This document discusses marketing channels and supply chain management. It covers topics such as defining supply chains and value delivery networks, the nature and importance of marketing channels, channel behavior and organization, channel design decisions, and channel management. Specifically, it explains how marketing channels connect producers with consumers by bridging time, place and possession gaps. It also discusses how channels can be organized through conventional, vertical and horizontal systems to help members work together effectively.

1. Presented By:
Parakramesh Jaroli
MBA (Dual) II - Semester

2. Principles of Marketing
Marketing Channels and Supply
Chain Management

3. Learning Objectives
After studying this chapter, you should be able to:
1. Explain how companies use marketing channels and discuss
the functions these channels perform
2. Discuss how channel members interact and how they
organize to perform the work of the channel
3. Identify the major channel alternatives open to a company
4. Explain how companies select, motivate, and evaluate
channel members
5. Discuss the nature and importance of marketing logistics
and integrated supply chain management
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4. Chapter Outline
1. Supply Chains and the Value Delivery Network
2. The Nature and Importance of Marketing Channels
3. Channel Behavior and Organization
4. Channel Design Decisions
5. Channel Management Decisions
6. Public Policy and Distribution Decisions
7. Marketing Logistics and Supply Chain Management
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5. Supply Chains and the Value
Delivery Network
Supply Chain Partners
Upstream partners include raw material suppliers,
components, parts, information, finances, and
expertise to create a product or service
Downstream partners include the marketing channels
or distribution channels that look toward the
customer
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6. Supply Chains and the Value
Delivery Network
Supply Chain Views
Supply chain “make and sell” view includes the firm’s raw
materials, productive inputs, and factory capacity
Demand chain “sense and respond” view suggests that planning
starts with the needs of the target customer and the firm
responds to these needs by organizing a chain of resources
and activities with the goal of creating customer value
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7. Supply Chains and the
Value Delivery Network
The value delivery network is the firm’s suppliers,
distributors, and ultimately customers who
partner with each other to improve the
performance of the entire system
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Value Delivery Network

8. Supply Chains and the
Value Delivery Network
Marketing Channel Questions
• What is the nature of marketing channels and why
are they important?
• How do channel firms interact and organize to do
the work of the channel?
• What role do physical distribution and supply chain
management play in attracting customers?
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9. The Nature and Importance of Marketing
Channels
Marketing Channel Defined
Marketing channel is a set of independent
organizations that help make a product or service
available for use or consumption by the consumer
or business users
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10. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Channel members add value by bridging the major
time, place, and possession gaps that separate
goods and services from those who would use them
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11. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Producers use intermediaries because they
create greater efficiency in making goods
available to target markets.
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12. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Intermediaries offer the firm more than it can achieve
on its own through their contacts, experience,
specialization, and scale of operations
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13. The Nature and Importance of Marketing
Channels
From an economic view, intermediaries
transform the assortment of products into
assortments wanted by consumers
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How Channel Members Add Value

14. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Information refers to the gathering and distributing research
and intelligence information about actors and forces in
the marketing environment needed for planning and
aiding exchange
Promotion refers to the development and spreading
persuasive communications about an offer
Contacts refers to finding and communicating with
prospective buyers
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15. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Matching refers to shaping and fitting the offer to the
buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging
Negotiation refers to reaching an agreement on price
and other terms of the offer so that ownership or
possession can be transferred
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16. The Nature and Importance of Marketing
Channels
How Channel Members Add Value
Physical distribution refers to transporting and storing goods
Financing refers to acquiring and using funds to cover the costs
or carrying out the channel work
Risk taking refers to assuming the risks of carrying out the
channel work
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17. The Nature and Importance of Marketing
Channels
Number of Channel Members
Channel level refers to each layer of marketing intermediaries
that performs some work in bringing the product and its
ownership closer to the final buyer
Direct marketing channel has no intermediary levels; the
company sells directly to consumers
Indirect marketing channels contain one or more intermediaries
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18. The Nature and Importance of Marketing
Channels
Number of Channel Members
Connected by types of flows:
• Physical flow of products
• Flow of ownership
• Payment flow
• Information flow
• Promotion flow
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19. Channel Behavior and Organization
Channel Behavior
Marketing channel consists of firms that have
partnered for their common good with each
member playing a specialized role
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20. Channel Behavior and Organization
Channel Behavior
Channel conflict refers to disagreement over goals,
roles, and rewards by channel members
• Horizontal conflict
• Vertical conflict
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21. Channel Behavior and Organization
Channel Behavior
Horizontal conflict is conflict among members at the
same channel level
Vertical conflict is conflict between different levels of
the same channel
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22. Channel Behavior and Organization
Conventional Distribution Systems
Conventional distribution systems consist of one or
more independent producers, wholesalers, and
retailers. Each seeks to maximize its own profits
and there is little control over the other members
and no formal means for assigning roles and
resolving conflict.
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23. Channel Behavior and Organization
Vertical Marketing Systems
Vertical marketing systems (VMS) provide channel
leadership and consist of producers, wholesalers,
and retailers acting as a unified system and consist
of:
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems
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24. Channel Behavior and Organization
Corporate vertical marketing system integrates
successive stages of production and
distribution under single ownership
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Vertical Marketing Systems

25. Channel Behavior and Organization
Vertical Marketing Systems
Contractual vertical marketing system consists of
independent firms at different levels of production
and distribution who join together through
contracts to obtain more economies or sales impact
than each could achieve alone. The most common
form is the franchise organization.
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26. Channel Behavior and Organization
Vertical Marketing Systems
Franchise organization links several stages in the
production distribution process
• Manufacturer-sponsored retailer franchise system
• Manufacturer-sponsored wholesaler franchise system
• Service firm-sponsored retailer franchise system
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27. Channel Behavior and Organization
Vertical Marketing Systems
Administered vertical marketing system has a few
dominant channel members without common
ownership. Leadership comes from size and
power.
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28. Channel Behavior and Organization
Horizontal Marketing Systems
Horizontal marketing systems include two or more
companies at one level that join together to
follow a new marketing opportunity. Companies
combine financial, production, or marketing
resources to accomplish more than any one
company could alone.
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29. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
Hybrid marketing channels exist when a single firm
sets up two or more marketing channels to reach
one or more customer segments
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30. Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels
• Advantages
• Increased sales and market coverage
• New opportunities to tailor products and services to
specific needs of diverse customer segments
• Challenges
• Hard to control
• Create channel conflict
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31. Channel Behavior and Organization
Changing Channel Organization
Disintermediation occurs when product or service
producers cut out intermediaries and go directly to
final buyers, or when radically new types of channel
intermediaries displace traditional ones
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32. Channel Design Decisions
Analyzing Consumer Needs
Designing a channel system requires:
• Analyzing consumer needs
• Setting channel objectives
• Identifying major channel alternatives
• Evaluation
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33. Channel Design Decisions
Analyzing Consumer Needs
Designing a marketing channel starts with finding out
what target customers want from the channel
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34. Channel Design Decisions
Setting Channel Objectives
In terms of:
• Targeted levels of customer service
• What segments to serve
• Best channels to sue
• Minimizing the cost of meeting customer service
requirements
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35. Channel Design Decisions
Objectives are influenced by:
• Nature of the company
• Marketing intermediaries
• Competitors
• Environment
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Setting Channel Objectives

