Chapter 12

Chapter 12: Marketing Channels and Supply Chain Management

Prepared by David Ferrell, B-books, Ltd.

Designed by Eric Brengle, B-books, Ltd.

Copyright 2012 by Cengage Learning Inc. All Rights Reserved 1

2

Marketing Channels

Explain what a marketing channel is and why

intermediaries are needed.

LO1

Copyright 2012 by Cengage Learning Inc. All Rights Reserved

3

Marketing Channels

A set ofinterdependent organizations

that ease the transfer of ownership as products move

from producer to businessuser or consumer.


4

Marketing Channel Functions

Specialization and division of laborSpecialization and division of labor

Overcoming discrepanciesOvercoming discrepancies

Providing contact efficiencyProviding contact efficiency


5

Specialization and Division of Labor

Creates greater efficiency

Provides lower costs

Achieves economies of scale

Aids producers who lack resources to market directly

Builds good relationships with customers


6

Overcoming Discrepancies

Discrepancyof

Quantity

Discrepancyof

Quantity

Discrepancyof

Assortment

Discrepancyof

Assortment

The difference between the amount of product produced

and the amount an end user wants to buy.

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.

The lack of all the items a customer needs to receive full satisfaction from a product or

products.


7

Overcoming Discrepancies

TemporalDiscrepancyTemporal

Discrepancy

SpatialDiscrepancy

SpatialDiscrepancy

A situation that occurs when a product is produced but a

customer is not ready to buy it.

A situation that occurs when a product is produced but a

customer is not ready to buy it.

The difference between the location of a producer and the

location of widely scattered markets.

The difference between the location of a producer and the

location of widely scattered markets.


8

Providing Contact Efficiency


9

Review Learning OutcomeMarketing Channels

LO1

Providing Specialization and Division of Labor

Providing Specialization and Division of Labor

OvercomingDiscrepancies

OvercomingDiscrepancies

Providing ContactEfficiency

Providing ContactEfficiency

MarketingChannel

SupplyChain


10

Channel Intermediaries

Define the types of channel intermediaries and describe their functions and activities.

LO2


11


RetailerRetailer A channel intermediary that sells mainly to customers.A channel intermediary that sells mainly to customers.

MerchantWholesalerMerchantWholesaler

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

An institution that buys goods from manufacturers, takes title

to goods, stores them, and resells and ships them.

Agents andBrokersAgents andBrokers

Wholesaling intermediaries who facilitate the sale of a product from producer to

end user by representing retailers, wholesalers, or manufacturers.

Wholesaling intermediaries who facilitate the sale of a product from producer to

end user by representing retailers, wholesalers, or manufacturers.


12


RetailersRetailers

Merchant WholesalersMerchant

Wholesalers

Agents and

Brokers

Agents and

Brokers

Take Title to GoodsTake Title to GoodsTake Title to GoodsTake Title to Goods

Take Title to GoodsTake Title to GoodsTake Title to GoodsTake Title to Goods

Do NOT Take Title to GoodsDo NOT Take Title to GoodsDo NOT Take Title to GoodsDo NOT Take Title to Goods


13

Factors Suggesting Type of Wholesaling Intermediary to Use

Product characteristicsProduct characteristics

Buyer considerationsBuyer considerations

Market characteristicsMarket characteristics


14

Channel Functions Performed by Intermediaries

Contacting/Promotion

Negotiating

Risk Taking

Researching

Financing

Physically distributing

Storing

Sorting

FacilitatingFunctions

FacilitatingFunctions

TransactionalFunctions

TransactionalFunctions

Logistical Functions

Logistical Functions


15

Logistics

The efficient and cost-effective

forward and reverse flow as

well as storage of goods, services, and

related information, into, through, and

out of channel member companies.


16

Review Learning OutcomeChannel Intermediaries and Functions

LO2

CHANNELINTERMEDIARIES

CHANNELINTERMEDIARIES

Retailers

Wholesalers

Agents and Brokers

Retailers

Wholesalers

Agents and Brokers

CHANNELFUNCTIONSCHANNEL

FUNCTIONS

Transactional

Logistical

Facilitating

Transactional

Logistical

Facilitating

Perform


17

Channel Structures

Describe the channel structures for consumer and business products and discuss alternative channel arrangements.

LO3


18

Channels for Consumer Products

Direct Channel - A distributionchannel in which producerssell directly to consumers.


