Chapter 12 Marketing Channels and Supply Chain Management Notes: As products move through the supply chain, channel members facilitate the distribution process by providing: Specialization and division of labor: Breaking a complex task into smaller, simpler ones creates greater efficiency and lower production costs. Overcoming discrepancies of quantity, assortment, time, and space. Providing contact efficiency by cutting the number of transactions required to get products to consumers and making an assortment of goods available in one location.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Marketing channels help overcome discrepancies of quantity, assortment, time, and space created by economies of scale in production. Discrepancy of Quantity: Efficient production for lower unit costs creates a much larger quantity produced than the end user wants to buy. Marketing channels store and distribute the product in appropriate amounts, and make the products available in quantities that consumers desire. Discrepancy of Assortment: Marketing channels assemble in one place many of the products necessary for a consumer’s needed assortment.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Exhibit 12.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Circuit City, the individual television manufacturers would have to make four contacts to reach the four buyers. With Circuit City as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers.
Chapter 12 Marketing Channels and Supply Chain Management Notes: The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Agents and brokers do not take title to goods.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Exhibit 12.4 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Discussion/Team Activity: Identify various products and discuss the channel for distribution utilized by each.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Exhibit 12.5 illustrates the five channel structures common in business and industrial markets. Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel. Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances. Multiple channels: Two or more channels selected is called multiple or dual distribution. Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition. Strategic channel alliances: Producers use another manufacturer’s already-established channel.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Supply chain management helps companies achieve competitive advantage. By visualizing the entire supply chain, supply chain managers can maximize strengths and efficiencies at each level of the process to create a highly competitive, customer-driven supply system that is able to respond immediately to changes in supply and demand. In mass production, standardized products were “pushed” down the supply chain to the consumer. In contrast, in today’s marketplace, products are being driven or “pulled” by customers who expect products configured to their unique needs. Supply chain management allows companies to respond with the unique product configuration and mix of services demanded by the customer.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Supply chain management is a key means of differentiation for a firm and a critical component in marketing and corporate strategy. Research has shown a clear relationship between supply chain performance and profitability. Leaders in supply chain management report a 20 percent improvement in cash flow, a more than 50 percent increase in flexibility of supply chain activities, and a reduction of 5 to 10 percent in supply chain costs.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy? Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service. If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive. In general, a large market requires more intermediaries.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries. The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels. Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling.
Chapter 12 Marketing Channels and Supply Chain Management Notes: Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers. Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products. A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity.
Chapter 12 Marketing Channels and Supply Chain Management
Chapter 12 Marketing Channels and Supply Chain Management
Chapter 12 Marketing Channels and Supply Chain Management Notes: The supply chain consists of several interrelated and integrated logistical components, as shown on this slide. Integrating and linking all of the components is the logistics information system. The supply chain team orchestrates the movement of goods from the source to the consumer. The team cuts across organization boundaries and communicates/coordinates/cooperates extensively. The best supply chain teams move beyond the organization to include external participants, such as suppliers, transportation carriers, and third-party logistics suppliers.
Chapter 12 Marketing Channels and Supply Chain Management Notes: The fastest-growing part of our economy is the service sector. Customer service is a priority, with service distribution focused on three major areas: Minimizing wait times Managing service capacity. Improving service delivery Discussion/Team Activity: Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?
Chapter 12 Marketing Channels and Supply Chain Management
A set of interdependent organizations that facilitate the transfer of ownership as products move from producer to business user or consumer
Supply Chain – the connected chain of business entities (internal and external) that perform or support the channel functions
Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency
Overcoming Discrepancies Discrepancy of Quantity Discrepancy of Assortment 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.
Retailers – Organizations whose activities are directed toward sales to final (ultimate) consumers
Wholesalers – Organizations that sell to retailers or other wholesalers, and/or to businesses or institutions for use in the conduct of business
Channel Intermediaries Retailers Merchant Wholesalers Agents and Brokers Take Title to Goods Take Title to Goods Do NOT Take Title to Goods
Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics
Channels for Consumer Products Producer Producer Producer Producer Consumers Consumers Consumers Consumers Retailers Retailers Retailers Wholesalers Wholesalers Agents or Brokers Wholesaler Channel Retailer Channel Direct Channel Agent/Broker Channel
Channels for Business Products Producer Industrial User Direct Channel Producer Govt. Buyer Direct Channel Producer Producer Producer Industrial User Industrial User Industrial User Industrial Distributor Industrial Distributor Agents or Brokers Agents or Brokers Agent/Broker Channel Industrial Distributor Agent/Broker Industrial Channel
Supply Chain Management Supply 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.
Benefits of Supply Chain Management Means of differentiation Greater supply chain flexibility Improved customer service Higher revenues Reduced costs
Channel Strategy Decisions Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity
Market Factors Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location
Product Factors Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price
Producer Factors Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control
Levels of Distribution Intensity Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area
Logistical Components of the Supply Chain Supply Chain Team Sourcing & Procurement Production Scheduling Order Processing Inventory Control Warehouse & Materials Handling Transportation Logistics Information System
Channels and Distribution Decisions for Services Minimizing wait times Managing service capacity Improving service delivery