36. Channel Design Decisions
Identifying Major Alternatives
In terms of:
• Types of intermediaries
• Number of intermediaries
• Responsibilities of each channel member
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37. Channel Design Decisions
Identifying Major Alternatives
Types of intermediaries refers to channel members
available to carry out channel work. Examples
include:
• Company sales force
• Manufacturer’s agency
• Industrial distributors
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38. Channel Design Decisions
Identifying Major Alternatives
Company sales force strategies
• Expand direct sales force
• Assign outside salespeople to territories
• Develop a separate sales force
• Telesales
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39. Channel Design Decisions
Identifying Major Alternatives
Manufacturer’s agencies are independent firms whose
sales forces handle related products from many
companies in different regions or industries
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40. Channel Design Decisions
Identifying Major Alternatives
Industrial distributors
• Find distributors in different regions or industries
• Exclusive distribution
• Margin opportunities
• Training
• Support
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41. Channel Design Decisions
Identifying Major Alternatives
Number of marketing intermediaries to use at each
level
• Strategies:
• Intensive distribution
• Exclusive distribution
• Selective distribution
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42. Channel Design Decisions
Identifying Major Alternatives
Intensive distribution is a strategy used by producers
of convenience products and common raw
materials in which they stock their products in as
many outlets as possible
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43. Channel Design Decisions
Exclusive distribution is a strategy in which the
producer gives only a limited number of dealers
the exclusive right to distribute its products in
their territories
• Luxury automobiles
• High-end apparel
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Identifying Major Alternatives

44. Channel Design Decisions
Identifying Major Alternatives
Selective distribution is a strategy when a producer
uses more than one but fewer than all of the
intermediaries willing to carry the producer’s
products
• Televisions
• Appliances
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45. Channel Design Decisions
Responsibilities of Channel Members
Producers and intermediaries need to agree on:
• Price policies
• Conditions of sale
• Territorial rights
• Services provided by each party
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46. Channel Design Decisions
Evaluating the Major Alternatives
Each alternative should be evaluated against:
• Economic criteria
• Control
• Adaptive criteria
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47. Channel Design Decisions
Evaluating the Major Alternatives
Economic criteria compares the likely sales costs and
profitability of different channel members
Control refers to channel members’ control over the marketing
of the product
Adaptive criteria refers to the ability to remain flexible to adapt
to environmental changes
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48. Channel Design Decisions
Designing International Distribution Channels
Channel systems can vary from country to country
Must be able to adapt channel strategies to the existing
structures within each country
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49. Channel Management Decisions
Channel management involves:
• Selecting channel members
• Managing channel members
• Motivating channel members
• Evaluating channel members
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50. Channel Management Decisions
Selecting Channel Members
Selecting channel members involves determining the
characteristics that distinguish the better ones by
evaluating channel members
• Years in business
• Lines carried
• Profit record
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51. Channel Management Decisions
Selecting Channel Members
Selecting intermediaries that are sales agents involves
evaluating:
• Number and character of other lines carried
• Size and quality of sales force
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52. Channel Management Decisions
Selecting Channel Members
Selecting intermediaries that are retail stores that want
exclusive or selective distribution involves
evaluating:
• Store’s customers
• Locations
• Growth potential
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53. Channel Management Decisions
Managing and Motivating Channel Members
Partner relationship management (PRM) and supply
chain management (SCM) software are used to
forge long-term partnerships with channel
members and to recruit, train, organize, manage,
motivate, and evaluate channel members
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54. Public Policy and Distribution Decisions
Exclusive distribution is when the seller allows only
certain outlets to carry its products
Exclusive dealing is when the seller requires that the
sellers not handle competitor’s products
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55. Public Policy and Distribution Decisions
Benefits of exclusive distribution include:
• Seller obtains more loyal and dependable dealers
• Dealers obtain a steady and stronger seller support
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56. Public Policy and Distribution Decisions
Exclusive territorial agreement refers to an agreement where
the producer may agree not to sell to other dealers in a
given area or the buyer may agree to sell only in its own
territory
Tying agreements, while not necessarily illegal as long as they
do not substantially lessen competition, are agreements
where there is a strong brand that producers sometimes sell
to dealers only if the dealers will take some or all of the rest
of the line
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57. Marketing Logistics and Supply
Chain Management
• Nature and importance of logistics management in
the supply chain
• Goals of the logistics system
• Major logistics functions
• Need for integrated supply chain management
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58. Marketing Logistics and Supply
Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics (physical distribution) involves
planning, implementing, and controlling the
physical flow of goods, services, and related
information from points of origin to points of
consumption to meet consumer requirements at a
profit
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59. Marketing Logistics and Supply
Chain Management
Nature and Importance of Marketing Logistics
Marketing logistics involves:
• Outbound distribution: Moving products from the factory to
resellers and consumers
• Inbound distribution: Moving products and materials from
suppliers to the factory
• Reverse distribution: Moving broken, unwanted, or excess
products returned by consumers or resellers
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60. Marketing Logistics and Supply
Chain Management
Nature and Importance of Marketing Logistics
Supply chain management is the process of managing
upstream and downstream value-added flows of
materials, final goods, and related information
among suppliers, the company, resellers, and final
consumers
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61. Marketing Logistics and Supply
Chain Management
Nature and Importance of Marketing Logistics
Importance of logistics
• Competitive advantage by giving customers better service at
lower prices
• Cost savings to the company and its customers
• Product variety requires improved logistics
• Information technology has created opportunities for
distribution efficiency
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62. Marketing Logistics and Supply
Chain Management
Goals of the Logistics System
To provide a targeted level of customer service at the
least cost with the objective to maximize profit, not
sales
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63. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
• Warehousing
• Inventory management
• Transportation
• Logistics information management
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64. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
Warehousing is the storage function that overcomes
differences in need quantities and timing, ensuring
that the products are available when customers are
ready to buy them
• Storage warehouses
• Distribution centers
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65. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
Storage warehouses are designed to store goods, not
move them
Distribution centers are designed to move goods, not
store them
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66. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
Inventory management balances carrying too little and
too much inventory
• Just-in-time logistics systems
• RFID
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67. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
Just-in-time logistics systems allow producers and retailers to
carry small amounts of inventories of parts or merchandise
RFID (radio frequency identification devices) are small
transmitter chips embedded in or placed on products or
packages to provide greater inventory control
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68. Marketing Logistics and Supply
Chain Management
Transportation affects the pricing of products, delivery
performance, and condition of the goods when they
arrive
• Truck
• Rail
• Water
• Pipeline
• Air
• Internet
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Major Logistics Functions

