Marketing channels and supply chain management
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Marketing Channels and Supply Chain Management. Chapter 12. Learning Goals. Know why companies use distribution channels and understand the functions that these channels perform. Learn how channel members interact and how they organize to perform the work of the channel.

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Marketing channels and supply chain management

Marketing Channels and Supply Chain Management

Chapter 12


Learning goals

Learning Goals

  • Know why companies use distribution channels and understand the functions that these channels perform.

  • Learn how channel members interact and how they organize to perform the work of the channel.

  • Know the major channel alternatives that are open to a company.

  • Comprehend how companies select, motivate, and evaluate channel members.

  • Understand the nature and importance of marketing logistics and integrated supply chain management.


Case study caterpillar

Dominates world’s markets for heavy construction and mining equipment.

Independent dealers are key to success

Dealer network is linked via computers

Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications

Case StudyCaterpillar


Definitions

Definitions

  • Value Delivery Network

    • The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system.

  • Marketing channel

    • 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

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels

Nature & Importance of Marketing Channels

  • Channel choices affect other decisions in the marketing mix

    • Pricing, Marketing communications

  • A strong distribution system can be a competitive advantage

  • Channel decisions involve long-term commitments to other firms

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels1

Nature & Importance of Marketing Channels

  • How Channel Members Add Value

    • Intermediaries require fewer contacts to move the product to the final purchaser.

    • Intermediaries help match product assortment demand with supply.

    • Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels2

Nature & Importance of Marketing Channels

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels3

Nature & Importance of Marketing Channels

Risk Taking

Information

Financing

Promotion

Contact

Physical

Distribution

Matching

Negotiation


Nature importance of marketing channels4

Nature & Importance of Marketing Channels

  • Number of Channel Levels

    • The number of intermediary levels indicates the length of a marketing channel.

      • Direct Channels

      • Indirect Channels

    • Producers lose more control and face greater channel complexity as additional channel levels are added.

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels5

Nature & Importance of Marketing Channels

Goal 1: Know why companies use channels and understand their functions


Nature importance of marketing channels6

Physical Flow

Payment Flow

Information Flow

Promotion Flow

Nature & Importance of Marketing Channels

Channel Members Are Connected Via A Variety of Flows

  • Flow of Ownership

Goal 1: Know why companies use channels and understand their functions


Channel behavior and organization

Channel Behavior and Organization

  • Channel Conflict

    • Occurs when channel members disagree on roles, activities, or rewards.

    • Types of Conflict:

      • Horizontal conflict: occurs among firms at the same channel level

      • Vertical conflict: occurs among firms at different channel levels

Goal 1: Know why companies use channels and understand their functions


Channel behavior and organization1

Channel Behavior and Organization

  • Conventional Distribution Channels

    • Consists of one or more independent channel members

    • Lack leadership and power

    • Often result in poor performance

  • Vertical Marketing Systems

    • Consists of members acting as a unified system

    • Use contracts, ownership or power

Goal 1: Know why companies use channels and understand their functions


Channel behavior and organization2

Corporate VMS

Contractual VMS

Administered VMS

Corporation owns production and distribution

Coordination and conflict management through regular organizational channels

Channel Behavior and Organization

Vertical Marketing Systems

Goal 2: Learn how channel members interact and how they organize


Channel behavior and organization3

Corporate VMS

Contractual VMS

Administered VMS

Individual firms who join through contracts

Franchise organizations

Manufacturer-sponsored retailer franchise system

Manufacturer-sponsored wholesaler franchise system

Service-firm-sponsored retailer franchise system

Channel Behavior and Organization

Vertical Marketing Systems

Goal 2: Learn how channel members interact and how they organize


Channel behavior and organization4

Corporate VMS

Contractual VMS

Administered VMS

Leadership through the size and power of dominant channel members

Leadership could be manufacturer or retailer

Channel Behavior and Organization

Vertical Marketing Systems

Goal 2: Learn how channel members interact and how they organize


Channel behavior and organization5

Channel Behavior and Organization

  • Horizontal Marketing Systems

    • Companies at the same level work together with channel members ie: Bank in store

  • Multichannel Distribution Systems

    • Also called hybrid marketing channels

    • Occurs when a firm uses two or more marketing channels ie: web sales & retailers

  • Changing Channel Organization

    • Disintermediation ie: airlines vs Travel Agency

Goal 2: Learn how channel members interact and how they organize


Channel behavior and organization6

Channel Behavior and Organization

Goal 2: Learn how channel members interact and how they organize


Channel design decisions

Channel Design Decisions

  • Step 1: Analyzing Consumer Needs

    • Cost and feasibility of meeting needs must be considered

  • Step 2: Setting Channel Objectives

    • Set channel objectives in terms of targeted level of customer service

    • Many factors influence channel objectives

Goal 3: Know the major channel alternatives open to a company


Channel design decisions1

Channel Design Decisions

  • Step 3: Identifying Major Alternatives

    • Types of intermediaries

      • Company sales force, manufacturer’s agency, industrial distributors

    • Number of marketing intermediaries

      • Intensive, selective, and exclusive distribution

    • Responsibilities of channel members

Goal 3: Know the major channel alternatives open to a company


Marketing channels and supply chain management

Question

  • Decide which distribution strategy--intensive, selective, or exclusive--is used for the following products, and why:

    • Piaget watches,

    • Acura automobiles,

    • Snickers candy bars.

