Marketing Chapter 14

Supply chains driven by firm-established goals focus on the ______ of speed, quality, cost, or flexibility as the performance objective

"competitive priorities"

Channel captain

(channel leader) - The dominant leader of a marketing channel or a supply channel. may be a producer, wholesaler, or retailer. must possess channel power

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

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

Strategic issues in marketing channels

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

Electronic data interchange (EDI)

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

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

Exclusive dealing

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

Supply Chain

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

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

Strategic Channel Alliance

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

Industrial distributor

An independent business organization that takes title to industrial products and carries inventories

Manufacturers' agent

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

Just-in-time (JIT)

An inventory-management approach in which supplies arrive just when needed for production or resale Usually there is no safety stock Requires a high level of coordination between producers and suppliers Eliminates waste Reduces inventory costs

order entry

Begins when customers or salespeople place purchase orders

Advantages of using industrial distributors:

Can perform the needed selling activities in local markets at a relatively low cost to a manufacturer Can reduce a producer's financial burden by providing customers with credit services Are aware of local needs and can pass on market information to producers due to their close relationships with their customers Reduce producers' capital requirements by holding adequate inventories in local markets

Administered VMS

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

Contractual VMS

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

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. Permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel.

Vertical channel integration

Combining two or more stages of the marketing channel under one management

private warehouses

Company-operated facilities for storing and shipping products

Marketing channels serve many functions, including:

Creating utility Facilitating exchange efficiencies

Digital Distribution

Delivering content through the Internet to a computer or other device

order delivery

Delivery is scheduled with an appropriate carrier

Inventory management

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

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

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

Form Utility

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

Industrial distributor can be most effective when a product:

Has broad market appeal Is easily stocked and serviced Is sold in small quantities Is needed on demand to avoid high losses

Intensive distribution is appropriate for products that:

Have a high replacement rate Require almost no service Are bought based on price cues

Time Utility

Having products available when the consumer 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

_______ enhances the transparency of the supply chain, allowing all marketing channel members to track the movement of goods throughout the supply chain and improve their customer service

Information technology

Levels of market coverage

Intensive Selective Exclusive

Selective Distribution is appropriate when:

Is appropriate for shopping products Is desirable when a special effort, such as customer service from a channel member, is important to customers Is often used to motivate retailers to provide adequate service

Channel cooperation:

Leads to greater trust among channel members Improves the overall functioning of the channel Leads to more satisfying relationships among channel members

Place utility

Making products available in locations where customers wish to purchase them

Disadvantages of using industrial distributors:

May be difficult to manage because they are independent firms Often stock competing brands, so a producer cannot depend on them to sell its brand aggressively Incur expenses from maintaining inventories Are less likely to handle bulky or slow-selling items, or items that need specialized facilities or extraordinary selling efforts May lack the specialized knowledge necessary to sell and service technical products

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

Marketing Intermediaries

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

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

materials handling

Physical handling of tangible goods, supplies, and resources Also involves transportation from points of production to points of consumption

Containerization facilitates intermodal transportation by consolidating shipments into sealed containers for transport by:

Piggyback (truck and rail) Fishyback (truck and water) Birdyback (truck and air)

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

order handling

Product availability and customer creditworthiness is verified; order assembly occurs

Exclusive distribution is suitable for products:

Purchased infrequently Consumed over a long period of time That require a high level of customer service or information

Variables that affect the intensity of market coverage:

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

Exclusive

Specialty products, available in very few outlets

Cooperation enables retailers, wholesalers, suppliers, and logistics providers to:

Speed up inventory replenishment Improve customer service Cut the costs of bringing products to the consumer

Various channel stages may be combined, either horizontally or vertically, under the management of a channel captain Such integration may:

Stabilize supply Reduce costs Increase channel member coordination

________ should begin with a focus on the customer, who is the ultimate consumer and whose satisfaction should be the goal of all the efforts of channel members

