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Marketing Channels and Supply Chain Management Chapter 12 Prepared by Deborah Baker Texas Christian University Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 1 Learning Objectives 1. Explain what a marketing channel is and why intermediaries are needed. 2. Define the types of channel intermediaries and describe their functions and activities. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 2 Learning Objectives (continued) 3. Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements. 4. Define supply chain management and discuss its benefits. 5. Discuss the issues that influence channel strategy. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 3 Learning Objectives (continued) 6. Explain channel leadership, conflict, and partnering. 7. Describe the logistical components of the supply chain. 8. Discuss new technology and emerging trends in supply chain management. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 4 Learning Objectives (continued) 9. Discuss channels and distribution decisions in global markets. 10. Identify the special problems and opportunities associated with distribution in service organizations. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 5 1 Learning Objective On Line http://www.heb.com Explain what a marketing channel is and why intermediaries are needed. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 6 1 Marketing Channels Marketing Channel A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Supply Chain The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 7 1 Marketing Channel Functions Specialization and Division of Labor Channels Fulfill Three Important Functions Overcoming Discrepancies Providing Contact Efficiency Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 8 Specialization and Division of Labor 1 Provides efficiency and cost savings Attains economies of scale Aids producers who lack resources to market directly Builds good relationships with customers Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 9 1 Overcoming Discrepancies Discrepancy of Quantity The difference between the amount of product produced and the amount an end user wants to buy. Discrepancy of Assortment The lack of all the items a customer needs to receive full satisfaction from a product or products. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 10 1 Overcoming Discrepancies Temporal Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. Spatial Discrepancy The difference between the location of a producer and the location of widely scattered markets. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 11 1 Contact Efficiency Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 12 2 Learning Objective Define the types of channel intermediaries and describe their functions and activities. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 13 2 Channel Intermediaries Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel member. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 14 2 Channel Intermediaries Retailers Take Title to Goods Merchant Wholesalers Take Title to Goods Agents and Brokers Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Do NOT Take Title to Goods 15 2 Factors Suggesting Type of Wholesaling Intermediary to Use Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 16 Channel Functions Performed by Intermediaries 2 Contacting/Promotion Transactional Functions Negotiating Risk Taking Physically distributing Logistical Functions Storing Sorting Facilitating Function Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Researching Financing 17 2 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. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 18 3 Learning Objective Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 19 3 Direct Channel A distribution channel in which producers sell directly to consumers. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 20 3 Channels for Consumer Products Direct Channel Producer Retailer Channel Producer Wholesaler Agent/Broker Channel Channel Producer Producer Agents or Brokers Consumers Wholesalers Wholesalers Retailers Retailers Retailers Consumers Consumers Consumers Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 21 Channels for Business-to-Business Products 3 Direct Channel Direct Channel Producer Producer Industrial Agent/Broker Agent/Broker Distributor Channel Industrial Channel Producer Producer Producer Agents or Brokers Agents or Brokers Industrial Distributor Industrial Distributor Industrial User Govt. Buyer Industrial User Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Industrial User Industrial User 22 3 Business-to-Business Exchanges on the Internet On Line http://www.sherwinwilliams.com Linking buyers and sellers Dropping the middleman from the supply chain Creating “private exchanges” to automate the supply chain Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 23 3 Alternative Channel Arrangements Multiple Channels Nontraditional Channels Strategic Channel Alliances Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 24 4 Learning Objective Define supply chain management and discuss its benefits. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 25 4 Supply Chain Management A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 26 4 Role of Supply Chain Management Communicator of customer demand from point of sale to supplier Physical flow process that engineers the movement of goods Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 27 Benefits of Supply Chain Management 4 On Line http://www.nashfinch.com Reduced Costs Greater Supply Chain Flexibility Improved Customer Service Higher Revenues Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 28 5 Learning Objective Discuss the issues that influence channel strategy. