Lecture Principles of Marketing - Chapter 10: Marketing channels and supply chain management

Lecture Principles of Marketing - Chapter 10 explain why companies use distribution channels and discuss the functions these channels perform, discuss how channel members interact and how they organize to perform the work of the channel, identify the major channel alternatives open to a company, explain how companies select, motivate, and evaluate channel members.

Chapter 10 Marketing Channels and Supply Chain Management Roadmap: Previewing the Concepts Explain why companies use distribution channels and discuss the functions these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select, motivate, and evaluate channel members Discuss the nature & importance of marketing logistics and supply chain management Copyright 2007, Prentice Hall, Inc 10-2 Case Study Caterpillar – The Vital Role of Dealers Background  Caterpillar dominates the world’s markets for heavy construction and mining equipment  Independent dealers are key to success, providing customer service, market intelligence, and more  Distribution system is a competitive advantage Building Partnerships  Distribution system is built on a base of mutual trust and shared dreams  Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance, and full, honest, and frequent communications Supply Chains  Producing and making products available to buyers requires building relationships with “upstream” and “downstream” partners – Upstream: firms that supply the raw materials, components, parts, and other elements necessary to create a good – Downstream: marketing channel partners that link the firm to the customer Marketing Channel or Distribution Channel  A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user – Wholesalers – Distributors – Dealerships – Retailers How Channel Members Add Value  The use of intermediaries results from their greater efficiency in making goods available to target markets  Offers the firm more than it can achieve on its own through the intermediaries: – Contacts – Experience – Specialization – Scale of operation Key Channel Functions  Transaction Completing:  Transaction Fulfilling: – Information – Promotion – Contact – Matching – Negotiation – Physical distribution – Financing – Risk taking Number of Channel Levels  Number of intermediary levels indicates the length of a channel – Direct marketing channels • Have no intermediary levels between the manufacturer and the customer – Indirect marketing channels • Contains one or more intermediaries  All channel institutions are connected by several types of flows Channel Behavior  The channel will be most effective when: – Each member is assigned tasks it can best – All members cooperate to attain overall channel goals  If this does not happen, conflict occurs: – Horizontal Conflict occurs among firms at the same level of the channel (e.g., retailer to retailer) – Vertical Conflict occurs between different levels of the same channel (e.g., wholesaler to retailer)  Some conflict can be healthy competition Vertical Marketing System  A distribution channel structure in which producers, wholesalers, and retailers act as a unified system  One channel member owns the other, has contracts with them, or has so much power that they all cooperate Changing Channel Organization  Disintermediation: – Occurs when product and service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones Channel Design Decisions     Analyzing Consumer Needs Setting Channel Objectives Identifying Major Alternatives Evaluating the Major Alternatives Analyzing Consumer Needs  Answering key questions helps to determine customer needs: – Do consumers want to buy from nearby locations or are they willing to travel? – Do they value breadth of assortment or they prefer specialization? – Do consumers want many add-on services?  Firm must balance needs against costs and consumer price preferences Setting Channel Objectives  State objectives in terms of targeted levels of customer service  Channel objectives are influenced by: – Cost – Nature of the company – The firm’s products – Marketing intermediaries – Competitors – Environment Identifying Major Alternatives  Types of Intermediaries – Company sales force – Manufacturer’s agency – Industrial distributors  Number of intermediaries – Intensive distribution – Exclusive distribution – Selective distribution  Responsibilities of intermediaries Evaluating the Major Alternatives  Economic Criteria: – A company compares the likely sales, costs, and profitability of different channel alternatives  Control Issues: – How and to whom should control be given?  Adaptive Criteria: – Consider long-term commitment vs flexibility Channel Management Decisions  Selecting channel members  Managing and motivating channel members – Partner relationship management  Evaluating channel members Public Policy and Distribution Decisions     Exclusive distribution Exclusive dealing Exclusive territorial agreements Tying agreements Marketing Logistics  Planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit  Includes: – Outbound distribution – Inbound distribution – Reverse distribution Goals of the Logistics System & Major Logistics Functions  Goals of the Logistics System: – Deliver a targeted level of customer service at the least cost  Major Logistics Functions: – Warehousing – Inventory management – Transportation – Logistics information management Warehousing     How many, what types, and where? Storage warehouses Distribution centers Automated warehouses Inventory Management  Must balance between too much and too little inventory  Just-in-time logistics systems  RFID or Smart Tag technology Transportation        Trucks Railroads Water carriers Pipelines Air Internet Intermodal transportation – Piggyback, fishyback, trainship Integrated Logistics Management  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  Involves: – Cross-functional teamwork inside the company – Building logistics partnerships – Third-party logistics Rest Stop: Reviewing the Concepts Explain why companies use distribution channels and discuss the functions these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select, motivate, and evaluate channel members Discuss the nature & importance of marketing logistics and supply chain management Copyright 2007, Prentice Hall, Inc 10-28 ... companies select, motivate, and evaluate channel members Discuss the nature & importance of marketing logistics and supply chain management Copyright 2007, Prentice Hall, Inc 1 0-2 Case Study Caterpillar – The Vital Role of Dealers... companies select, motivate, and evaluate channel members Discuss the nature & importance of marketing logistics and supply chain management Copyright 2007, Prentice Hall, Inc 1 0-2 8 ... taking Number of Channel Levels  Number of intermediary levels indicates the length of a channel – Direct marketing channels • Have no intermediary levels between the manufacturer and the customer