69. Marketing Logistics and Supply
Chain Management
Major Logistics Functions
Intermodal transportation combines two or more
modes of transportation
• Piggyback uses rail and truck
• Fishyback uses water and truck
• Airtruck uses air and truck
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70. Marketing Logistics and Supply
Chain Management
Logistics Information Management
Logistics information management is the management
of the flow of information, including customer
orders, billing, inventory levels, and customer data
• EDI (electronic data interchange)
• VMI (vendor-managed inventory)
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71. Marketing Logistics and Supply
Chain Management
Integrated Logistics Management
Integrated logistics management is the recognition
that providing customer service and trimming
distribution costs require teamwork internally and
externally
• Cross-functional teamwork inside the company
• Building partner relationships
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72. Marketing Logistics and Supply
Chain Management
Integrated Logistics Management
Cross-functional teamwork inside the company refers
to the inter-relationship of different departments
within the company to achieve the goals of
integrated supply chain management
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73. Marketing Logistics and Supply Chain
Management
Integrated Logistics Management
Building partner relationships refers to the
understanding that one company’s distribution is
another company’s supply system
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74. Marketing Logistics and Supply
Chain Management
Integrated Logistics Management
Third-party logistics is the outsourcing of logistics functions to
third-party logistics providers (3PLs)
• Provide logistics functions more efficiently
• Provide logistics functions at lower cost
• Allow the company to focus on its core business
• Are more knowledgeable of complex logistics
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