Goal 3: Know the major channel alternatives open to a company


Channel design decisions2

Channel Design Decisions

  • Step 4: Evaluating Major Alternatives

    • Economic criteria

    • Control issues

    • Adaptive criteria

Goal 3: Know the major channel alternatives open to a company


Channel design decisions3

Channel Design Decisions

  • Designing International Distribution Channels

    • Global marketers usually adapt their channel strategies to structures that exist within foreign countries

    • Key challenges:

      • May be complex or hard to penetrate

      • May be scattered, inefficient, or totally lacking

Goal 3: Know the major channel alternatives open to a company


Channel management decisions

Selecting Channel Members

Identify characteristics that distinguish the best channel members

Managing and Motivating Channel Members

Partner relationship management (PRM) is key

Evaluating Channel Members

Performance should be checked against standards

Channel members should be rewarded or replaced as dictated by performance

Channel Management Decisions

Goal 4: Comprehend how companies select, motivate and evaluate channels


Channel management decisions1

Selecting channel members

Managing and motivating channel members

Evaluating channel members

Which characteristics are important?

Years in business

Lines carried

Growth and profit record

Cooperativeness and reputation

Type of customer

location

Channel Management Decisions

Decisions

Goal 4: Comprehend how companies select, motivate and evaluate channels


Channel management decisions2

Selecting channel members

Managing and motivating channel members

Evaluating channel members

Partner relationship management (PRM) for long-term partnerships

Software available to coordinate members

Channel Management Decisions

Decisions

Goal 4: Comprehend how companies select, motivate and evaluate channels


Channel management decisions3

Selecting channel members

Managing and motivating channel members

Evaluating channel members

Check channel performance of:

Sales

Inventory

Customer delivery

Promotion and training

Customer service

Channel Management Decisions

Decisions

Goal 4: Comprehend how companies select, motivate and evaluate channels


Public policy and distribution decisions

Public Policy and Distribution Decisions

  • Exclusive distribution

    • Only certain outlets are allowed to carry a firm’s products

  • Exclusive dealing

    • Exclusive territorial agreements

    • Tying agreements

Goal 4: Comprehend how companies select, motivate and evaluate channels


Marketing logistics and supply chain management

Marketing Logistics and Supply Chain Management

  • Marketing Logistics

    • Outbound distribution

    • Inbound distribution

    • Reverse distribution

    • Involves the entire supply chain management system

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing logistics and supply chain management1

Marketing Logistics and Supply Chain Management

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing logistics and supply chain management2

Marketing Logistics and Supply Chain Management

  • Why Greater Emphasis is Being Placed on Logistics:

    • Offers firms a competitive advantage

    • Can yield cost savings

    • Greater product variety requires improved logistics

    • Improvements in distribution efficiency are possible due to information technology

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing logistics and supply chain management3

Marketing Logistics and Supply Chain Management

  • Goals of the Logistics System

    • No system can both maximize customer service and minimize costs.

    • Firms must first weigh the benefits of higher service against the costs.

    • State goals in terms of a targeted level of customer service at the least cost.

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing channels and supply chain management

Major Logistics Functions

Order Processing

Received

Processed

Shipped

Costs

Minimize Costs of

Attaining Logistics

Objectives

Logistics

Functions

Transportation Rail, Truck, Water, Pipeline, Air, Intermodal

Warehousing

Storage

Distribution

Automated

Inventory

When to order

How much to order

Just-in-time

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing logistics and supply chain management4

Marketing Logistics and Supply Chain Management

Rail

Nation’s largest carrier, cost-effective

for shipping bulk products, piggyback

Truck

Flexible in routing & time schedules, efficient

for short-hauls of high value goods

Water

Low cost for shipping bulky, low-value,

non-perishable goods, slowest form

Pipeline

Ship petroleum, natural gas, and chemicals

from sources to markets

Air

High cost, ideal when speed is needed or

distance markets have to be reached

Goal 5: Understand marketing logistics & integrated supply chain management


Marketing logistics and supply chain management5

Marketing Logistics and Supply Chain Management

  • Integrated Logistics Management

    • Cross-functional teamwork inside the company is critical

    • Logistics partnerships are also built through shared projects

    • Outsourcing of logistics firms to third-party firms is becoming more common

Goal 5: Understand marketing logistics & integrated supply chain management


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