MARKETING CHANNELS & SUPPLY CHAIN MANAGEMENT

CHAPTER 11

CATERPILLAR ®

• They have dominated the world’s market forheavy construction and mining equipment.

• Their yellow tractors, crawlers, loaders andtrucks are the most common sight in manyconstruction area.

• They have captured 35% of the world’s marketshare, selling more than 300 products to 200countries.

CATERPILLAR ®

Many factors contribute to their success:

• High quality products

• Flexible and efficient manufacturing

• Innovative products

• An organization that is responsive to thecustomer’s needs.

• There prices may be high but they providehigh quality, trouble free operation for longterm value

CATERPILLAR ®

• Yet those are not the reasons of Caterpillar’sdominance. It is through their dealers whoprovide and build strong customerrelationships in their communities.

• Caterpillar and its dealers work in closeharmony to find better ways to bring value tocustomers. The entire system is linked by asingle worldwide computer network.

CATERPILLAR ® Caterpillar has provided strong partnership with its dealers:

• Dealer Profitability: Share the gain as well as the pain.

• Extraordinary Dealer Support: Fast distribution andproblem solving.

• Communications: Frequently, fully and honestly

• Dealer Performance: Making sure that the dealers aredoing well through monitoring of sales, position, servicequality, financial capabilities, etc.

• Personal Relationships: Forming close and personal tieswith its dealers.

CATERPILLAR ®

Caterpillar’s superb distribution system serves as amajor source of competitive advantage. The system isbuilt through mutual trust and shared dreams.Caterpillar and their dealers shared pride as theyachieve together.

It is more than financial arrangement but feeling greatthrough doing what is good for the world because theyare part of an organization that makes, sells, and tendsto the machine that help make the world work.

DISTRIBUTION CHANNEL

It is a set of interdependent organizationsinvolved in the process of making a product orservice available for use of consumption by theconsumer or business user.

WHY ARE MARKETING INTERMEDIARIES USED?

• Greater efficiency in making goods available tothe target market

• Offer the target market communication,experience, specialization and scale of operationsmore than it can achieve with its own company.

• Reduce the amount of work.• Transform products made by producers into the

assortments wanted by consumers.• Can buy large quantities and then break them

into assortments for consumers.• They play a good role in the demand and supply.

HOW A DISTRIBUTOR REDUCE THE NUMBER OF CHANNEL TRANSACTIONS

DISTRIBUTION CHANNEL FUNCTIONS Information: gathering and distributing market

research and intelligence

Promotion: developing and spreading persuasivecommunication about an offer.

Contact: finding and communicating with buyers.

Matching: shaping and fitting the offer to the buyer’sneeds, including activities such as manufacturing,grading, assembling and packaging.

DISTRIBUTION CHANNEL FUNCTIONS Negotiation: reaching agreed price and other terms

of the offer.

Physical Distribution: transporting and storinggoods

Financing: use funds to cover the cost of channelwork

Risk Taking: taking the risk of carrying out thechannel work.

NUMBER OF CHANNEL LEVELS

• Channel Level – a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

• Direct Marketing Channel – a marketing channel that has no intermediary levels.

• Indirect Marketing Channel – channel containing one or more intermediary levels.

CONSUMER & BUSINESS MARKETING CHANNELS

CONSUMER & BUSINESS MARKETING CHANNELSAll institutions in the channel are connected by severaltypes of flows:

Physical flow of products

Flow of ownership

Payment flow

Information flow

Promotion flow

CHANNEL BEHAVIOR AND ORGANIZATION

Distribution channels are more than simple collectionof firms tied together for their common good.

CHANNELDISTRIBUTION

A distribution channel are firms banded together for their common good.

Each member is dependent on other.

CHANNEL CONFLICT

• Channel Conflict – disagreement amongmarketing channel members on goals androles – who should do what and for whatrewards.

• Horizontal Conflict – conflict among forms atthe same level of the channel

• Vertical Conflict – conflict between differentlevels of the same channel – the mostcommon of all.

CONVENTIONAL DISTRIBUTION CHANNEL Conventional Distribution Channel – a channel

consisting of one or more independent producers,wholesaler, and retailers, each a separate businessseeking to maximize its own profits even at theexpense of profits for the system as a whole.

VERTICAL MARKETING SYSTEMS Vertical Marketing System (VMS) – a distribution

channel structure in which producers, wholesalers,and retailers act as unified system.

1. Corporate

2. Contractual

3. Administered

CMC vs. VMS

VERTICAL MARKETING SYSTEMS

1. Corporate VMS – a VMS that combinessuccessive stages of production anddistribution under single ownership –channel ownership is established throughcommon ownership.

