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Chapter 12 Distribution Channels  and Supply Chain Management
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
Case Study Caterpillar <ul><li>Dominates world’s markets for heavy construction and mining equipment. </li></ul><ul><li>In...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
Supply Chains and the Value Delivery Network <ul><li>A supply chain consists  of upstream and downstream partners </li></u...
Nature & Importance of Distribution Channels <ul><li>Marketing channel </li></ul><ul><ul><li>Set of interdependent organiz...
<ul><li>Channel choices affect other decisions in the marketing mix </li></ul><ul><ul><li>Pricing, marketing communication...
Nature & Importance of Marketing Channels  <ul><li>How Channel Members Add Value </li></ul><ul><ul><li>Fewer contacts. </l...
How Channel Members Add Value <ul><ul><li>Information </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><ul><li>Cont...
Nature & Importance of Marketing Channels <ul><li>Number of Channel Levels </li></ul><ul><ul><li>The number of intermediar...
Channel Members are Connected Via a Variety of Flows <ul><li>Physical Flow </li></ul><ul><li>Payment Flow  </li></ul><ul><...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
<ul><li>Channel Conflict </li></ul><ul><ul><li>Occurs when channel members disagree on roles, activities, or rewards. </li...
<ul><li>Conventional Distribution Channels </li></ul><ul><ul><li>Consist of one or more independent channel members </li><...
Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul...
Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul...
Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul...
<ul><li>Horizontal Marketing Systems </li></ul><ul><ul><li>Companies at the same level work together with channel members ...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
<ul><li>Step 1: Analyzing Consumer Needs </li></ul><ul><ul><li>Cost and feasibility of meeting needs must be considered  <...
Channel Design Decisions <ul><li>Step 3: Identifying Major Alternatives </li></ul><ul><ul><li>Types of intermediaries </li...
Channel Design Decisions <ul><li>Step 4: Evaluating Major Alternatives </li></ul><ul><ul><li>Economic criteria </li></ul><...
Channel Design Decisions <ul><li>Designing International Distribution Channels </li></ul><ul><ul><li>Global marketers usua...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members <...
Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members <...
Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members <...
Public Policy and Distribution Decisions <ul><li>Exclusive dealing.  Sellers cannot demand exclusivity for their product f...
Public Policy and Distribution Decisions <ul><li>Dealers’ rights.  Producers are free to select dealers, but are limited i...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
Marketing Logistics and Supply Chain Management <ul><li>Marketing logistics (physical distribution). </li></ul><ul><ul><li...
Marketing Logistics and Supply Chain Management <ul><li>Marketing Logistics  </li></ul><ul><ul><li>Outbound distribution <...
Marketing Logistics and Supply Chain Management <ul><li>Why Greater Emphasis is Being Placed on Logistics: </li></ul><ul><...
Marketing Logistics and Supply Chain Management <ul><li>Goals of the Logistics System </li></ul><ul><ul><li>No system can ...
Marketing Logistics and Supply Chain Management <ul><li>Major Logistics Functions </li></ul><ul><ul><li>Warehousing </li><...
<ul><li>Truck </li></ul><ul><li>Rail </li></ul><ul><li>Water </li></ul><ul><li>Pipeline </li></ul><ul><li>Air </li></ul><u...
Marketing Logistics and Supply Chain Management <ul><li>Integrated Logistics Management </li></ul><ul><ul><li>Cross-functi...
Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perfo...
