Ch.14 - Marketing Channels and Supply Chain Management

factors to consider when selecting a marketing channel

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

Marketing Channel Activities Performed by Intermediaries

- marketing information - marketing management - facilitating exchanges - promotion - price - logistics - slide 8

channel cooperation enables retailers, wholesalers, suppliers and logistics providers to:

1. Speed up inventory replenishment 2. Improve customer service 3. Cut the costs of bringing products to customers - Leads to greater trust among channel members - Improves the overall functioning of the channel - Leads to more satisfying relationships among channel members - A marketing channel should be viewed as a unified supply chain - Channel members should direct efforts toward common objectives, and their tasks should be defined precisely so that roles can be structured for maximum effectiveness in working toward achieving objectives

Marketing channels create four types of utility:

1. time utility: Having products available when the consumer wants them 2. place utility: Making products available in locations where customers wish to purchase them 3. form utility 4. possession utility

supply chain

All the organizations and activities involved with the flow and transformation of products from raw materials through to the end consumer - A distribution system involves firms that are "upstream" in the supply chain (e.g., producers and suppliers) and "downstream" (e.g., wholesalers and retailers) working together to serve customers and generate competitive advantage

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

time utility (marketing channel utility)

Having products available when the consumer wants them

competition (selecting a marketing channel)

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 - supply chain decisions are different based on competitive structures (monopoly, oligopoly, monopolistic competition, pure competition)

place utility (marketing channel utility)

Making products available in locations where customers wish to purchase them

reorder point equation

Reorder Point = (Order Lead Time × Usage Rate) + Safety Stock

reorder point (inv. management)

The inventory level that signals the need to place a new order - to calculate, marketer must know: 1. order lead time: average time lapse between placing the order and receiving it 2. usage rate: The rate at which a product's inventory is used or sold during a specific time period 3. 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

consumer customer characteristics

buy limited quantities of a product, purchase from retailers, and often do not mind limited customer service

When the buyer, the seller, marketing intermediaries, and facilitating agencies work together, the cooperative relationship results in ___________ and __________ that meet customers' needs regarding delivery, scheduling, packaging, or other requirements

compromise and adjustments

Physical distribution managers must be sensitive to the issue of:

cost trade-offs - Trade-offs 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

Supply chain management 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

critics accuse wholesalers of being _______ and _____________

inefficient and adding to costs - While eliminating wholesalers may lower prices for customers, it would not eliminate the need for the services the wholesalers provide - Other channel members would have to perform those functions, perhaps not as efficiently, and customers still would have to pay for them

The marketing channel(s) (distribution element of marketing mix) is the _______ ________ component of the marketing mix

least flexible - Once a firm commits to a distribution channel, it is difficult to change

a ____ channel may be the most efficient distribution channel for some consumer goods

long - When several channel intermediaries perform specialized functions, costs are likely to be lower than when one channel member tries to perform them all - Efficiencies arise when firms that specialize in certain elements of producing a product or moving it through the channel are more effective at performing specialized tasks than the manufacturer - This results in added value to customers and reduced costs throughout the distribution channel

business customer characteristics

often prefer to deal directly with producers and also frequently buy in large quantities

the most common typical marketing channels for business products

producer -> organizational buyers - slide 15

the most common typical marketing channels for consumer products

producer -> wholesalers -> retailers -> consumers - slide 13

in a distribution system, which firms are considered "upstream" in the supply chain?

producers and suppliers

what should be the goal of all efforts of channel members in supply chain management?

satisfaction of the ultimate/end consumer

the major role of marketing channels

to make products available at the right time at the right place in the right quantities

what function of physical distribution (logistics) makes up the largest proportional cost of total distribution costs?

transportation - slide 40

RDIF technology

- Store more information than traditional barcodes - Information can be updated and read instantaneously - also useful for asset management and data collection - slide 38

horizontal channel integration

Combining organizations at the same level of operation under one management - example: Heinz and Kraft Foods merged in 2015. Both produced consumer packaged food products. - Permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel - Is not always the most effective method for improving distribution

vertical channel integration

Combining two or more stages of the marketing channel under one management - 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 - Can be more effective against competition because of increased bargaining power and the ease of sharing information and responsibilities

inventory management

Developing and maintaining adequate assortments of products to meet customers' needs - stockouts: shortage of products - Maintaining too many products in inventory increases risks of product obsolescence, pilferage, and damage

channel management (key tasks in supply chain management)

Directing the flow of products

Logistics in Supply Chain Management

Logistics, involving physical distribution, relates to planning, implementing, and controlling the efficient flow and storage of products - includes: - order processing - inv. management - materials handling - warehousing - transportation - Physical distribution activities may be performed by a producer, wholesaler, or retailer, or they may be outsourced - When making distribution decisions, speed of delivery, flexibility, and quality of service are often as important to customers as costs - decreasing the costs in one area of physical distribution often raises them in another - A total-cost approach to physical distribution that takes into account all these different functions enables managers to view physical distribution as a system and shifts the emphasis from lowering the costs of individual activities to minimizing overall costs

operations management (key tasks in supply chain management)

Managing activities from production to final delivery through system-wide coordination

logistics management (key tasks in supply chain management)

Managing the efficient and effective flow of materials, products, and information from the point of origin to consumption

marketing intermediaries

Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products - Play key roles in customer relationship management through distribution activities and by maintaining databases and information systems to help all members of the marketing channel maintain effective customer relationships

procurement (key tasks in supply chain management)