Supply-chain management

_____ has improved supply-chain management capabilities globally

Technology

channel power

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

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

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

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 consumers when and where they want to purchase them

warehousing

The design and operation of facilities for storing and moving goods Provides time utility by enabling firms to compensate for dissimilar production and consumption rates Helps stabilize prices and the availability of seasonal items

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. Is the most expensive physical distribution method

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

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

The role of each channel member must be clearly defined and followed Members of channel partnerships must agree on means of coordinating channels, which requires strong, but not polarizing, leadership

Disadvantages of using manufacturers' agents:

The seller has little control over the actions of manufacturers' agents Prefer to concentrate on larger accounts due to the fact they work on commission 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 Have a limited ability to provide customers with parts or repair services quickly because they rarely maintain inventories

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 considered illegal

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

Marketing channels create four types of utility:

Time utility place utility possession utility form utility

______ are strategic decisions to combine (and recombine) resources for greatest cost-effectiveness The goal is not always to find the lowest cost, but rather to find the right balance of costs

Trade-offs

exclusive distribution

Using a single outlet in a fairly large geographic area to distribute a product

Intensive Distribution

Using all available outlets to distribute a product

Radio frequency identification (RFID)

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

Advantages of using manufacturers' agents

Usually possess considerable technical and market information and have an established set of customers Can be an asset to an organizational seller with highly seasonal demand because the seller does not have to support a year-round sales force Are typically paid on a commission basis, which can be an economical alternative for a firm that has highly limited resources and cannot afford a full-time sales force

__________ may be the most efficient distribution channel for some consumer goods

a long channel

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.

Economic conditions, technology, and government regulations can affect _______.

channel selection

Intensive

convenience products. available in many retail outlets

VMS takes on one of three forms

corporate VMS administered VMS Contractural VMS

Marketing Channel Selection

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

Channel decisions are critical because they ______________.

determine a product's market presence and accessibility

Larger firms are in a better position to deal with vendors or other channel members; are likely to have more ________, which reduce delivery times to customers; and can use an extensive product mix as a competitive tool

distribution centers

Channel Decisions are the least ______ component of the marketing mix

flexible

megacarriers

freight transportation firms that provide several modes of shipment

Critics accuse wholesalers of being _______

inefficient and adding to costs

Each supply-chain member requires _______ from other channel members

information

distribution centers

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

Smaller firms may be in a better position to serve ________ 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

local and regional needs

Less-expensive standardized products with long shelf lives can go through _______.

longer channels with many intermediaries

In a highly competitive market, it is important for a company to maintain _____ so it can offer lower prices than its competitors if necessary to maintain a competitive advantage

low costs

Vertical channel integration 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

unit loading

one or more boxes are placed on a pallet or skid

Order processing entails three main tasks:

order entry, order handling, order delivery

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

order lead time usage rate safety stock Reorder Point = (Order Lead Time × Usage Rate) + Safety Stock

freight forwarders

organizations that consolidate shipments from several firms into efficient lot sizes

Warehouses fall into two general categories:

private and public warehouses

With integrated information sharing among chain members, firms can _______________ to the end customer

reduce costs, improve services, and provide increased value

Practices subject to legal restraint

restricted sales territories refusal to deal tying agreements exclusive dealing

Selective

shopping products, available in some outlets

Marketers of complex and expensive products, perishable products, and fragile products that require special handling will likely employ ______.

short channels

Stockouts

shortages of products

When making distribution decisions, ________ are often as important to customers as costs

speed of delivery, flexibility, and quality of service

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

usage rate

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

Cycle Time

the time needed to complete a process

A _______ to physical distribution enables managers to view physical distribution as a system and shifts the emphasis from lowering the costs of individual activities to minimizing overall costs

total-cost approach

Intermodal transportation

two or more transportation modes used in combination

Two common methods used in materials handling:

unit loading containerization

A distribution system involves firms that are _______ in the supply chain (e.g., producers and suppliers) and _______ (e.g., wholesalers and retailers) working together to serve customers and generate competitive advantage

upstream downstream

Selective distribution

using only some available outlets in an area to distribute a product

Channel cooperation reduces _____, such as time, energy, or materials

wasted resources