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© 2001 South-Western College
Publishing1
CHAPTER TEN
MARKETING CHANNELS AND LOGISTICS DECISIONS
Prepared by Jack Gifford
Miami University (Ohio)
© 2001 South-Western College
Publishing2
MARKETING CHANNELS
A marketing channel can be viewed as a large canal or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer from the point of origin.
ORIGIN
FINAL CONSUMER
© 2001 South-Western College
Publishing3
MARKETING CHANNELS ACHIEVE EFFICIENCIES THROUGH SPECIALIZATION AND DIVISION OF LABOR
According to the concept of specialization and division of labor, breaking down a complex task into smaller, simpler ones and allocating them to specialists will create greater efficiency and lower average production costs. A number of channel members have evolved to provide
these efficiencies between manufacturers and final consumers. They often take the form of wholesalers and retailers.
M W R C
© 2001 South-Western College
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MARKETING CHANNELS ALSO AID IN OVERCOMING DISCREPENCIES OF….
QUANTITY DISCREPANCY
ASSORTMENT DISCREPANCY
TEMPORAL DISCREPANCY
SPACIAL DISCREPANCY
• Manufacture in large quantities, but consume individually in smaller quantities.
•Manufacture water skis but individuals want a variety of boating supplies.
• Grow blueberries 3 months a year in Michigan, but wish to consume 12 months a year throughout the USA
© 2001 South-Western College
Publishing5
MARKETING CHANNEL MEMBERS HELP TO OVERCOME CONTACT INEFFICIENCIES
Manufacturer B
Manufacturer A
Manufacturer C
Manufacturer D
Manufacturer E
Manufacturer F
Manufacturer G
Consumer one stop shopping for any electronic or entertainment needs
© 2001 South-Western College
Publishing6
CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS
Retailers (Discussed in the next chapter)
Merchant wholesalers Facilitate the movement of products
and services from the manufacturer to producers, resellers, governments, institutions, and retailers
Take title to the goods they sell Usually operate one or more
warehouses
MMMMMMMM
Merchant Wholesaler
Govt.
Retailers
Resellers
Institutions
© 2001 South-Western College
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CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS
Agents and Brokers Facilitate the movement of products
and services from the manufacturer to end users by representing retailers, wholesalers or manufacturers
Do not take title to the goods they sell
Little input into the terms of sale Receive a fee or commission based
upon sales volume
MMMMMMMM
Agents and Brokers
Retailers
Wholesalers
Manufacturers
© 2001 South-Western College
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CHANNEL FUNCTIONS PERFORMED BY INTERMEDIARIES
Transactional functions Contacting and promoting Negotiating Risk-taking
Logistical functions Physically distributing Storing Sorting
Facilitating functions Researching Financing Marketing intelligence
Sorting out Breaking down a
heterogeneous supply into separate homogeneous stocks
Accumulation Combining similar stocks
into a larger homogeneous supply
Allocation Breaking a homogeneous
supply into smaller lot Assortment
Combining collections buyers want at one place
© 2001 South-Western College
Publishing9
CHANNEL STRUCTURES FOR CONSUMER PRODUCTS
DIRECT RETAILER WHOLESALER AGENT/BROKERCHANNEL CHANNEL CHANNEL CHANNEL
Consumers Consumers Consumers Consumers
Retailers Retailers Retailers
Wholesalers Wholesalers
Agents or Brokers
Producer Producer Producer Producer
© 2001 South-Western College
Publishing10
CHANNEL STRUCTURES FOR BUSINESS-TO- BUSINESS AND INDUSTRIAL PRODUCTS
DIRECT INDUSTRIAL AGENT/BROKER AGENT/BROKER CHANNEL DISTRIBUTOR CHANNEL INDUSTRIAL
Industrial Government
Industrial Industrial Industrial
Distributor Distributor
Wholesalers
Agents or Brokers
Producer Producer Producer Producer
Agents or Brokers
© 2001 South-Western College
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ALTERNATIVE CHANNEL ARRANGEMENTS
Dual distribution
systems
Nontraditional
channels
Adaptive channels
Using more than one channel for similar goods or services
Internet, mail-order, or infomercials
Variations on traditional channels to meet a member need
© 2001 South-Western College
Publishing12
STRATEGIC CHANNEL ALLIANCES
One manufacturer shares another manufacturer’s distribution channels, creating savings through economies of scale for both
Strategic channel alliances are also common for selling in global markets where cultural differences, distance, or other barriers can inhibit channel establishment
CHINAKraft Cheeses
Yoplait Yogurt
© 2001 South-Western College
Publishing13
CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE
Market factors Target market
considerations Industrial or consumer
products Geographical location
and size of market
Product factors Security needs Special handling
requirements Product life cycle Perishable nature of
the product Sensitivity to fashion
obsolescence
© 2001 South-Western College
Publishing14
CHANNEL STRATEGY DECISIONS: FACTORS AFFECTING CHANNEL CHOICE
Producer factors Level of financial,
managerial and marketing resources
Breadth and depth of product line(s)
Level of control desired over pricing, image and customer support
Level of distribution intensity desired
Intensive
Selective
Exclusive
© 2001 South-Western College
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CHANNEL RELATIONSHIPS
A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members. Channel power Channel control Channel leadership Channel conflict and cooperation Channel partnering
In the end, a channel is only as strong as its weakest link!
