mkt chapter 14
Strategic Issues in Marketing Channels
-Competitive Priorities -Channel Integration -Channel Leadership, Coordination, and Conflict
horizontal channel integration problems that come with increased size
-Decreases flexibility -difficulties coordinating among members -the need for additional marketing research and large-scale planning
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
Three main tasks of order processing
-Order Entry: begins when the customer or salespeople place the order - Order Handling: product availability and customer credit-worthiness is verified; order assembly occurs - Order delivery: Delivery is scheduled with an appropriate carrier
Technology enables companies to
-avoid expensive mistakes -reduce costs -generate increased revenues
Advantages of using industrial distributers:
-can perform needed selling actives in local markets at a relatively low cost to a manufacturer -can reduce producers financial burden by providing customers with credit services -Are aware of local needs -reduce producers capitol requirements by holding adequate inventories in local markets
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
Disadvantages of using industrial distributers:
-may be difficult to manage because they're independent firms -Often stock competing brands -incur expenses from maintaining inventories -are less likely to handle bulky or slow-selling items such a specialty hard to sell items -may lack specialized knowledge necessary to sell and service technical products
Disadvantages of using manufacturers' agents:
-seller has little control over their actions -prefer to concentrate on larger accounts due to their commissions -often reluctant to spend time following up with the customers as it wastes selling time -have limited ability to provide customers with parts or repair services quickly because they rarely maintain inventory
Although there is no single method for resolving conflict, partnerships can be reestablished of two conditions are met:
-the role of each channel member is clearly defined and followed -members of channel partnerships must agree on means of coordinating channels, which requires strong, but not prioritizing, leadership
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 illegal
Advantages of using manufacturers' agents:
-usually posses considerable technical and market information and have and established set of customers -can be an asset to an organizational seller with highly seasonal demand so seller doesn't have to support year-round sales force - are typically paid on commission basis, which can good for company that cant afford a full-time sales force
Marketing channels create ___ types of utility
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Electronic Data Interchange (EDI)
A computerized means of integrating order processing with production, inventory, accounting, and transportation. Functions as information system that links marketing channel member and outsourcing firms together
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. Takes on three forms.
Physical distribution activities may be performed by...
A producer, wholesaler, or retailer, or they may he outsourced
The "total cost approach" in supply-chain management:
A total cost approach to physical distribution tale into account different functions and shifts view of physical distribution from lowing the cost of individual activities to minimizing overall costs. This is because lowering one area usually raises another.
Competitive priorities in marketing channels
A) Supply chains can provide a competitive advantage and a strong market orientation B) Building the most effective and efficient supply chain can sustain a business C) Supply chains driven by firm-established goals focus on the "competitive priorities" of speed, quality, cost, or flexibility as the performance objective
strategic channel alliance
An agreement whereby the products of one organization are distributed through the marketing channels of another
Just-in-time (JIT)
An inventory-management approach in which supplies arrive just when needed for production or resale.
Customer Characteristics
Business customers often prefer to deal directly with producers; are more likely to buy complex products and in large quantities Consumers generally buy limited quantities of a product, purchases from retailers, and often do not mind limited customer service
Contractual VMS
Channel members are linked by legal agreements spelling out each member's rights and obligations
Competition
Company must maintain low costs so it can offer lower prices that competitors if necessary to maintain a competitive advantage
private warehouses
Company-operated facilities for storing and shipping products
Intensive Market Coverage
Convenience products (Coke, Pringles, Duracell Batteries) --Available in MANY retail outlets
Digital Distribution
Delivering content through the Internet to a computer or other device
Inventory management
Developing and maintaining adequate assortments of products to meet customers' needs
Environmental Forces
Economic conditions, technology, and government regulations can affect channel selection
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
Crucial component in operating supply chains efficiently and effectively
Information
___ is an important consideration in materials handling
Internal packaging
Restricted sales territories
Manufacturer may use to try and tighten control over product distribution. Courts have conflicting opinions on restricting intermediaries to certain sales territories. This is because is can promote competition among dealers handling different brands
least flexible component of the marketing mix
Marketing channel. Once a firm commits to distribution channel it is difficult to change
marketing intermediaries
Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products
Although some of these functions may be performed by a single channel member,
Most functions are accomplished through both independent and joint efforts of channel members
Look at slide 73
Ok
To calculate the reorder point, the marketer must know the following
Order lead time Usage rate Safety stock
materials handling
Physical handling of tangible goods, supplies, and resources. Also involves transportation.
