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Presentation prepared by Robin Roberts, Griffith University and Chapter 12 Mike Spark, Swinburne University Technology Copyright Johnof Wiley & Sons 2007 Chapter 12 Marketing channels and supply-chain management Chapter 12 Copyright John Wiley & Sons 2007 Chapter Objectives 1. Describe the nature and functions of marketing channels 2. Identify the types of marketing channels 3. Explore the concepts of leadership, cooperation and conflict in channel relationships 4. Recognise common strategies for integrating marketing channels 5. Examine the major levels of marketing coverage Chapter 12 Copyright John Wiley & Sons 2007 Chapter Objectives (cont'd) 6. Recognise the importance of the role of physical distribution activities in supply-chain management 7. Examine the major physical distribution functions of order processing, inventory management, materials handling, warehousing and transportation 8. Understand the nature and functions of wholesalers Chapter 12 Copyright John Wiley & Sons 2007 Technology’s role in distribution Dial-Up Broadband Chapter 12 Copyright John Wiley & Sons 2007 Marketing channels and supply-chain management Marketing Channel A group of individuals and organisations directing products from producers to customers Marketing Intermediary Links producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products Chapter 12 Copyright John Wiley & Sons 2007 Marketing channels and supply-chain management Supply Chain Management Long-term partnerships among marketing channel members that reduce inefficiencies, costs and redundancies and develop innovative approaches to satisfy customers Chapter 12 Copyright John Wiley & Sons 2007 Technology facilitates supply-chain management Chapter 12 Copyright John Wiley & Sons 2007 The importance of marketing channels Marketing channels are a powerful influence on the rest of the marketing mix. Create utility – Time – Place – Possession – Form Facilitate exchange efficiencies – reduce search costs for customers – maintain order in the marketplace Chapter 12 Copyright John Wiley & Sons 2007 Typical marketing channels for consumer products Chapter 12 Copyright John Wiley & Sons 2007 Typical marketing channels for business products Chapter 12 Copyright John Wiley & Sons 2007 Distribution intermediaries Industrial distributor – takes title to business products and carries inventories Manufacturers’ agent – sells on commission, complimentary products from several producers Dual distribution – Two or more channels to distribute the same product to same target market Strategic channel alliance – An agreement to distribute through channels with a non-competitor Chapter 12 Copyright John Wiley & Sons 2007 Channel leadership and cooperation Each channel member performs a different role, agrees to accept certain rights, responsibilities, rewards and sanctions for non-conformity Channel Captain A dominant member (producer, wholesaler or retailer) of a marketing channel or supply chain Channel Power The ability of one channel member to influence another member’s goals Chapter 12 Copyright John Wiley & Sons 2007 Channel conflict and cooperation Sources of channel conflict (disagreements arising among channel members) include: – communication difficulties – conflicts with distributors and retailers – intermediaries diversifying Improving Channel Cooperation – unifying to maintain market order – agreeing to direct efforts toward common objectives – defining each channel member’s tasks Chapter 12 Copyright John Wiley & Sons 2007 Channel integration Members can either combine and control most activities or pass them on to another member Vertical Channel Integration – Two or more stages of the marketing channel are under one management Vertical Marketing System (VMS) – Single channel member management to achieve efficient, low-cost distribution Horizontal Integration – Same level organisations, where operation is combined under one management Chapter 12 Copyright John Wiley & Sons 2007 Intensity of market coverage The determination of intensity of coverage by marketers Intensive Distribution – uses all available outlets Selective Distribution – uses only some available outlets Exclusive Distribution – uses a single outlet in a fairly large geographic area Chapter 12 Copyright John Wiley & Sons 2007 Physical distribution in supply-chain management Distribution actitivities are an important part of supply-chain planning and require the cooperation of all partners Physical Distribution (Logistics) – Activities used to move products from producers to consumers Outsourcing – Contracting of distribution tasks to third parties with specialised logistics skills who do not have managerial authority within the marketing channel Chapter 12 Copyright John Wiley & Sons 2007 Cost of distribution Chapter 12 Copyright John Wiley & Sons 2007 Order processing Order processing The receipt and transmission of sales order information including: • Order entry • Order handling • Order delivery Electronic Data Interchange (EDI) A computerised means of integrating order processing with production, inventory, accounting and transportation Chapter 12 Copyright John Wiley & Sons 2007 Inventory management and materials management Inventory management Developing and maintaining adequate assortments of products to meet customers needs Just-in-Time Supplies arrive just when needed Chapter 12 Copyright John Wiley & Sons 2007 Inventory management and materials management Materials management Physical handling of products and the transportation required Unit loading – boxes of product are palletised and handled by mechanical means Containerisation – consolidation of many small items into a single large container Chapter 12 Copyright John Wiley & Sons 2007 Warehousing Warehousing is the design and operation of facilities for storing and moving goods Private Warehouses – Company-operated warehouses for storing and shipping own products Public Warehouses – Businesses that lease storage space and related physical distribution facilities Distribution Centres – Large centralised warehouses that focus on moving rather than storing goods Chapter 12 Copyright John Wiley & Sons 2007 Transportation Involves the movement of products from where they are made to where they are used. Transportation modes: – Railway, road, air and water – Pipelines Logistics managers select a transportation mode based on the optimum combination of: - Cost - Speed - Dependability - Load flexibility - Accessibility - Frequency Chapter 12 Copyright John Wiley & Sons 2007 Coordinating transportation Intermodal Transportation An integrated transportation approach in which two or more transportation modes are used in combination Freight Forwarders Organisations that consolidate shipments from several firms into efficient lot sizes Megacarriers Freight firms that provide several modes of shipment Chapter 12 Copyright John Wiley & Sons 2007 Wholesaling Transactions in which products are bought for resale, for making other products, or for general business operations Wholesaler An individual or organisation that facilitates and expedites wholesale transactions – Physical distribution of goods – Furnishes channel information to facilitate and manage channel operations Chapter 12 Copyright John Wiley & Sons 2007 Major wholesaling functions Wholesalers may engage in many supply chain management activities including: – Selling and promotion for producers – Supply-Chain Management – Inventory Control and Data Processing – Risk Taking – Financing and Budgeting – Marketing Research and Information Systems Chapter 12 Copyright John Wiley & Sons 2007 Services provided by wholesalers Wholesalers provide essential services to both producers and retailers. They: – Serve as an extension of the producer’s sales force – may lend financial assistance for the distribution channel – transport and warehouse inventories – assume credit risks of buyers/customers – may purchase a producers’ entire output – facilitate channel information Chapter 12 Copyright John Wiley & Sons 2007 Types of merchant wholesalers Chapter 12 Copyright John Wiley & Sons 2007 Merchant wholesalers Are independently owned businesses that: – Take title – Assume risk – Buy and resell products to other wholesalers, retailers or business customers Chapter 12 Copyright John Wiley & Sons 2007 Full-service wholesalers Perform the widest possible range of wholesaling functions and cover the categories of: General-merchandise wholesalers – Wide product mix but limited depth Limited-line wholesalers – Only a few lines but extensive assortment Specialty-line wholesalers – Single product line or only a few items Chapter 12 Copyright John Wiley & Sons 2007 Limited-service wholesalers Provide fewer marketing services, generally take title to merchandise and cover: Cash-and-carry wholesalers – Lending or delivery is not undertaken Truck wholesalers (or truck jobbers) – Deliver directly to customers Drop shippers (or desk jobbers) – Never handle the product Mail-order wholesalers – Use catalogues instead of a sales force Chapter 12 Copyright John Wiley & Sons 2007 Services provided by wholesalers Chapter 12 Copyright John Wiley & Sons 2007 Agents and brokers Both negotiate purchases and expedite sales but do not take title to the products Agents – normally represent buyers or sellers on a permanent basis (manufacturers agents, commission or factor merchants and selling agents) Brokers – bring buyers and sellers together on a temporary basis Chapter 12 Copyright John Wiley & Sons 2007 Types of wholesalers Manufacturers’ Sales Branches and Offices resemble merchant wholesalers’ operations Sales branches – Manufacturer-owned intermediaries – sell products and provide support – carry inventory, located near customers Sales offices – Manufacturer-owned operations that provide services associated with agents – Carry no inventory Chapter 12 Copyright John Wiley & Sons 2007 Case study exercise TNT Fashion Express Take a few minutes to read the case study on page 359 of your text. Chapter 12 Copyright John Wiley & Sons 2007