CHAPTER 7

MARKETING CHANNELS&

SUPPLY CHAIN MANAGEMNET

Explain what a marketing channel is and why

intermediaries are needed

MARKETING CHANNELS

MARKETING CHANNELS

MarketingChannel

MarketingChannel

A set of interdependent organizations that ease the

transfer of ownership as products move from

producer to business user or consumer.

MARKETING CHANNELS

Supply ChainSupply ChainThe connected chain of all the business entities, both internal and external to the company, that perform or

support the logistics function.

MARKETING CHANNEL FUNCTIONS

Specialization and division of laborSpecialization and division of labor

Overcoming discrepanciesOvercoming discrepancies

Providing contact efficiencyProviding contact efficiency

Creates greater efficiency

Provides lower costs

Achieves economies of scale

Aids producers who lack resources to market directly

Builds good relationships with customers

SPECIALIZATION AND DIVISION OF LABOR

OVERCOMING DISCREPANCIES

Discrepancyof

Quantity

Discrepancyof

Quantity

Discrepancyof

Assortment

Discrepancyof

Assortment

The difference between the amount of product produced and the amount an end user

wants to buy.

The difference between the amount of product produced and the amount an end user

wants to buy.

The lack of all the items a customer needs to receive full satisfaction from a product or

products.

The lack of all the items a customer needs to receive full satisfaction from a product or

products.

OVERCOMING DISCREPANCIES

TemporalDiscrepancyTemporal

Discrepancy

SpatialDiscrepancy

SpatialDiscrepancy

A situation that occurs when a product is produced but a

customer is not ready to buy it.

A situation that occurs when a product is produced but a

customer is not ready to buy it.

The difference between the location of a producer and the

location of widely scattered markets.

The difference between the location of a producer and the

location of widely scattered markets.

PROVIDING CONTACT EFFICIENCY

REVIEW LEARNING OUTCOMEMARKETING CHANNELS

Providing Specialization and Division of Labor

Providing Specialization and Division of Labor

OvercomingDiscrepancies

OvercomingDiscrepancies

Providing ContactEfficiency

Providing ContactEfficiency

MarketingChannel

SupplyChain

Define the types of channel intermediaries

and describe their functions and activities

CHANNEL INTERMEDIARIES

RetailerRetailer A channel intermediary that sells mainly to customers.A channel intermediary that sells mainly to customers.

MerchantWholesalerMerchantWholesaler

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

Agents andBrokersAgents andBrokers

Wholesaling intermediaries who facilitate the sale of a product

by representing channel members.

Wholesaling intermediaries who facilitate the sale of a product

by representing channel members.

CHANNEL INTERMEDIARIES

CHANNEL INTERMEDIARIES

RetailersRetailers

Merchant WholesalersMerchant

Wholesalers

Agents and

Brokers

Agents and

Brokers

Take Title to GoodsTake Title to GoodsTake Title to GoodsTake Title to Goods

Take Title to GoodsTake Title to GoodsTake Title to GoodsTake Title to Goods

Do NOT Take Title to GoodsDo NOT Take Title to GoodsDo NOT Take Title to GoodsDo NOT Take Title to Goods

FACTORS SUGGESTING TYPE OF WHOLESALING INTERMEDIARY TO USE

Product characteristicsProduct characteristics

Buyer considerationsBuyer considerations

Market characteristicsMarket characteristics

FACTORS SUGGESTING TYPE OF WHOLESALING INTERMEDIARY TO USE

Factor Merchant Wholesalers

Agents/Brokers

Nature of product Standard Nonstandard, custom

Technicality of product Complex Simple

Product’s gross margin High Low

Frequency of ordering Frequent Infrequent

Time between order and receipt of shipment

Shorter lead time Longer lead time

Number of customers Many Few

Concentration of customers Dispersed Concentrated

Contacting/Promotion

Negotiating

Risk Taking

Researching

Financing

Physically distributing

Storing

Sorting

FacilitatingFunctions

FacilitatingFunctions

TransactionalFunctions

TransactionalFunctions

Logistical Functions

Logistical Functions

CHANNEL FUNCTIONS PERFORMED BY INTERMEDIARIES

LOGISTICS

LogisticsLogistics

The process of strategically managing the efficient flow

and storage of raw materials, in-process

inventory, and finished goods from point of origin to point of consumption.

