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Designed by

Eric Brengle

B-books, Ltd.

CHAPTER �12

Prepared by

Deborah Baker

Texas Christian University

Marketing�Lamb, Hair, McDaniel

9

Supply Chain Management

Marketing Channels and

Insert Chapter Picture Here

Chapter 12

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Learning Outcomes

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LO²

LO³

Explain what a marketing channel is and why intermediaries are needed�

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

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

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Learning Outcomes

3

Define supply chain management and discuss its benefits

Discuss the issues that influence channel strategy

Explain channel leadership, conflict, and partnering

Describe the logistical components of the supply chain

LO⁵

LO⁶

LO⁴

LO⁷

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Learning Outcomes

4

Discuss new technology and emerging trends in supply chain management �

Discuss channels and distribution decisions in global markets

Identify the special problems and opportunities associated with distribution �in service organizations

LO⁹

LO^IO

LO⁸

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Marketing Channels

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Explain what a marketing �channel is and why �intermediaries are needed�

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Marketing Channels

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Marketing

Channel

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A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.

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Marketing Channels

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Supply Chain

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The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function.

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Marketing Channel Functions

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Specialization and division of labor

Overcoming discrepancies

Providing contact efficiency

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Specialization and Division of Labor

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Creates greater efficiency
Provides lower costs
Achieves economies of scale
Aids producers who lack resources to market directly
Builds good relationships with customers

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Overcoming Discrepancies

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Discrepancy

of

Quantity

Discrepancy

of

Assortment

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.

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Overcoming Discrepancies

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Temporal

Discrepancy

Spatial

Discrepancy

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.

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Providing Contact Efficiency

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REVIEW LEARNING OUTCOME�Marketing Channels

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Providing Specialization

and Division of Labor

Overcoming�Discrepancies

Providing Contact�Efficiency

Marketing�Channel

Supply�Chain

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Channel Intermediaries

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

LO²

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Channel Intermediaries

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LO²

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 members.

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Channel Intermediaries

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LO²

Retailers

Merchant

Wholesalers

Agents

and

Brokers

Take Title to Goods

Do NOT Take Title to Goods

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Factors Suggesting Type of �Wholesaling Intermediary to Use

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LO²

Product characteristics

Buyer considerations

Market characteristics

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Factors Suggesting Type of �Wholesaling Intermediary to Use

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Concentrated

Dispersed

Concentration of customers

Few

Many

Number of customers

Longer lead time

Shorter lead time

Time between order and receipt of shipment

Infrequent

Frequent

Frequency of ordering

Low

High

Product’s gross margin

Simple

Complex

Technicality of product

Nonstandard, custom

Standard

Nature of product

Agents/Brokers

Merchant Wholesalers

Factor

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Channel Functions �Performed by Intermediaries

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LO²

Contacting/Promotion

Negotiating

Risk Taking

Researching

Financing

Physically distributing

Storing

Sorting

Facilitating�Functions

Transactional�Functions

Logistical

Functions

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Logistics

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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.

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REVIEW LEARNING OUTCOME�Channel Intermediaries and Functions

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CHANNEL�INTERMEDIARIES

Retailers

Wholesalers

Agents and Brokers

CHANNEL�FUNCTIONS

Transactional

Logistical

Facilitating

Perform

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Channel Structures

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

LO³

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Channels for Consumer Products

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LO³

Direct Channel

A distribution channel in which producers sell directly to consumers.

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Producer

Consumers

Retailers

Wholesalers

Agents or�Brokers

Wholesaler

Channel

Retailer

Channel

Direct

Channel

Agent/Broker

Channel

Channels for Consumer Products

LO³

Chapter 1

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Notes:

Exhibit 12.4 illustrates the four ways manufacturers can route products to consumers.

Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. �
At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise.

Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel.

Discussion/Team Activity:

Identify various products and discuss the channel for distribution utilized by each.

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LO³

Channels for Business Products

Producer

Industrial�User

Direct

Channel

Producer

Govt.�Buyer

Direct

Channel

Producer

Industrial�User

Industrial�Distributor

Agents or

Brokers

Agents or

Brokers

Agent/Broker

Channel

Industrial�Distributor

Agent/Broker

Industrial�Channel

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Business-to-Business �Exchanges on the Internet

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LO³

Agents link buyers and sellers

Companies drop the intermediary from �the supply chain

“Private exchanges” with select suppliers automate the supply chain

Online

http://www.sherwinwilliams.com

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On Line

Sherwin-Williams

Visit Sherwin-Williams’s home page to see how and where it sells its products. Are there different channels for its consumer products and its business products?

