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MARKETING CHANNELS – CH.12

SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK

The supply chain consists of upstream and downstream partners. Upstream

from the company is the set of firms that supply the raw materials, components,

parts, information, finances, and expertise needed to create a product or service.

Downstream side of the supply chain— are those who look toward the customer,

such as wholesalers and retailers.

Value delivery network is made up of the company, suppliers, distributors,

and, ultimately, customers who “partner” with each other to improve the

performance of the entire system.

THE NATURE AND THE IMPORTANCE OF MARKETING CHANNELS

Most of the producers try to forge a marketing channel or distribution

channel, which is a set of parties that help make a product or a service available for

use or consumption by consumer or business user.

A company´s channel decision directly affects every other marketing decision.

How channel members add value

Producers use intermediaries because they create greater efficiency in making

good available goods to target markets and usually offer the firm more than it can

achieve on its own.Producers make narrow ranges of products in large quantities, but customers

want broad ranges of products in small quantities. The role of intermediaries is to

transform the variety of products made by producers into the specific products

wanted by consumers. Thus, intermediaries play an important role matching the

supply and demand.

Key functions of marketing channel members:

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Number of channel levels

Channel level is a layer of intermediaries that performs some work in bringing

the product and its ownership closer to the final buyer.

o

Direct marketing channel – has no intermediary levels; the company sells

directly to consumers.

o

Indirect marketing channel – contains one or more intermediaries.

CHANNEL BEHAVIOUR AND ORGANIZATION

Distribution channels are complex behavioural systems in which people and

companies interact to accomplish individual, company and channel goals.

Channel behaviour

The success of individual channel members largely depends on the channel´soverall success. Thus, all the channel´s firms should work closely together.

They should understand and accept their roles, coordinate their activities, and

cooperate to attain overall channel goals. However, cooperating to achieve overall

channel goals sometimes means giving up individual company goals.

Channel conflict - Disagreement among marketing channel members on

goals, roles, and rewards— who should do what and for what rewards.

o Horizontal conflict occurs among firms at the same level of the

channel.

o

Vertical conflict occurs between different levels of the same

channel.

Vertical marketing systems

The channel will perform better if it includes a firm, agency, or mechanism that

provides leadership and has the power to assign roles and manage conflict.

o Conventional distribution consists of one or more independent

producers, wholesalers, and retailers. Each is a separate business seeking

to maximize its own profits, perhaps even at the expense of the system

as a whole. No channel member has much control over the othermembers, and no formal means exists for assigning roles and resolving

channel conflict.

o Vertical marketing systems (VMS) consists of producers, wholesalers,

and retailers acting as a unified system. One channel member owns the

others, has contracts with them, or wields so much power that they must

all cooperate.

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Corporate VMS

A corporate VMS integrates successive stages of production and distribution

under single ownership. Coordination and conflict management are attained through

regular organizational channels.

Contractual VMS

A contractual VMS 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. Channel members

coordinate their activities and manage conflict through contractual agreements.

o

Franchise organization is the most common type of contractual

relationship. A channel member called a franchisor links several

stages in the production-distribution process.

Manufacturer-sponsored retailer franchise system;

Manufacturer-sponsored wholesaler franchise system;

Service-firm-sponsored retailer franchise system.

Administered VMS

In an administered VMS, leadership is assumed not through common ownership

or contractual ties but through the size and power of one or a few dominant channel

members.

Horizontal marketing systems

In Horizontal marketing system two or more companies at one level join

together to follow a new marketing opportunity. By working together, companies

can combine their financial, production, or marketing resources to accomplish more

than any one company could alone.

Multichannel distribution systems

It is a distribution system in which a single firm sets up two or more marketingchannels to reach one or more customer segments.

Multichannel distribution systems offer many advantages to companies facing

large and complex markets. With each new channel, the company expands its sales

and market coverage and gains opportunities to tailor its products and services to

the specific needs of diverse customer segments. But such multichannel systems are

harder to control, and they generate conflict as more channels compete for

customers and sales.