REVIEW LEARNING OUTCOMECHANNEL INTERMEDIARIES AND FUNCTIONS

CHANNELINTERMEDIARIES

CHANNELINTERMEDIARIES

Retailers

Wholesalers

Agents and Brokers

Retailers

Wholesalers

Agents and Brokers

CHANNELFUNCTIONSCHANNEL

FUNCTIONS

Transactional

Logistical

Facilitating

Transactional

Logistical

Facilitating

Perform

Describe the channel structures for consumer and business products and discuss alternative channel arrangements

CHANNEL STRUCTURES

CHANNELS FOR CONSUMER PRODUCTS

Direct ChannelDirect Channel A distribution channel in which producers sell

directly to consumers.

Producer Producer Producer Producer

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents orBrokers

WholesalerWholesalerChannelChannel

RetailerRetailerChannelChannel

DirectDirectChannelChannel

Agent/BrokerAgent/BrokerChannelChannel

Channels for Consumer Products

Channels for Business Products

Producer

IndustrialUser

DirectDirectChanneChanne

ll

Producer

Govt.Buyer

DirectDirectChanneChanne

ll

Producer Producer Producer

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialDistributor

IndustrialDistributor

Agents orBrokers

Agents orBrokers

Agent/Agent/BrokerBroker

ChannelChannel

IndustrialIndustrialDistributoDistributo

rr

Agent/BrokerAgent/BrokerIndustrialIndustrialChannelChannel

BUSINESS-TO-BUSINESS EXCHANGES ON THE INTERNET

ALTERNATIVE CHANNEL ARRANGEMENTS

Multiple channels

Strategic channel alliances

Nontraditional channels

REVIEW LEARNING OUTCOMECHANNEL STRUCTURES

CONSUMERCHANNELS

CONSUMERCHANNELS

DirectRetailWholesalerAgent/broker

DirectRetailWholesalerAgent/broker

BUSINESSCHANNELSBUSINESSCHANNELS

DirectIndustrialAgent/brokerAgent/brokerindustrial

DirectIndustrialAgent/brokerAgent/brokerindustrial

ALTERNATIVECHANNELS

ALTERNATIVECHANNELS

MultipleNontraditionalStrategicalliances

MultipleNontraditionalStrategicalliances

Define supply chain management

and discuss its benefits

SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT

Supply ChainSupply Chain

A management system that coordinates and integrates

all of the activities performed by supply chain members into a seamless process,

from the source to the point of consumption, resulting in

enhanced customer and economic value.

ROLE OF SUPPLY CHAIN MANAGEMENT

Physical flow process that engineers the movement of goods

Physical flow process that engineers the movement of goods

Communicator of customer demand from point of sale to supplier

Communicator of customer demand from point of sale to supplier

RESPONSIBILITIES OF SUPPLY CHAIN MANAGERS

Channel strategy decisions

Sourcing and procurement of raw materials

Production schedules

Order processing

Inventory management

Finished goods/supplies transportation and storage

Customer service coordination

Supply chain information flow management

Partner relationships

The Supply Chain Process

BENEFITS OF SUPPLY CHAIN MANAGEMENT

Means of differentiationMeans of differentiation

Greater supply chain flexibility Greater supply chain flexibility

Improved customer serviceImproved customer service

Higher revenuesHigher revenues

Reduced costs Reduced costs

REVIEW LEARNING OUTCOMESUPPLY CHAIN MANAGEMENT

Discuss the issues that influence channel strategy

MAKING CHANNEL STRATEGY DECISIONS

CHANNEL STRATEGY DECISIONS

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Producer FactorsProducer Factors

Product FactorsProduct Factors

Market FactorsMarket Factors

Exclusive DistributionExclusive Distribution

Selective DistributionSelective Distribution

Intensive DistributionIntensive Distribution

Level ofLevel ofDistributionDistribution

IntensityIntensity

Level ofLevel ofDistributionDistribution

IntensityIntensity

MARKET FACTORS

Market Market FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Market Market FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Customer profilesCustomer profiles