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 29 5 Channel Strategy Decisions Factors Affecting Channel Choice Level of Distribution Intensity Market Factors Intensive Distribution Product Factors Selective Distribution Producer Factors Exclusive Distribution Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 30 5 Market Factors Customer Profiles Consumer or Industrial Customer Market Factors That Affect Channel Choices Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Size of Market Geographic Location 31 5 Product Factors Product Complexity Product Price Product Factors That Affect Channel Choices Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Product Life Cycle Product Delicacy 32 5 Producer Factors Producer Resources Number of Product Lines Producer Factors That Affect Channel Choices Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Desire for Channel Control 33 5 On Line http://www.radioshack.com http://www.sprint.com http://www.compaq.com http://www.rca.com http://www.directv.com Levels of Distribution Intensity Intensity Level Objective Number of Intermediaries Intensive Achieve mass market selling. Convenience goods. Many Selective Work with selected intermediaries. Shopping and some specialty goods. Several Exclusive Work with single intermediary. Specialty goods and industrial equipment. One Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 34 6 Learning Objective Explain channel leadership, conflict, and partnering. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 35 6 Managing Channel Relationships Channel Power Channel Control Social Dimensions of Channels Channel Leadership Channel Conflict Channel Partnering Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 36 Channel Power, Control, and Leadership 6 Channel Power A channel member’s capacity to control or influence the behavior of other channel members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior. Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 37 6 Channel Conflict A clash of goals and methods between distribution channel members. Horizontal Conflict Occurs among channel members on the same level Vertical Conflict Occurs among channel members at different levels Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 38 6 Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 39 Transaction- vs. Partnership-Based Firms 6 TransactionBased Partnership-Based Supplier / Short-term Manufacturer Adversarial Relationships Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Information Sharing Minimal High Investment Required Minimal High Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 40 7 Learning Objective Describe the logistical components of the supply chain. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 41 Integrated Logistical Components of the Supply Chain 7 Supply Chain Team Logistics Information System Sourcing & Procurement Production Scheduling Order Processing & Customer Service Inventory Control Warehouse & Materials Handling Transportation Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 42 7 Sourcing and Procurement Plan Purchasing Strategies Role of Purchasing Departments Develop Specifications Select Suppliers Negotiate Price Negotiate Service Levels Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 43 7 Production Scheduling Traditional Focus Customer Focus Push / Pull Strategy Push Pull Start of Production Inventory-Based Customer-Order Based Manufacturing Mass Production Mass Customization Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 44 7 Just-in-Time Manufacturing A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 45 7 Benefits of JIT Reduces raw material inventories Shortens lead times Creates better supplier relationships Reduces production and storeroom costs Reduces paperwork Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 46 7 JIT Requirements Receive High-Quality Parts Meet Supplier Delivery Commitments Requirements for Manufacturers Using JIT Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Have a Crisis Management Plan 47 7 Electronic Data Interchange On Line http://www.walmartstores.com Information technology that replaces paper documents that accompany business transactions. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 48 7 Inventory Control System A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 49 7 MRP and DRP Materials Requirement Planning Distribution Resource Planning An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 50 Warehouse and Materials-Handling 7 Receive goods into warehouse Materials Handling Functions Identify, sort, and label goods Dispatch the goods to temporary storage Recall, select, or pick the goods for shipment Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 51 7 Transportation Cost Transit Time Reliability Criteria for Transportation Mode Choice Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Capability Accessibility Traceability 52 Criteria for Ranking Modes of Transportation 7 Lowest Highest Relative Cost Transit Time Air Truck Rail Pipe Water Water Rail Pipe Truck Air Reliability Pipe Truck Rail Air Water Capability Water Rail Truck Air Pipe Accessibility Truck Rail Air Water Pipe Traceability Air Truck Rail Water Pipe Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 53 8 Learning Objective Discuss new technology and emerging trends in supply chain management. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 54 Trends in Supply Chain Management 8 Trends Affecting the Logistics Industry Advanced Computer Technology Outsourcing of Logistics Functions Electronic Distribution Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 55 9 Learning Objective Discuss channels and distribution decisions in global markets. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 56 9 On Line http://www.wto.com Channels and Distribution Decisions for Global Markets Channel structure and type differ Global Channel Development Gray marketing channels Awareness of trade legalities Global Supply Chain Management Transportation Issues Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 57 10 Learning Objective Identify the special problems and opportunities associated with distribution in service organizations. Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 58 Channels and Distribution Decisions for Services 10 Minimizing wait times Managing service capacity Areas of Focus for Service Distribution Chap. 12 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Improving service delivery 59