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Chapter 12

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Transcript of "Chapter 12"

  1. 1. Chapter 12 Distribution Channels and Supply Chain Management
  2. 2. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  3. 3. Case Study Caterpillar <ul><li>Dominates world’s markets for heavy construction and mining equipment. </li></ul><ul><li>Independent dealers are key to success </li></ul><ul><li>Dealer network is linked via computers </li></ul><ul><li>Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications </li></ul>12-
  4. 4. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  5. 5. Supply Chains and the Value Delivery Network <ul><li>A supply chain consists of upstream and downstream partners </li></ul><ul><li>Marketers have traditionally focused on the downstream side </li></ul><ul><ul><li>Supply chain – make-and-sell view </li></ul></ul><ul><ul><li>Demand chain – sense-and-respond-view </li></ul></ul><ul><li>Value Delivery Network </li></ul><ul><ul><li>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. </li></ul></ul>12-
  6. 6. Nature & Importance of Distribution Channels <ul><li>Marketing channel </li></ul><ul><ul><li>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. </li></ul></ul>12-
  7. 7. <ul><li>Channel choices affect other decisions in the marketing mix </li></ul><ul><ul><li>Pricing, marketing communications </li></ul></ul><ul><li>A strong distribution system can be a competitive advantage </li></ul><ul><li>Channel decisions involve long-term commitments to other firms </li></ul>Nature & Importance of Marketing Channels 12-
  8. 8. Nature & Importance of Marketing Channels <ul><li>How Channel Members Add Value </li></ul><ul><ul><li>Fewer contacts. </li></ul></ul><ul><ul><li>Match product assortment demand with supply. </li></ul></ul><ul><ul><li>Bridge, time, place, and possession gaps that separate products from users. </li></ul></ul>12-
  9. 9. How Channel Members Add Value <ul><ul><li>Information </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><ul><li>Contact </li></ul></ul><ul><ul><li>Matching </li></ul></ul><ul><ul><li>Negotiation </li></ul></ul><ul><ul><li>Physical Distribution </li></ul></ul><ul><ul><li>Financing </li></ul></ul><ul><ul><li>Risk taking </li></ul></ul><ul><ul><li>Environmental sustainability </li></ul></ul>12- <ul><li>Channel members add value by bridging the major time, place, and possession gaps. </li></ul><ul><li>Key functions: </li></ul>
  10. 10. Nature & Importance of Marketing Channels <ul><li>Number of Channel Levels </li></ul><ul><ul><li>The number of intermediary levels indicates the length of a marketing channel. </li></ul></ul><ul><ul><ul><li>Direct Channels </li></ul></ul></ul><ul><ul><ul><li>Indirect Channels </li></ul></ul></ul><ul><ul><li>Producers lose more control and face greater channel complexity as additional channel levels are added. </li></ul></ul>12-
  11. 11. Channel Members are Connected Via a Variety of Flows <ul><li>Physical Flow </li></ul><ul><li>Payment Flow </li></ul><ul><li>Information Flow </li></ul><ul><li>Promotion Flow </li></ul><ul><li>Flow of Ownership </li></ul>12-
  12. 12. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  13. 13. <ul><li>Channel Conflict </li></ul><ul><ul><li>Occurs when channel members disagree on roles, activities, or rewards. </li></ul></ul><ul><ul><li>Types of Conflict: </li></ul></ul><ul><ul><ul><li>Horizontal conflict: occurs among firms at the same channel level </li></ul></ul></ul><ul><ul><ul><li>Vertical conflict: occurs among firms at different channel levels </li></ul></ul></ul>Channel Behaviour and Organization 12-
  14. 14. <ul><li>Conventional Distribution Channels </li></ul><ul><ul><li>Consist of one or more independent channel members </li></ul></ul><ul><ul><li>Each seeking to maximize its own profits </li></ul></ul><ul><ul><li>Often result in poor performance </li></ul></ul><ul><li>Vertical Marketing Systems </li></ul><ul><ul><li>Producers, wholesalers, and retailers act as a unified system </li></ul></ul><ul><ul><li>One channel member owns, has contracts with, or has so much power that they all cooperate </li></ul></ul><ul><ul><li>Benefits should include greater control, less conflict, and economies of scale due to the size of the system </li></ul></ul>Channel Behaviour and Organization 12-