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
Distribution system "upstream" in the supply chain
Producers and suppliers
Refusal to deal
Producers have the right to choose channel members Suppliers cannot legally refuse to do business with wholesalers or dealers merely because they resist policies that are anticompetitive or in restraint of trade.
maintaining too many products in inventory increases risk of
Product obsolesce, pilferage, and damage
Choosing appropriate warehouse facilities is an important strategic consideration and allows the company to
Reduce transportation and inventory costs and improve service to customers
Reorder point formula
Reorder Point = (Order Lead Time x Usage Rate) + Safety Stock
Practices subject to legal restraint
Restricted sales territories Tying agreements Exclusive dealing Refusal to deal
Selective Market Coverage
Shopping products such as iPods, televisions, DVD players, and shoes. Available in some outlets
Stockouts
Shortage of products
Exclusive Market Coverage
Specialty products such as haute couture, Mont Blanc pens, BMWs and Fendi handbags. Available in very few outlets
Trade-offs
Strategic decisions to combine (and recombine) resources for greatest cost-effectiveness. Goal isn't to find lowest cost, but the right balance of costs.
Channel power
The ability of one channel member to influence another member's goal achievement (channel captain must have)
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
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 customers when and where they want to purchase them
Channel captain (channel leader)
The dominant leader of a marketing channel or a supply channel May be a producer, wholesaler, or retailer
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.
Usage rate
The rate at which a product's inventory is used or sold during a specific time period
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
Selecting appropriate marketing channels is important because...
They are difficult to change once chosen
The most expensive physical distribution method
Transportation
Two common methods used in material handling
Unit loading and containerization
Selective distrubution
Using only some available outlets in an area to distribute a product. Appropriate for shopping products. Desirable when customer service is important.
Radio Frequency Identification (RFID)
Using radio waves to identify and track materials tagged with special microchips. Also useful for asset management and data collection.
Just-in-time (JIT) characteristics
Usually no safety stock requires high level of coordination between producers and suppliers eliminates waste reduces inventory costs
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
Distribution system "downstream" in supply chain
Wholesalers and retailers
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
exclusive dealing
a situation in which a manufacturer forbids an intermediary from carrying products of competing manufacturers
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
supply chain
all the organizations and activities involved with the flow and transformation of products from raw materials through to the end customer
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
Industrial distributer
an independent business organization that takes title to industrial products and carries inventories. Usually sells standardized items, although some carry a wide variety of product lines
manufacturers' agent
an independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions. Does not acquire title to the products and usually does not take possession
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
horizontal channel integration
combining organizations at the same level of operation under one management
vertical channel integration
combining two or more stages of the marketing channel under one management. Can be more effective against competition because of increased bargaining power and the ease of sharing info and responsibilities.
Marketing channels serve many functions, including:
creating utility and facilitating exchange efficiencies
Selecting Marketing Channels
customer characteristics product attributes type of organization competition marketing environmental forces characteristics of intermediaries
Customer Relationship Management (CRM) systems
exploit the information in supply-chain partners' information systems and make it available for easy reference. Can help all channel members
Form Utility
formed by assembling, preparing, or otherwise refining the product to suit customer needs
Megacarriers
freight transportation firms that provide several modes of shipment
Time Utility
having products available when the customer 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
Levels of Market Coverage
intensive distribution, selective distribution, exclusive distribution
Distribution centers
large, centralized warehouses that focus on moving rather than storing goods
Place utility
making products available in locations where customers wish to purchase them
Unit loading
one or more boxes are placed on a pallet or skid
freight forwarders
organizations that consolidate shipments from several firms into efficient lot sizes
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
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
Warehousing
the design and operation of facilities for storing and moving goods. Helps stabilize prices and availability of seasonal items.
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.
Cycle time
the time needed to complete a process
Major Role of Marketing Channels
to make products available at the right time at the right place in the right quantities
Birdyback
truck and air
Piggyback
truck and rail
Fishyback
truck and water
intermodal transportation
two or more transportation modes used in combination
exclusive distribution
using a single outlet in a fairly large geographic area to distribute a product. Suitable for products purchased infrequently and consumed over a long period of time. For expensive high quality products with high profit margins
intensive distribution
using all available outlets to distribute a product. Products that have high replacement rate, require almost no service, are bought based on price cues.
Channel integration
various channel stages may be combined, either horizontally or vertically, under the management of a channel captain. Such integration may stabilize supply, reduce costs, and increase channel member coordination
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
Type of Organization
•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
Product Attributes
•Marketers of complex and expensive products, perishable products, and fragile products that require special handling will likely employ short channels •Less-expensive standardized products with long shelf lives can go through longer channels with many intermediaries
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
Variables that affect the intensity of market coverage
•Replacement rate •Product adjustment (services) •Duration of consumption •Time required to find the product