Consumer or IndustrialCustomer

Consumer or IndustrialCustomer

Size of marketSize of market

Geographic location

PRODUCT FACTORS

Product Product FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Product Product FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Product Complexity Product Complexity

Product StandardizationProduct Standardization

Product Life CycleProduct Life Cycle

Product DelicacyProduct Delicacy

Product PriceProduct Price

PRODUCER FACTORS

Producer Producer FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Producer Producer FactorsFactorsThat Affect That Affect ChannelChannelChoicesChoices

Producer Resources Producer Resources

Number of Product LinesNumber of Product Lines

Desire for Channel ControlDesire for Channel Control

LEVELS OF DISTRIBUTION INTENSITY

IntensiveIntensiveA form of distribution aimed at having a product available in every outlet

A form of distribution aimed at having a product available in every outlet

SelectiveSelectiveA form of distribution achievedby screening dealers to eliminate all but a few in any single area

A form of distribution achievedby screening dealers to eliminate all but a few in any single area

ExclusiveExclusive

A form of distribution that established one or a few dealers within a given area

A form of distribution that established one or a few dealers within a given area

LEVELS OF DISTRIBUTION INTENSITY

IntensiveAchieve mass market

selling. Convenience goods.

Many

Selective

Exclusive

Work with selected intermediaries.

Shopping and some specialty goods.

Work with singleintermediary. Specialty

goods and industrial equipment.

Several

One

Intensity Level

Objective Number of Intermediaries

REVIEW LEARNING OUTCOME ISSUES INFLUENCING CHANNEL STRATEGY

Discuss the issues that influence

channel strategy

MANAGING CHANNEL RELATIONSHIPS

SOCIAL DIMENSIONS OF CHANNELS

ChannelPower

ChannelPower

A channel member’s capacity to control or influence the behavior of other channel members

A channel member’s capacity to control or influence the behavior of other channel members

ChannelControl

ChannelControl

A situation that occurs when one marketing channel member intentionally affects another member’s behavior

A situation that occurs when one marketing channel member intentionally affects another member’s behavior

Channel Leader

Channel Leader

A member of a marketing channel that exercises authority/power over the activities of other members

A member of a marketing channel that exercises authority/power over the activities of other members

CHANNEL POWER, CONTROL, AND LEADERSHIP

CHANNEL CONFLICT AND PARTNERING

ChannelConflict

ChannelConflict

A clash of goals and methods between distribution channel members

A clash of goals and methods between distribution channel members

ChannelPartnering

ChannelPartnering

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage

CHANNEL CONFLICT

Conflicts may occur if channel members:

Have conflicting goals

Fail to fulfill expectations of other channel members

Have ideological differences

Have different perceptions of reality

CHANNEL PARTNERING

Supplier / Manufacturer Relationships

Short-termAdversarial

IndependentPrice important

Long-termCooperativeDependent

Value-added services

Number of Suppliers Many Few

Transaction-Based Partnership-Based

Information Sharing Minimal High

InvestmentRequired Minimal High

REVIEW LEARNING OUTCOMECHANNEL LEADERSHIP, CONFLICT, & PARTNERING

ChannelRelationship

Synergy

ChannelRelationship

Synergy

Channel Conflict

Horizontal Vertical

Channel Power,Control, Leadership

Channel Partnering

Describe the logistical components of the

supply chain

MANAGING LOGISTICAL COMPONENTS

LOGISTICAL COMPONENTS OF THE SUPPLY CHAIN

SupplySupplyChainChainTeamTeam

Sourcing & ProcurementSourcing & Procurement

Production SchedulingProduction Scheduling

Order ProcessingOrder Processing

Inventory ControlInventory Control

Warehouse & Materials HandlingWarehouse & Materials Handling

TransportationTransportationLog

isti

cs In

form

ati

on

Syst

em

Log

isti

cs In

form

ati

on

Syst

em

SOURCING AND PROCUREMENT

Plan purchasing strategies

Develop specifications

Select suppliers

Negotiate price and service levels

Reduce costs

The Role of Purchasing:The Role of Purchasing:

PRODUCTION SCHEDULING

Push / Pull Strategy

Traditional Focus

Push

Start of Production

Manufacturing

Inventory-Based

Mass Production

Customer Focus

Pull

Customer-Order Based

Mass Customization

JUST-IN-TIME MANUFACTURING

JITJITA process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.

