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Chapter 12. Distribution Channels and Logistics Management . Issues Concerning Distribution Channels. What Role Does Physical Distribution Play in Attracting and Satisfying Customers?. What is the Nature Of Distribution Channels?. How do Channel Firms Interact and

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Chapter 12 l.jpg

Chapter 12

Distribution Channels and Logistics Management


Issues concerning distribution channels l.jpg
Issues Concerning Distribution Channels

What Role Does

Physical Distribution

Play in Attracting

and Satisfying

Customers?

What is the Nature

Of Distribution

Channels?

How do Channel

Firms Interact and

Organize to do the

Work of the

Channel?

What Problems do

Companies Face in

Designing and

Managing Their

Channels?


What is a distribution channel l.jpg
What is a Distribution Channel?

  • A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.

  • Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.


Why are marketing intermediaries used l.jpg
Why are Marketing Intermediaries Used?

  • The use of intermediaries results from their greater efficiency in making goods available to target markets.

  • Offer the firm more than it can achieve on it’s own through the intermediaries:

    • Contacts,

    • Experience,

    • Specialization,

    • Scale of operation.

  • Purpose: match supply from producers to demand from consumers.



Distribution channel functions l.jpg
Distribution Channel Functions Transactions

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers.

Risk Taking

Information

Financing

Promotion

Contact

Physical

Distribution

Matching

Negotiation


Number of channel levels fig 12 2 l.jpg
Number of Channel Levels (Fig. 12.2) Transactions

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.

M

C

Channel 1

Direct Channel

M

C

R

Indirect Channel

Channel 2

M

C

W

R

Channel 3

M

J

C

W

R

Channel 4


Channel behavior conflict l.jpg
Channel Behavior & Conflict Transactions

  • The channel will be most effective when:

    • each member is assigned tasks it can do best.

    • all members cooperate to attain overall channel goals and satisfy the target market.

  • When this doesn’t happen, conflict occurs:

    • Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer.

    • Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.

  • For the channel to perform well, each channel member’s role must be specified and conflict must be managed.


Conventional marketing channel vs a vertical marketing system fig 12 3 l.jpg
Conventional Marketing Channel Vs. a Vertical Marketing System (Fig. 12.3)

Conventional

Marketing

Channel

Vertical

Marketing

System

Manufacturer

Manufacturer

Retailer

Wholesaler

Wholesaler

Retailer

Consumer

Consumer


Types of vertical marketing systems l.jpg

Corporate System (Fig. 12.3)

Common Ownership at Different

Levels of the Channel i.e. Sears

Types of Vertical Marketing Systems

Contractual

Contractual Agreements Among

Channel Members

Administered

Leadership is Assumed by One or

a Few Dominant Members i.e. Kraft

Degree of Direct Control


Types of vertical marketing systems11 l.jpg

Contractual System (Fig. 12.3)

VMS

Corporate

VMS

Wholesaler Sponsored

Voluntary Chain

Franchise

Organizations

Retailer

Cooperatives

Manufacturer-

Sponsored Retailer

Franchise System

Service-Firm-

Sponsored

Franchise System

Manufacturer-

Sponsored Wholesaler

Franchise System

Types of Vertical Marketing Systems

Vertical Marketing

Systems (VMS)

Administered

VMS


Innovations in marketing systems l.jpg

Horizontal Marketing System System (Fig. 12.3)

Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.

Example:

Banks in Grocery Stores

Hybrid Marketing System

A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

Innovations in Marketing Systems


Discussion connections l.jpg
Discussion Connections System (Fig. 12.3)

  • Describe the kinds of horizontal and vertical channel conflict that might occur in one of the following:

    • Personal computer industry,

    • Automobile industry,

    • Music industry,

    • Clothing industry.

  • How would you remedy the problems you have just described?


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Changing Channel Organization System (Fig. 12.3)

A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones.


Channel design decisions l.jpg

Analyzing Consumer Service Needs System (Fig. 12.3)

Setting Channel Objectives & Constraints

Identifying Major Alternatives

Channel Design Decisions

Evaluating the Major Alternatives

Designing International Distribution Channels

Intensive

Distribution

Exclusive

Distribution

Selective

Distribution


Channel management decisions l.jpg

Selecting Channel Members System (Fig. 12.3)

Channel Management Decisions

Motivating Channel Members

Evaluating Channel Members

FEEDBACK


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Nature and Importance of Marketing Logistics System (Fig. 12.3)

  • Involves getting the right product to the right customers in the right place at the right time.

  • Companies today place greater emphasis on logistics because:

    • customer service and satisfaction have become the cornerstone of marketing strategy.

    • logistics is a major cost element for most companies.

    • the explosion in product variety has created a need for improved logistics management.

    • Improvements in information technology has created opportunities for major gains in distribution efficiency.


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Goals of the Logistics System System (Fig. 12.3)

Higher Distribution Costs;

Higher Customer Service Levels

  • Goal:

  • To Provide a Targeted Level of Customer Service

  • at the Least Cost.

Maximize Profits, Not Sales

Lower Distribution Costs;

Lower Customer Service Levels


Major logistics functions l.jpg
Major Logistics Functions System (Fig. 12.3)

Order Processing

Received

Processed

Shipped

Costs

Minimize Costs of

Attaining Logistics

Objectives

Logistics

Functions

Warehousing

Storage

Distribution

Automated

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

Inventory

When to order

How much to order

Just-in-time


Transportation modes l.jpg
Transportation Modes System (Fig. 12.3)

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


Choosing transportation modes l.jpg
Choosing Transportation Modes System (Fig. 12.3)

Checklist for Choosing

Transportation Modes

1. Speed

2. Dependability

3. Availability

4. Costs

5. Others


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Cross-Functional Teamwork inside the Company System (Fig. 12.3)

Integrated Logistics Management

Building Channel Partnerships

Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations.

Third-Party Logistics


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Review of Concept Connections System (Fig. 12.3)

  • Explain why companies use distribution channels and discuss thee 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.

  • Discuss the nature and importance of physical distribution.

  • Analyze integrated logistics, including how it may be achieved and its benefits to the company.


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