage of control over resale that comes with exclusive distribution. Most common form of distribution density.

Strategic channel alliances

When one firm's marketing channel is used to sell another firm's products. Popular in global marketing.

What is intensive distribution and what type of products is it used with?

With intensive distribution, a firm tries to place its products and services in as many outlets as possible. Typically chosen for convenience products or services (candy, newspapers etc.)