19

Producer Producer Producer Producer

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents orBrokers

WholesalerWholesalerChannelChannel

RetailerRetailerChannelChannel

DirectDirectChannelChannel

Agent/BrokerAgent/BrokerChannelChannel

Channels for Consumer Products


20

Alternative Channel Arrangements

Multiple channels

Strategic channel alliances

Nontraditional channels


21

Review Learning OutcomeChannel Structures

LO3

CONSUMERCHANNELS

CONSUMERCHANNELS

Direct

Retail

Wholesaler

Agent/broker

Direct

Retail

Wholesaler

Agent/broker

BUSINESSCHANNELSBUSINESSCHANNELS

Direct

Industrial

Agent/broker

Agent/brokerindustrial

Direct

Industrial

Agent/broker

Agent/brokerindustrial

ALTERNATIVECHANNELS

ALTERNATIVECHANNELS

Multiple

Nontraditional

Strategicalliances

Multiple

Nontraditional

Strategicalliances


22

Supply Chains and Supply Chain Management

Define the terms supply chain and supply chain management,

and discuss the benefits of supply chain management

LO4


2323

Supply Chains

The connected chain of all the business entities, both internal and external to the company,

that perform or support thelogistics functions.


2424

Supply Chains

Supply Chain Management- Amanagement system that

coordinates and integrates allof the activities performed bysupply chain members into a seamless process, from the

source to the point ofconsumption, resulting inenhanced customer and

economic value.


2525

Supply Chains


2626

Supply Chain Managers

Supply chain managers are responsible for

Making strategic decisions

Management of information through supply chain

Coordinating relationships between company and external partners


2727

Benefits of Supply Chain Management

Supply chain oriented companies commonly report:

• Lower inventory, transportation, warehousing, and packaging costs

• Greater supply chain flexibility

• Improved customer service

• Higher revenues

• Increased profitability


28

Review Learning OutcomeSupply Chain Management

28

LO4


29

Making Channel Strategy Decisions

Discuss the issues that

influence channel strategy.

LO5


30

Channel Strategy Decisions

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Producer FactorsProducer Factors

Product FactorsProduct Factors

Market FactorsMarket Factors

Exclusive DistributionExclusive Distribution

Selective DistributionSelective Distribution

Intensive DistributionIntensive Distribution

Level ofLevel ofDistributionDistribution

IntensityIntensity

Level ofLevel ofDistributionDistribution

IntensityIntensity


31

Levels of Distribution Intensity

IntensiveIntensiveA form of distribution aimed at having a product available in every outlet

A form of distribution aimed at having a product available in every outlet

SelectiveSelectiveA form of distribution achievedby screening dealers to eliminate all but a few in any single area

A form of distribution achievedby screening dealers to eliminate all but a few in any single area

ExclusiveExclusiveA form of distribution that established one or a few dealers within a given area

A form of distribution that established one or a few dealers within a given area


Review Learning Outcome Issues Influencing Channel Strategy

32

LO5


33

Types of Channel Relationships

Describe the different channel relationship types and their unique costs and benefits.

LO6


34

Types of Channel Relationships

CooperativeCooperative

IntegratedIntegrated

Arm’s LengthArm’s Length


35

Arm’s Length and Integrated Relationships

Arm’s Length Relationship- Arelationship between companiesthat is loose, characterized bylow Relational investment and

trust, and usually taking the formof a series of discrete

transactions with no/low expectation of future interaction

or service.

Integrated Relationship- A relationshipbetween companies that is tightly

connected, with linked processes acrossand between firm boundaries, andhigh levels of trust and inter-firm

commitment.


36

Cooperative Relationships

A relationship between companiesthat takes the form of informal

partnership with moderate levels oftrust and information sharing as

needed to further each company’sgoals.


37

Review Learning OutcomeTypes of Channel Relationships

LO6


3838

The Logistics Function in the Supply Chain

Describe the logistical components of the

supply chain.

LO7


39

Logistical Components of the Supply Chain

39

SupplySupplyChainChainTeamTeam

Sourcing & ProcurementSourcing & Procurement

Order ProcessingOrder Processing

Inventory ControlInventory Control

Warehouse & Materials HandlingWarehouse & Materials Handling

TransportationTransportation

Log

istic

s In

form

atio

n S

yste

mL

ogis

tics

Info

rma

tion

Sys

tem


Production SchedulingProduction Scheduling

4040

Sourcing and Procurement

• Plan purchasing strategies

• Develop specifications

• Select suppliers

• Negotiate price and service levels

• Reduce costs

The Role of Purchasing:The Role of Purchasing:


4141

Order Processing

http://www.walmartstores.com

Online

Electronic Data Interchange- Information technology that

Replaces paper documents thataccompany business transactions

With electronic transmissionOf the information.


