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12-1Marketing Channels and Supply Chain ManagementA Global Perspective12Philip KotlerGary ArmstrongSwee Hoon AngSiew Meng LeongChin Tiong TanOliver Yau Hon-Ming12-2Learning ObjectivesAfter studying this chapter, you should be able to:Explain how companies use marketing channels and discuss the functions these channels performDiscuss how channel members interact and how they organize to perform the work of the channelIdentify the major channel alternatives open to a companyExplain how companies select, motivate, and evaluate channel membersDiscuss the nature and importance of marketing logistics and integrated supply chain management12-3Chapter OutlineSupply Chains and the Value Delivery NetworkThe Nature and Importance of Marketing ChannelsChannel Behavior and OrganizationChannel Design DecisionsChannel Management DecisionsPublic Policy and Distribution DecisionsMarketing Logistics and Supply Chain Management12-4Supply Chains and the Value Delivery Network Supply Chain PartnersUpstream partners include the set of firms that supply raw material, components, parts, information, finances, and expertise to create a product or service.
Downstream partners include the marketing channels or distribution channels that look forward toward the customer.12-5Supply Chains and the Value Delivery Network Supply Chain ViewsSupply chain make and sell view includes the firms 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.The above two terms take a step-by-step, linear view of purchase-production-consumption activitiesThe value delivery network is the firms suppliers, distributors, and ultimately, customers who partner with each other to improve the performance of the entire system.12-6The Nature and Importance of Marketing ChannelsMarketing Channel DefinedA marketing channel (or distribution 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.12-7
The Nature and Importance of Marketing ChannelsHow Channel Members Add ValueChannel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.12-8The Nature and Importance of Marketing ChannelsHow Channel Members Add ValueProducers use intermediaries because they create greater efficiency in making goods available to target markets.Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations.From an economic view, intermediaries transform the assortments of products into assortments wanted by consumers.Producers narrow assortments of products in large quantitiesConsumers broad assortments of products in small quantities12-9The Nature and Importance of Marketing ChannelsHow Channel Members Add ValueInformation: Gathering and distributing marketing research and intelligence Promotion: Development and spreading persuasive communications about an offerContact: Finding and communicating with prospective buyersMatching: Shaping and fitting the offer to the buyers needs, including activities such as manufacturing, grading, assembling, and packagingNegotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferredPhysical distribution: Transporting and storing goodsFinancing: Acquiring and using funds to cover the costs of carrying out the channel workRisk taking: Assuming the risks of carrying out the channel work12-10The Nature and Importance of Marketing ChannelsNumber of Channel MembersChannel 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.From the producers point of view, a greater number of levels means less control and greater channel complexity12-11Channel Behavior and OrganizationChannel BehaviorA marketing channel consists of firms that have partnered for their common food, with each member playing a specialized role.Channel conflict refers to disagreement over goals, roles, and rewards by channel members.Horizontal conflict is conflict among members at the same channel level.Vertical conflict is conflict between different levels of the same channel.12-12Channel Behavior and OrganizationConventional Distribution SystemsConsist 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.No formal means for assigning roles and resolving conflict.12-13Vertical Marketing SystemsVertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of:Corporate vertical marketing system integrates successive stages of production and distribution under single ownership.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. Most common form is the franchise organizationAdministered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power.
Channel Behavior and Organization12-14Channel Behavior and OrganizationHorizontal Marketing SystemsHorizontal 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.Multichannel Distribution SystemsHybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments.12-15Channel Behavior and Organization
A multichannel distribution system12-16Hybrid Marketing ChannelsAdvantagesIncreased sales and market coverageNew opportunities to tailor products and services to specific needs of diverse customer segmentsChallengesHard to controlCreate channel conflictChannel Behavior and Organization
12-17Channel Behavior and OrganizationChanging Channel OrganizationDisintermediation 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.12-18Analyzing Consumer NeedsDesigning a channel system requires:Analyzing consumer needsSetting channel objectivesIdentifying major channel alternativesEvaluationChannel Design Decisions12-19Channel Design DecisionsAnalyzing Consumer NeedsDesigning a marketing channel starts with finding out what target consumers want from the channel.Setting Channel Objectives in terms of:Targeted levels of customer serviceWhat segments to serveBest channels to sueMinimizing the cost of meeting customer service requirementsObjectives are influenced byNature of the companyMarketing intermediariesCompetitorsEnvironment12-20Channel Design DecisionsIdentifying Major AlternativesIn terms ofTypes of intermediariesNumber of intermediariesResponsibilities of each channel member12-21Channel Design DecisionsIdentifying Major AlternativesTypes of intermediaries refers to channel members available to carry out channel work. Examples includeCompany sales forceManufacturers agency -are independent firms whose sales forces handle related products from many companies in different regions or industries.Industrial distributors
12-22Channel Design DecisionsIdentifying Major AlternativesNumber of marketing intermediaries to use at each levelIntensive distribution - a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.
Exclusive distribution - a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g. Luxury automobiles and High-end apparel
Selective distribution - a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producers products, e.g., Televisions and Electrical appliances12-23Channel Design DecisionsIdentifying Major Alternatives Responsibilities of Channel Members - Producers and intermediaries need to agree onPrice policiesConditions of saleTerritorial rightsServices provided by each party12-24Channel Design DecisionsEvaluating the Major AlternativesEach alternative should be evaluated againstEconomic criteria compares the likely sales costs and profitability of different channel members.Control criteria 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.12-25
Channel Design DecisionsDesigning International Distribution ChannelsChannel systems can vary from country to country.Must be able to adapt channel strategies to the existing structures within each country.12-26Channel management involvesSelecting channel membersManaging channel membersMotivating channel membersEvaluating channel membersChannel Management Decisions12-27Selecting Channel MembersSelecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel membersYears in businessLines carriedProfit recordChannel Management Decisions12-28Channel Management DecisionsSelecting Channel MembersSelecting intermediaries that are sales agents involves evaluatingNumber and character of other lines carriedSize and quality of sales forceSelecting intermediates that are retail stores that want exclusive or selective distribution involves evaluatingStores customersStore locationsGrowth potential12-29Channel Management DecisionsManaging and Motivating Channel MembersPartner relationship management (PRM) and supply chain management (SCM) software are used to Forge long-term partnerships with channel membersRecruit, train, organize, manage, motivate, and evaluate channel members12-30Channel Management DecisionsManaging and Motivating Channel MembersThe company must sell not only through the intermediaries but also to and with themMethods to motivate channel partners are:Develop a cooperative/collaborative and balanced relationship with the partnerUnderstand the partners customers their needs, wants, and demandsUnderstand the partners business operationally and financially and whats really important to themLook at the partners needs in terms of customer support, technical support, and trainingEstablish clear and agreed upon expectations and goalsDevelop recognition programs focusing on the partners contributionsBuild internal support systems and dedicate resources to the partner