Processes to obtain resources to create value through sourcing, purchasing, and recycling, including materials and information

the driving force behind marketing channel decisions

Providing customer satisfaction

channel power

The ability of one channel member to influence another member's goal achievement - a channel captain/leader must have this to attain desired objectives

outsourcing

The contracting of physical distribution tasks to third parties - 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

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 (end) consumer - Integrates the functions of operations management, logistics management, supply management, and marketing channel management so that products are produced and distributed in the right quantities, to the right locations, and at the right times - Includes activities such as manufacturing, research, sales, advertising, and shipping - Involves all entities that facilitate product distribution and benefit from cooperative efforts

distribution

The decisions and activities that make products available to consumers WHEN and WHERE they want to purchase them - part of the marketing mix - also known as place - element of the marketing mix answers the question, "How do we provide access to our product?"

cycle time

The time needed to complete a process - Firms should look for ways to reduce this while maintaining or reducing costs and maintaining or improving customer service

multichannel distribution/dual distribution

The use of a variety of marketing channels to ensure maximum distribution

(T/F) 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

True

exclusive distribution (intensity of market coverage)

Using a single outlet in a fairly large geographic area to distribute a product - suitable for products: - Purchased infrequently - Consumed over a long period of time - require a high level of customer service or information - used for expensive, high-quality products with high profit margins - NOT appropriate for convenience products and many shopping products - often used as an incentive to sellers when only a limited market is available for products - examples: BMWs, Gucci bags, airplanes - available in very few outlets

intensive distribution (intensity of market coverage)

Using all available outlets to distribute a product - appropriate for products that: - Have a high replacement rate - Require almost no service - Are bought based on PRICE cues - To satisfy consumers seeking to buy these products, they must be available at a store nearby and be obtained with minimal search time - examples: soda, chips, batteries - available in many retail outlets

Characteristics of Intermediaries (selecting a marketing channel)

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 a distribution system, which firms are considered "downstream" in the supply chain?

wholesalers and retailers

type of organization (selecting a marketing channel)

• Larger firms are in a better position to deal with vendors or other channel members; are likely to have more distribution centers, which reduce delivery times to customers; and can use an extensive product mix as a competitive tool • Smaller firms may be in a better position to serve local or regional needs 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

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 - major role is to make products available at the right time at the right place in the right quantities - Providing customer satisfaction should be the driving force behind these decisions

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

customer characteristics (selecting a marketing channel)

•Because of variations in product use, product complexity, consumption levels, and need for services, firms develop different marketing strategies for business customers and consumers - Business customers often prefer to deal directly with producers and also frequently buy in large quantities - Consumers generally buy limited quantities of a product, purchases from retailers, and often do not mind limited customer service

2 primary functions of marketing channels

•Creating utility •Facilitating exchange efficiencies

Customer Relationship Management (CRM) systems and the supply chain

•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

Channel Leadership, Cooperation, and Conflict

•Each channel member holds certain expectations of other channel members - Any one organization's failure to meet expectations can disrupt the entire supply chain •Channel partnerships can facilitate effective supply chain management when partners agree on objectives, policies, and procedures for physical distribution efforts associated with the supplier's products - Such partnerships eliminate redundancies and assign tasks for maximum system-wide efficiency - Channel cooperation reduces wasted resources, such as time, energy, or materials - A coordinated supply chain can also be more environmentally friendly

environmental factors (selecting a marketing channel)

•Economic conditions, technology, and government regulations can affect channel selection •Lately, tariffs imposed on China by the United States have the potential to alter supply chain decisions for many US firms

product attributes (selecting a marketing channel)

•Marketers of complex and expensive products, perishable products, and fragile products that require special handling will likely employ SHORT marketing channels - Less-expensive standardized products with long shelf lives can go through LONGER channels with many intermediaries

the significance of marketing channels

•Marketing channel decisions can have a strong influence on the other elements of the marketing mix - Channel decisions are critical because they determine a product's market presence and accessibility - Marketing channel decisions have strategic significance because they generally entail long-term commitments among a variety of firms - is the least flexible component of the marketing mix - Once a firm commits to a distribution channel, it is difficult to change - serve many functions, including: - creating utility - facilitating exchange efficiencies - most functions are accomplished through both independent and joint efforts of channel members

Marketing Channels (intermediaries) Facilitate Exchange Efficiencies

•Marketing intermediaries can reduce the costs of exchanges by performing certain services or functions efficiently - 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 - provides efficient exchanges between producers and buys by being a centralized hub of information and control over distribution process

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

problems that can come with horizontal channel integration

•Problems that come with increased size often follow, resulting in: - decreased flexibility - difficulties coordinating among members - the need for additional marketing research and large scale planning

Channel Captain (Channel Leader)

•The dominant leader of a marketing channel or a supply channel - May be a producer (like Nike), wholesaler, or retailer (like Wal-Mart) - To attain desired objectives, the captain MUST possess channel power - channel power: The ability of one channel member to influence another member's goal achievement

intensity of market coverage

•The number and kinds of outlets in which a product will be sold - variables that affect this: - replacement rate - product adjustment (services) - duration of consumption - time required to find the product - levels: - intensive (all or many) - selective (selected few) - exclusive (one)

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

selective distribution (intensity of market coverage)

•Using only some available outlets in an area to distribute a product - appropriate for shopping products - Is desirable when a special effort, such as customer service from a channel member, is important to customers - often used to motivate retailers to provide adequate service - examples: iphones, TVs, shoes - available in some outlets

channel integration

•Various channel stages may be combined, either horizontally or vertically, under the management of a channel captain - such integration may: - stabilize supply - reduced cost - increased channel member coordination - slides 33-34