VERTICAL MARKETING SYSTEMS

2. Contractual VMS – a VMS in whichindependent firms at different levels ofproduction and distribution join togetherthrough contracts to obtain more economiesor sales impact than they could achievealone.

• Wholesaler-sponsored Voluntary Chains

• Retailer Cooperatives

VERTICAL MARKETING SYSTEMS

• Franchise Organization – a contractual VMSin which a channel member, called afranchiser, links several stages in theproduction-distribution process.

VERTICAL MARKETING SYSTEMS3. Administered VMS – a VMS that coordinates

successive stages of production and distribution, notthrough common ownership or contractual ties, butthrough the size and power of one of the parties.

HORIZONTAL MARKETING SYSTEMS A channel arrangement where two or more companies

at one level join together to follow a new marketing opportunity.

McDonalds and Heinz

HYBRID MARKETING SYSTEMS Multi-channel distribution system in which a single

firm sets up two or more marketing channels to reachone or more customer segments.

HYBRID MARKETING SYSTEMS

PRODUCERS

DISTRIBUTORS DEALERS

RETAILERS

CONSUMERS 1

CONSUMERS 2

CONSUMERS 3

CONSUMERS 4

CHANGING CHANNEL ORGANIZATION Disintermediation – the displacement of traditional

resellers from a marketing channel by radical newtypes of intermediaries.

CHANNEL DESIGN DECISIONS Analyzing Consumer Service Needs

CHANNEL DESIGN DECISIONS Setting Channel Objectives and Constraints

CHANNEL DESIGN DECISIONS

• Identifying Major Alternatives

1. Types of Intermediaries

Company’s Sales Force

Manufacturer’s Agency

Industrial Distributors

CHANNEL DESIGN DECISIONS

• Identifying Major Alternatives

2. Types of Intermediaries Intensive Distribution – stocking the product in as many

outlets as possible.

Exclusive Distribution – giving a limited number of dealersthe exclusive right to distribute the company’s products intheir territories.

Selective Distribution – the use of more than one but fewerthan all, of the intermediaries who are willing to carry thecompany’s products.

MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT

• Marketing Logistics – the task of involving inplanning, implementing and controlling thephysical flow of materials, final goods, andrelated information from points of origin topoints of consumption to meet customerrequirement and a profit.

• Supply Chain Management – managing valueadded flows of materials, final goods and relatedinformation between suppliers, the company,resellers and final buyers.

SUPPLY CHAIN MANAGEMENT

• Outbound Distribution – moving productsfrom the factory to resellers and finally tocustomers.

• Inbound Distribution – moving products andmaterials from suppliers to factory.

• Reverse Distribution – moving broken,unwanted or excess products returned fromconsumers to resellers.

SUPPLY CHAIN MANAGEMENT

SUPPLIERS COMPANY RESELLERS CONSUMERS

INBOUND LOGISTICS

OUTBOUND LOGISTICS

MAJOR LOGISTICS FUNCTIONS

• Order Processing – through salespeople, mail,email, telephone, internet, intranet andextranet platforms.

• Warehousing

How many warehouses needed

What types of warehouse

Storage warehouse or distribution centers

Automated warehouse

• Warehousing

Distribution Centers – a large, highly automated warehouse

designed to received goods from various plants and suppliers,take orders, fill them efficiently, and deliver goods tocustomers as quickly as possible.

• Inventory Management

Just in Time Logistics System

MAJOR LOGISTICS FUNCTIONS

TRANSPORTATION SYSTEMS

TRUCKS

TRANSPORTATION SYSTEMS

RAILROADS

TRANSPORTATION SYSTEMS

WATER CARRIERS

TRANSPORTATION SYSTEMS

AIR CARRIERS

TRANSPORTATION SYSTEMS

PIPELINES

TRANSPORTATION SYSTEMS

• Intermodal Transportation – combining two or more modes of transportation.

PIGGY BACK

TRANSPORTATION SYSTEMS

FISHY BACK

TRANSPORTATION SYSTEMS

TRAINSHIP

TRANSPORTATION SYSTEMS

AIR TRUCK

TRANSPORTATION SYSTEMS

AIRCRAFT CARRIERS

THIRD PARTY LOGISTICS

• An independent logistics provider thatperforms any of all the functions required togets its clients’ product to market.

SEMI-FINAL EXAMINATION

• 1 ASSIGNMENT

• 1 ACTIVITY

• NO QUIZZES

• SEPT. 24, 2015

• 25 MATCHING TYPE

• 30 DISCUSSION

• 15 IDENTIFICATION/ENUMERATION

• TAKE NOTE THERE ARE NO MORE SPECIAL EXAM AFTER FINALS.