Notes:

The traditional industrial distributor is facing many challenges. Manufacturers are getting bigger due to growth, mergers, and consolidation. Technology is making access to information available to manufacturers and customers. Consequently, many are bypassing distributors and going direct, often via the Internet. �
More companies are using the Internet to create more efficient business-to-business channels. Three forms include:�* New Internet companies that serve as paid agents to link buyers and sellers�* Existing companies dropping intermediaries from the supply chain�* Private exchanges sharing information only with select suppliers

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Alternative Channel Arrangements

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LO³

Multiple channels

Strategic channel alliances

Nontraditional channels

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REVIEW LEARNING OUTCOME�Channel Structures

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LO³

CONSUMER�CHANNELS

Direct
Retail
Wholesaler
Agent/broker�

BUSINESS�CHANNELS

Direct
Industrial
Agent/broker
Agent/broker�industrial

ALTERNATIVE�CHANNELS

Multiple
Nontraditional
Strategic�alliances

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Supply Chain Management

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Define supply chain �management �and discuss its benefits

LO⁴

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Supply Chain Management

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Supply Chain

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, resulting in enhanced customer and economic value.

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Role of Supply Chain Management

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LO⁴

Physical flow process that engineers the

movement of goods

Communicator of customer demand � from point of sale � to supplier

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Responsibilities of Supply Chain Managers

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Channel strategy decisions
Sourcing and procurement of raw materials
Production schedules
Order processing
Inventory management
Finished goods/supplies transportation and storage
Customer service coordination
Supply chain information flow management
Partner relationships

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LO⁴

The Supply Chain Process

Chapter 1

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Benefits of Supply Chain Management

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LO⁴

Means of differentiation

Greater supply chain flexibility

Improved customer service

Higher revenues

Reduced costs

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REVIEW LEARNING OUTCOME�Supply Chain Management

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LO⁴

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Making Channel Strategy Decisions

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Discuss the issues that �influence channel strategy

LO⁵

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Channel Strategy Decisions

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LO⁵

Factors

Affecting

Channel

Choice

Producer Factors

Product Factors

Market Factors

Exclusive Distribution

Selective Distribution

Intensive Distribution

Level of�Distribution�Intensity

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Market Factors

38

LO⁵

Market �Factors�That Affect

Channel�Choices

Customer profiles

Consumer or Industrial

Customer

Size of market

Geographic location

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Product Factors

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LO⁵

Product �Factors�That Affect

Channel�Choices

Product Complexity

Product Standardization

Product Life Cycle

Product Delicacy

Product Price

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Producer Factors

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Producer �Factors�That Affect

Channel�Choices

Producer Resources

Number of Product Lines

Desire for Channel Control

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Levels of Distribution Intensity

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Intensive

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

Selective

A form of distribution achieved

by screening dealers to eliminate �all but a few in any single area

Exclusive

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

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Levels of Distribution Intensity

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LO⁵

Intensive

Achieve mass market�selling.

Convenience goods.

Many

Selective

Exclusive

Work with selected

intermediaries.

Shopping and some

specialty goods.

Work with single�intermediary. Specialty �goods and industrial

equipment.

Several

One

Intensity �Level

Objective

Number of �Intermediaries

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REVIEW LEARNING OUTCOME �Issues Influencing Channel Strategy

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LO⁵

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Managing Channel Relationships

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Discuss the issues that �influence �channel strategy

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Social Dimensions of Channels

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Partnering

Conflict

Leadership

Control

Power

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Channel Power, Control, and Leadership

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LO⁶

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

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Channel Conflict and Partnering

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Channel

Conflict

A clash of goals and methods �between distribution channel �members

Channel

Partnering

The joint effort of all channel �members to create a supply chain �that serves customers and �creates a competitive advantage

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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

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Channel Partnering

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Supplier / �Manufacturer �Relationships

Short-term

Adversarial

Independent

Price important

Long-term

Cooperative

Dependent

Value-added services

Number of �Suppliers

Many

Few

Transaction-Based

Partnership-Based

Information �Sharing

Minimal

High

Investment�Required

Minimal

High

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REVIEW LEARNING OUTCOME�Channel Leadership, Conflict, & Partnering