4242

Inventory Control

Inventory Control System- A methodof developing and maintaining an

adequate assortment of materials or products to meet amanufacturer’s or a customer’s

demand.


4343

Inventory Control

Materials Requirement Planning(MRP) - An inventory control system that manages the replenishment of

raw materials, supplies, and components from the supplier to the manufacturer.

Distribution Resource Planning (DRP) - An inventory control system that manages

the replenishment of goods from the manufacturer to the final consumer.


4444

Materials Handling Functions

Receive goods into warehouse

Dispatch the goods totemporary storage

Recall, select, or pick the goods for shipment

Identify, sort, and label goods


4545

Transportation

Airways

Water

Pipelines

Motor Carriers

Railroads


4646

Transportation Mode Choice

Cost Transit time Reliability Capability Accessibility Traceability


4747

Criteria for RankingModes of Transportation

Relative Cost

TransitTime

Reliability

Capability

Accessibility

Traceability

HighestHighest LowestLowest

Air WaterPipeRailTruck

Water Rail Pipe Truck Air

Pipe Truck Rail Air Water

Water

Truck

Rail Truck Air Pipe

Rail Air Water Pipe

Air Truck Rail Water Pipe


Review Learning OutcomeThe Logistics Function in the Supply Chain

LO7


4949

Trends in Supply Chain Management

Discuss new technology and emerging trends in

supply chain management.

LO8


5050

Trends in Supply Chain Management

Electronic distributionElectronic distribution

Outsourcing of logistics functionsOutsourcing of logistics functions

Advanced computer technologyAdvanced computer technology

Globalization of supply chain managementGlobalization of supply chain management


5151

Advanced Computer Technology

• Automatic identification systems– Bar coding– Radio frequency technology

• Communications technology

• Supply chain software systems


5252

Outsourcing Logistics Functions

• Reduce inventories

• Locate stock at fewer plants and distribution centers

• Provide same or better levels of service

Outsourcing BenefitsOutsourcing Benefits


Review Learning OutcomeEmerging Trends in Supply Chain Management

53

LO8


54

Managing Channel Relationships

Explain channel leadership,

conflicts, and partnering.

LO9


55

Managing Channel Relationships

PartneringPartnering

ConflictConflict

LeadershipLeadership

ControlControl

PowerPower


56

Channel Power, Control, and Leadership

ChannelPower

ChannelPower

The capacity of a particular marketing channel member to control or influence the behavior of other channel members

The capacity of a particular marketing channel member to control or influence the behavior of other channel members

ChannelControl

ChannelControl

A situation that occurs when one marketing channel member intentionally affects another member’s behavior

A situation that occurs when one marketing channel member intentionally affects another member’s behavior

Channel Leader

(channel captain)

Channel Leader

(channel captain)

A member of a marketing channel that exercises authority/power over the activities of other members

A member of a marketing channel that exercises authority/power over the activities of other members


57

Channel Conflict and Partnering

Channel Conflict – A clash of

goals and methods between

distribution channel members.

Channel Partnering (Channel Cooperation) –

The joint effort of all channel

members to create a supply

chain that serves customers and

creates a competitive advantage.


58

Channel Conflict

Conflicts may occur if channel members:

• Have conflicting goals

• Fail to fulfill expectations of other channel members

• Have ideological differences

• Have different perceptions of reality


59

Channel Partnering

Supplier / Manufacturer Relationships

Short-termAdversarialIndependentPrice important

Long-termCooperativeDependentValue-added services

Number of Suppliers Many Few

Transaction-Based Partnership-Based

Information Sharing Minimal High

InvestmentRequired Minimal High


Review Learning OutcomeChannel Leadership, Conflict, and Partnering

60

LO9

ChannelRelationship

Synergy

ChannelRelationship

Synergy

Channel Conflict

Horizontal Vertical

Channel Power,Control, Leadership

Channel Partnering


61

Channels and Distribution Decisionsfor Services

Identify the special problems

and opportunities

associated with distribution

in service organizations

LO11


62

Channels and Distribution Decisionsfor Services

Minimizing wait times

Managing service capacity

Improving service delivery


Review Learning OutcomeChannels and Distribution Decisions for Services

63

LO11


Chapter 12

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