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Chapter 15. Marketing Channels, Logistics, and Supply Chain Management. Objectives. Describe the roles that marketing channels and logistics play in marketing strategy. Describe the various types of distribution channels available to marketers. Outline the major channel strategy decisions.
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Chapter 15 Marketing Channels, Logistics, and Supply Chain Management
Objectives • Describe the roles that marketing channels and logistics play in marketing strategy. • Describe the various types of distribution channels available to marketers. • Outline the major channel strategy decisions. • Describe the concepts of management, conflict, and cooperation within the marketing channel. • Identify and compare the major components of a physical distribution system. • Compare the major transportation alternatives on the basis of speed, dependability, cost, frequency of shipments, availability in different locations, and flexibility in handling products. • Discuss how transportation intermediaries and combined transportation modes can improve physical distribution.
All products, no matter how small or large, time sensitive or not require distribution considerations.
Roles of Marketing Channels • First, they facilitate the exchange process. • Second, distributors adjust for discrepancies in the market’s assortment of goods and services. • Third, they involve standardizing exchange transactions by setting expectations for products. • Finally, marketing channels facilitate searches by both buyers and sellers.
Can you see the importance of the marketing channel selection in the distribution of this advertised product. What criteria would you use when making distribution decisions pertaining to this product?
Leading retailers • Who are the leading retailers and what are the guidelines for selection?
Major Channel Strategy Decisions • Level of distribution intensity. • Desirability of vertical marketing systems. • Performance of current intermediaries.
Distribution Intensity • Intensive Distributionstrategy seeks to distribute a product through all available channels in a trade area. • Intensive distribution strategy suits items with wide appeal across broad groups of consumers. • Selective distribution,a firm chooses only a limited number of retailers in a market area to handle its line. • Helps to control price cutting since relatively few dealers handle the firm’s line. • Exclusive distribution, when a producer grants exclusive rights to a wholesaler or retailer to sell its products in a specific geographical region.
Creative Distribution Channels • Gasoline at Home Depot – 9/05 • Apple I-pod accessories at vending machines in hotels, airports, convention centers – 9/05 • Pet clothes at Urban Outfitters
Legal Problems of Exclusive Distribution Three main areas: • Exclusive dealing prohibits the handling of competing products . • Closed sales territories to restrict their distributors to certain geographical regions. • Tying agreements which allow channel members to becoming exclusive dealers only if they also carry products other than those that they want to sell. • Tying agreements violate the Sherman Act and the Clayton Act when they reduce competition or create monopolies that keep competitors out of major markets.
Channel Management and Leadership Keys to successful management include: • Development of high levels of coordination. • Commitment. • Trust between channel members.
Three Types of Channel Conflict • Horizontal Conflict • Sometimes results from disagreements among channel members at the same level. • More often, causes sparks between different types of marketing intermediaries that handle similar products. • Vertical Conflict • Cause frequent and often severe conflict. • Channel members at different levels find many reasons for disputes. • Producers may annoy wholesalers and retailers when they attempt to bypass these intermediaries. • Grey Market • As U.S. manufacturers license their technology and brands abroad, they sometimes find themselves in competition in the U.S. market against versions of their own brands produced by overseas affiliates. • Grey goods, or parallel goods, enter U.S. channels through the actions of foreign distributors.
Vertical Marketing System (VMS) • VMS is a planned channel system designed to improve distribution efficiency and cost effectiveness. • Forward integration, a firm attempts to control downstream distribution. • Backward integration occurs when a manufacturer attempts to gain greater control over inputs in its production process. • A VMS offers several benefits. • First, it improves chances for controlling and coordinating the steps in the distribution or production process. • May also let a manufacturer expand into profitable new businesses.
VMS Article • Discover the answers to the following questions and more when visiting this web site: • What does a vertical market system (VMS) look like? • What are the disadvantages of vertical marketing systems? • Are there different types of vertical marketing systems?
Three Categories of VMS • Corporate Marketing System - where a single owner runs organizations at each stage of the marketing channel it operates. • Administered Marketing System - achieves channel coordination when a dominant channel member exercises its power. • Contractual Marketing System - coordinates distribution through formal agreements among channel members.
Major Components of a Physical Distribution System • Customer service - What level of customer service the distribution activities should support. • Transportation - How the firm should ship its products. • Inventory control - How much inventory the firm should maintain. • Protective packaging and materials handling. • Order processing. • Warehousing - Where the distribution system will locate stocks of goods.
Warehousing 22% Customer Service/Order Processing 6% Transportation 42% Administrative Costs 5% Inventory Control 25% Physical Distribution Expenditures SOURCE: These 2003 estimates were provided by Dr. Julie Gentry, Logistics Faculty, University of Arkansas-Fayetteville
Shipping & Transportation Hints • What are some of the considerations for a firm looking to ship internationally?