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Channel�Relationship

Synergy

Channel Conflict

Horizontal

Vertical

Channel Power,�Control, Leadership

Channel �Partnering

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Managing Logistical Components

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Describe the logistical �components of the �supply chain

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Logistical Components of the Supply Chain

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LO⁷

Supply�Chain�Team

Sourcing & Procurement

Production Scheduling

Order Processing

Inventory Control

Warehouse & Materials Handling

Transportation

Logistics Information System

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Sourcing and Procurement

Plan purchasing strategies�
Develop specifications�
Select suppliers�
Negotiate price and service levels�
Reduce costs

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LO⁷

The Role of Purchasing:

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Production Scheduling

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LO⁷

Push / Pull

Strategy

Traditional Focus

Push

Start of �Production

Manufacturing

Inventory-�Based

Mass Production

Customer Focus

Pull

Customer-Order �Based

Mass Customization

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Just-in-Time Manufacturing

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JIT

A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.

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Benefits of JIT

Reduces raw material inventories
Shortens lead times
Creates better supplier relationships
Reduces production and storeroom costs
Reduces paperwork

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LO⁷

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JIT Requirements

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LO⁷

Receive high-quality parts

Meet supplier delivery commitments

Have a crisis management plan

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Order Processing

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Electronic�Data�Interchange

LO⁷

Information technology that replaces paper documents that accompany business transactions with electronic transmission of the information.

http://www.walmartstores.com

Online

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Order Processing

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LO⁷

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.

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Order Processing

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LO⁷

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.

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Inventory Replenishment Example

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LO⁷

MRP

Sleep Right Mattress

Retail Store

Sleep Right �Distribution Center

ABC Mattress�Wholesaling Company

Great Mattress

Company

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Materials Handling Functions

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LO⁷

Receive goods into

warehouse

Dispatch the goods to

temporary storage

Recall, select, or pick the goods for shipment

Identify, sort, and label

goods

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Transportation

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LO⁷

Airways

Water

Pipelines

Motor Carriers

Railroads

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Transportation Mode Choice

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LO⁷

Cost
Transit time
Reliability
Capability
Accessibility
Traceability

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Criteria for Ranking�Modes of Transportation

65

LO⁷

Relative

Cost

Transit

Time

Reliability

Capability

Accessibility

Traceability

Highest

Lowest

Air

Water

Pipe

Rail

Truck

Water

Rail

Pipe

Truck

Air

Pipe

Truck

Rail

Air

Water

Truck

Rail

Truck

Air

Pipe

Rail

Air

Water

Pipe

Air

Truck

Rail

Water

Pipe

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Trends in Supply Chain Management

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Discuss new technology �and emerging trends in �supply chain management �

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Trends in Supply Chain Management

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LO⁸

Electronic distribution

Outsourcing of logistics functions

Advanced computer technology

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Advanced Computer Technology

Automatic identification systems

Bar coding
Radio frequency technology�

Communications technology�
Supply chain software systems

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Outsourcing Logistics Functions

Reduce inventories�
Locate stock at fewer plants and distribution centers�
Provide same or better levels of service

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Outsourcing Benefits

LO⁸

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Channels and Distribution Decisions�for Global Markets

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Discuss channels and �distribution decisions �in global markets

LO⁹

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Channels and Distribution Decisions�for Global Markets

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Global Channel

Development

Channel structure �and type differ

Gray marketing channels

Global Supply�Chain Management

Awareness of trade legalities

Transportation Issues

Chapter 12

Notes:

With the popularity of free-trade agreements such as the European Union and the North American Free Trade Agreement, global marketing channels have become important to U.S. corporations.
When designing marketing channels for foreign markets, the type of channel structure must be considered.
The more highly developed a nation is economically, the more specialized its channel types.
Marketers must be aware of gray marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels.
One of the most critical global logistics issues for importers is coping with the legalities of trade in other countries.
Transportation can be a major issue because of poor infrastructure and complications from government regulations.

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REVIEW LEARNING OUTCOME

Distribute directly or through �foreign partners�

Different channel structures than in

domestic markets�

Illegitimate “gray”�marketing channels�

Legal and infrastructure differences

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Global Market Channel & Distribution Decisions

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Channels and Distribution Decisions�for Services

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Identify the special problems �and opportunities associated �with distribution �in service organizations

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Channels and Distribution Decisions�for Services

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Minimizing wait times

Managing service capacity

Improving service delivery

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REVIEW LEARNING OUTCOME �Distribution in Service Organizations

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Chapter 12