Reduces raw material inventories

Shortens lead times

Creates better supplier relationships

Reduces production and storeroom costs

Reduces paperwork

BENEFITS OF JIT

JIT REQUIREMENTS

Receive high-quality parts Receive high-quality parts

Meet supplier delivery commitmentsMeet supplier delivery commitments

Have a crisis management planHave a crisis management plan

ElectronicData

Interchange

ElectronicData

Interchange

ORDER PROCESSING

Information technology that replaces paper documents that accompany business transactions with electronic transmission of the information.

ORDER PROCESSING

InventoryControlSystem

InventoryControlSystem

A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand.

MaterialsRequirement

Planning(MRP)

MaterialsRequirement

Planning(MRP)

An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer.

An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer.

DistributionResourcePlanning

(DRP)

DistributionResourcePlanning

(DRP)

An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.

An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.

ORDER PROCESSING

INVENTORY REPLENISHMENT EXAMPLE

MRP

Sleep Right MattressRetail Store

Sleep Right MattressRetail Store

Sleep Right Distribution Center

Sleep Right Distribution Center

ABC MattressWholesaling Company

ABC MattressWholesaling Company

Great MattressCompany

Great MattressCompany

Receive goods into warehouse

Dispatch the goods totemporary storage

Recall, select, or pick the goods for shipment

Identify, sort, and label goods

MATERIALS HANDLING FUNCTIONS

TRANSPORTATION

Airways

Water

Pipelines

Motor Carriers

Railroads

Cost Transit time Reliability Capability Accessibility Traceability

TRANSPORTATION MODE CHOICE

CRITERIA FOR RANKINGMODES OF TRANSPORTATION

Relative CostTransitTime

Reliability

Capability

Accessibility

Traceability

HighestHighest LowestLowest

Air WaterPipeRailTruck

Water Rail Pipe Truck Air

Pipe Truck Rail Air Water

Water

Truck

Rail Truck Air Pipe

Rail Air Water Pipe

Air Truck Rail Water Pipe

Discuss new technology and emerging trends in

supply chain management

TRENDS IN SUPPLY CHAIN MANAGEMENT

TRENDS IN SUPPLY CHAIN MANAGEMENT

Electronic distributionElectronic distribution

Outsourcing of logistics functionsOutsourcing of logistics functions

Advanced computer technologyAdvanced computer technology

ADVANCED COMPUTER TECHNOLOGY

Automatic identification systems Bar coding

Radio frequency technology

Communications technology

Supply chain software systems

Outsourcing BenefitsOutsourcing Benefits

OUTSOURCING LOGISTICS FUNCTIONS

Reduce inventories

Locate stock at fewer plants and distribution centers

Provide same or better levels of service

Discuss channels and distribution decisions

in global markets

CHANNELS AND DISTRIBUTION DECISIONS

FOR GLOBAL MARKETS

CHANNELS AND DISTRIBUTION DECISIONSFOR GLOBAL MARKETS

Global Channel Development

Global Channel Development

Channel structure and type differ

Channel structure and type differ

Gray marketing channelsGray marketing channels

Global SupplyChain Management

Global SupplyChain Management

Awareness of trade legalitiesAwareness of trade legalities

Transportation IssuesTransportation Issues

REVIEW LEARNING OUTCOME

Global Market Channel & Distribution Decisions

Distribute directly or through foreign partners

Different channel structures than indomestic markets

Illegitimate “gray”marketing channels

Legal and infrastructure differences

Identify the special problems and opportunities associated

with distribution in service organizations

CHANNELS AND DISTRIBUTION DECISIONS

FOR SERVICES

Minimizing wait times

Managing service capacity

Improving service delivery

CHANNELS AND DISTRIBUTION DECISIONS

FOR SERVICES

REVIEW LEARNING OUTCOME DISTRIBUTION IN SERVICE

ORGANIZATIONS

THANK YOU…