  15. 15. Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul><ul><ul><li>Contractual VMS </li></ul></ul><ul><ul><li>Administered VMS </li></ul></ul><ul><li>Integrates successive stages of production and distribution under single ownership – channel ownership is established through common ownership </li></ul><ul><li>Coordination and conflict through regular organizational channels </li></ul>12-
  16. 16. Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul><ul><ul><li>Contractual VMS </li></ul></ul><ul><ul><li>Administered VMS </li></ul></ul><ul><li>Individual firms who join through contracts </li></ul><ul><li>Franchise organizations </li></ul><ul><ul><li>Manufacturer-sponsored retailer franchise system </li></ul></ul><ul><ul><li>Manufacturer-sponsored wholesaler franchise system </li></ul></ul><ul><ul><li>Service-firm-sponsored retailer franchise system </li></ul></ul>12-
  17. 17. Channel Behaviour and Organization <ul><li>Vertical Market System (VMS) </li></ul><ul><ul><li>Corporate VMS </li></ul></ul><ul><ul><li>Contractual VMS </li></ul></ul><ul><ul><li>Administered VMS </li></ul></ul><ul><li>Leadership through the size and power of dominant channel members </li></ul><ul><li>Leadership could be manufacturer or retailer </li></ul>12-
  18. 18. <ul><li>Horizontal Marketing Systems </li></ul><ul><ul><li>Companies at the same level work together with channel members </li></ul></ul><ul><li>Multichannel Distribution Systems </li></ul><ul><ul><li>Also called hybrid marketing channels </li></ul></ul><ul><ul><li>Occurs when a firm uses two or more marketing channels </li></ul></ul><ul><li>Changing Channel Organization </li></ul><ul><ul><li>Disintermediation </li></ul></ul>Channel Behaviour and Organization 12-
  19. 19. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  20. 20. <ul><li>Step 1: Analyzing Consumer Needs </li></ul><ul><ul><li>Cost and feasibility of meeting needs must be considered </li></ul></ul><ul><li>Step 2: Setting Channel Objectives </li></ul><ul><ul><li>Set channel objectives in terms of targeted level of customer service </li></ul></ul><ul><ul><li>Many factors influence channel objectives </li></ul></ul><ul><ul><ul><li>Nature of the company (size/financial position) and its products </li></ul></ul></ul><ul><ul><ul><li>Marketing intermediaries </li></ul></ul></ul><ul><ul><ul><li>Competition </li></ul></ul></ul><ul><ul><ul><li>Marketing environment </li></ul></ul></ul>Channel Design Decisions 12-
  21. 21. Channel Design Decisions <ul><li>Step 3: Identifying Major Alternatives </li></ul><ul><ul><li>Types of intermediaries </li></ul></ul><ul><ul><ul><li>Company sales force, manufacturer’s agency, industrial distributors </li></ul></ul></ul><ul><ul><li>Number of marketing intermediaries </li></ul></ul><ul><ul><ul><li>Intensive, selective, and exclusive distribution </li></ul></ul></ul><ul><ul><li>Responsibilities of channel members </li></ul></ul>12-
  22. 22. Channel Design Decisions <ul><li>Step 4: Evaluating Major Alternatives </li></ul><ul><ul><li>Economic criteria </li></ul></ul><ul><ul><li>Control issues </li></ul></ul><ul><ul><li>Adaptive criteria </li></ul></ul>12-
  23. 23. Channel Design Decisions <ul><li>Designing International Distribution Channels </li></ul><ul><ul><li>Global marketers usually adapt their channel strategies to structures that exist within foreign countries </li></ul></ul><ul><ul><li>Key challenges: </li></ul></ul><ul><ul><ul><li>May be complex or hard to penetrate </li></ul></ul></ul><ul><ul><ul><li>May be scattered, inefficient, or totally lacking </li></ul></ul></ul>12-
  24. 24. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  25. 25. Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members </li></ul><ul><li>Evaluating channel members </li></ul><ul><li>Which characteristics are important? </li></ul><ul><ul><li>Years in business </li></ul></ul><ul><ul><li>Lines carried </li></ul></ul><ul><ul><li>Growth and profit record </li></ul></ul><ul><ul><li>Cooperativeness and reputation </li></ul></ul><ul><ul><li>Type of customer </li></ul></ul><ul><ul><li>Location </li></ul></ul>12-
  26. 26. Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members </li></ul><ul><li>Evaluating channel members </li></ul><ul><li>Partner relationship management (PRM) for long-term partnerships </li></ul><ul><li>Software available to coordinate members </li></ul>12-