© 2001 South-Western College
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LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Logistics = the process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption
Supply chain = the connected chain of all of the business entities, both internal and external, that perform or support the logistics function.
Supply chain management = integrates and coordinates the logistics and supply chain into a seamless process
© 2001 South-Western College
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SUPPLY CHAIN MANAGEMENT INCLUDES... Management of the movement of information Movement of raw materials and parts from their
source to production site(s) Flow within and between manufacturing,
warehouses and distribution centers Forecasting demand and scheduling production Planning and coordinating the physical distribution
of finished goods to intermediaries and final buyers
Maintain the strategic partnerships of the chain
© 2001 South-Western College
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BENEFITS OF SUPPLY CHAIN MANAGEMENT
Reduced costs of inventories, transportation, warehousing and packaging
Improved service levels Time based delivery Made-to-order merchandise Enhanced revenues Increased profits Improved positioning and
market share
0
10
20
30
40
50
60
70
80
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
US
Them
© 2001 South-Western College
Publishing19
BALANCING LOGISTICS SERVICE AND COST: THE TOTAL COST APPROACH
The art of effective and efficient logistics management is the balancing of the service levels desired by each member of the chain, and the associated costs of providing those services
Pre-ticketingJIT deliveryDrop ShipEtc.
© 2001 South-Western College
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INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
Log
isti
cs I
nfo
rmat
ion
Sys
tem
SupplyChainTeam
© 2001 South-Western College
Publishing21
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
•Reduce costs through negotiation
•Enhanced vendor relations
•Information integration
© 2001 South-Western College
Publishing22
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
• Manufacturing customer “pull” environment
• Mass customization and built-to-order
• Individual orders electronically linked to manufacturing equipment
© 2001 South-Western College
Publishing23
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
• Advanced order processing system
• Excellent internal and external information exchange
• Electronic Data Interchange systems
• Efficient Consumer Response processes
© 2001 South-Western College
Publishing24
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
• Inventory control system• Materials requirement planning• Distribution resource planning
• Continuous replenishment• Vendor managed inventory• Efficient consumer response
© 2001 South-Western College
Publishing25
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
• Automated storage and retrieval systems• Materials handling system
• Receiving goods• Identify, sort and label• Place in temporary storage areas• Recall, selecting, picking, palletization
© 2001 South-Western College
Publishing26
INTEGRATED FUNCTIONS OF THE SUPPLY CHAIN: Logistics Information System and Supply Chain Team
Sourcing and procurement
of raw materials and
supplies
Production scheduling
Order processing and
customer service
Inventory control systems
Warehousing and
materials-management
Transportation
• True cost
• Transit time
• Reliability
• Capability
• Accessibility
• Traceability
• Flexibility
© 2001 South-Western College
Publishing27
TRENDS IN LOGISTICS
Automation Outsourcing logistics functions Electronic distribution Service distribution
Focuses include:Minimizing wait timesManaging service capacity Improving delivery through new distribution
channels
© 2001 South-Western College
Publishing28
INTERNATIONAL SUPPLY CHAINS
One important dimension of channels of distribution omitted from the chapter is the discussion of international channels
© 2001 South-Western College
Publishing29
HOW ARE INTERNATIONAL CHANNELS DIFFERENT FROM DOMESTIC CHANNELS?
Political and legal constraints and regulations multiply The flow of documentation is more complex and extensive Channels tend to be longer and slower The more developed the nation, the more levels of
distribution usually exist Power within a channel moves downward as a country
becomes economically developed Some foreign middlemen are less risk oriented, poorly
financed and may not respect contractual agreements Language, culture, and geographic distances make smooth
channel relationships more difficult