  27. 27. Channel Management Decisions <ul><li>Selecting channel members </li></ul><ul><li>Managing and motivating channel members </li></ul><ul><li>Evaluating channel members </li></ul><ul><li>Check channel performance of: </li></ul><ul><ul><li>Sales </li></ul></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Customer delivery </li></ul></ul><ul><ul><li>Promotion and training </li></ul></ul><ul><ul><li>Customer service </li></ul></ul>12-
  28. 28. Public Policy and Distribution Decisions <ul><li>Exclusive dealing. Sellers cannot demand exclusivity for their product from resellers if it can be proven that it will lessen competition or create a monopoly </li></ul><ul><li>Exclusive territories. Sellers may grant exclusive territories, but may have trouble demanding that resellers deal only within that exclusive territory </li></ul><ul><li>Tying agreements. demanding that resellers buy and/or stock all products within a product line, as a condition of doing business. Not illegal but a source of much channel conflict </li></ul>12-
  29. 29. Public Policy and Distribution Decisions <ul><li>Dealers’ rights. Producers are free to select dealers, but are limited in their ability to terminate dealers; they must show cause, and cannot drop dealers who refuse to participate in doubtful legal arrangements </li></ul><ul><li>Sources of supply. Ethical concerns over supply sources from countries with human rights violations or use the proceeds to fund armed conflict </li></ul>12-
  30. 30. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
  31. 31. Marketing Logistics and Supply Chain Management <ul><li>Marketing logistics (physical distribution). </li></ul><ul><ul><li>Tasks involved in planning, implementing, and controlling the physical flow of materials, final goods and related information </li></ul></ul><ul><li>Supply chain management. </li></ul><ul><ul><li>Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers </li></ul></ul>12-
  32. 32. Marketing Logistics and Supply Chain Management <ul><li>Marketing Logistics </li></ul><ul><ul><li>Outbound distribution </li></ul></ul><ul><ul><li>Inbound distribution </li></ul></ul><ul><ul><li>Reverse distribution </li></ul></ul><ul><ul><li>Involves the entire supply chain management system </li></ul></ul>12-
  33. 33. Marketing Logistics and Supply Chain Management <ul><li>Why Greater Emphasis is Being Placed on Logistics: </li></ul><ul><ul><li>Offers firms a competitive advantage </li></ul></ul><ul><ul><li>Can yield cost savings </li></ul></ul><ul><ul><li>Greater product variety requires improved logistics </li></ul></ul><ul><ul><li>Improvements in distribution efficiency are possible due to information technology </li></ul></ul>12-
  34. 34. Marketing Logistics and Supply Chain Management <ul><li>Goals of the Logistics System </li></ul><ul><ul><li>No system can both maximize customer service and minimize costs. </li></ul></ul><ul><ul><li>The goal of marketing logistics should be to provide a targeted level of customer service at the least cost. </li></ul></ul><ul><ul><li>Firms must first weigh the benefits of higher service against the costs. </li></ul></ul>12-
  35. 35. Marketing Logistics and Supply Chain Management <ul><li>Major Logistics Functions </li></ul><ul><ul><li>Warehousing </li></ul></ul><ul><ul><li>Inventory Management </li></ul></ul><ul><ul><li>Transportation </li></ul></ul><ul><ul><li>Logistics Information Management </li></ul></ul>12-
  36. 36. <ul><li>Truck </li></ul><ul><li>Rail </li></ul><ul><li>Water </li></ul><ul><li>Pipeline </li></ul><ul><li>Air </li></ul><ul><li>Internet </li></ul>Marketing Logistics and Supply Chain Management 12- Transportation Carrier Options Intermodal transportation is becoming more common
  37. 37. Marketing Logistics and Supply Chain Management <ul><li>Integrated Logistics Management </li></ul><ul><ul><li>Cross-functional teamwork inside the company is critical </li></ul></ul><ul><ul><li>Logistics partnerships are also built through shared projects </li></ul></ul><ul><ul><li>Outsourcing of logistics firms to third-party firms is becoming more common </li></ul></ul>12-
  38. 38. Learning Goals <ul><li>Explain why companies use distribution channels and discuss the functions that these channels perform </li></ul><ul><li>Discuss how channel members interact and how they organize to perform the work of the channel </li></ul><ul><li>Identify the major channel alternatives open to a company </li></ul><ul><li>Explain how companies select, motivate, and evaluate channel members </li></ul><ul><li>Discuss the nature and importance of physical distribution </li></ul>12-
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