Disintermediation occurs when product or service producers cut out

intermediaries and go directly to final buyers or when radically new types of channelintermediaries displace traditional ones.

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CHANNEL DESIGN DECISIONS

Marketing channel design calls for analysing consumer needs, setting channel

objectives, identifying major channel alternatives, and evaluating those alternatives.

Analysing consumer needs

Designing the market channel starts with finding what Target consumers want

from the channel.

The company must balance consumer needs not only against the feasibility and

costs of meeting these needs but also with customer price prefernces. Providing

higher levels of services results in higher costs for the channel and higher prices for

customers. Consumers look for:

o

Assortment;

o

Continence;

o

Price;o

Experience.

Setting channel objectives

The company should state its marketing channel objectives in terms of

customer-targeted levels of service. In each segment, the company wants to

minimize the total channel cost of meeting customer-service requirements.

The company’s channel objectives are also influenced by the nature of the

company, its products, its marketing intermediaries, its competitors, and the

environment.Finally, environmental factors such as economic conditions and legal

constraints may affect channel objectives and design.

Identifying channel alternatives

Types of intermediaries

Direct sells/resselers...

Number of intermediaries

o

Intensive distribution — a strategy in which companies stock their products

in as many outlets as possible. These products must be available where and

when consumers want them. (Convenience products)

o

Exclusive distribution - the producer gives only a limited number of dealers

the exclusive right to distribute its products in their territories. (Luxury

brands) By granting exclusive distribution, a company gains stronger dealer

selling support and more control over dealer prices, promotion, and services.

Exclusive distribution also enhances the brand’s image and allows for higher

markups.

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o Selective distribution—the use of more than one but fewer than all the

intermediaries who are willing to carry a company’s products. By using

selective distribution, they can develop good working relationships with

selected channel members and expect a better-than-average selling effort.

Selective distribution gives producers good market coverage with more

control and less cost than does intensive distribution

Evaluating the major alternatives

o

Economic criteria – a company compares the likely sales, costs and profits of

different channel alternatives;

o

Control issue - using intermediaries involves loosing a part of control over the

marketing process.

o

Adaptability criteria – channels often involves long-term commitments, yet

the company wants the channels to be flexible.

MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Companies must decide on the best way to store, handle, and move their

products and services so that they are available to customers in the right

assortments, at the right time, and in the right place. Logistics effectiveness has a

major impact on both customer satisfaction and company costs.

Nature and importance of marketing logistics

Marketing logistics — also called physical distribution — involves planning,implementing, and controlling the physical flow of goods, services, and related

information from points of origin to points of consumption to meet customer

requirements at a profit. In short, it involves getting the right product to the right

customer in the right place at the right time.

It involves entire supply chain management—managing upstream and

downstream value-added flows of materials, final goods, and related information

among suppliers, the company, resellers, and final consumers. Improved logistics can

save costs to both a company and its customers.

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Goals of the logistics system

Some companies state their logistics objective as providing maximum

customer service at the least cost. Unfortunately, as nice as this sounds, no logistics

system can both maximize customer service and minimize distribution costs.

The goal of marketing logistics should be to provide a targeted level of customer

service at the least cost. A company must first research the importance of various

distribution services to customers and then set desired service levels for each

segment. The objective is to maximize profits, not sales. Therefore, the company

must weigh the benefits of providing higher levels of service against the costs.

Major logistics functions

Warehousing

A company must decide on how many and what types of warehouses itneeds and where they will be located. The company might use either storage

warehouses or distribution centres. Storage warehouses store goods for moderate

to long periods. Distribution centres are designed to move goods rather than just

store them.

Stock management

Managers must maintain the delicate balance between carrying too little

inventory and carrying too much. With too little stock, the firm risks not having

products when customers want to buy. Carrying too much inventory results inhigher-than-necessary inventory-carrying costs and stock obsolescence.

Transportation

The choice of transportation carriers affects the pricing of products, delivery

performance, and the condition of goods when they arrive. Transportation models:

road; rail; water; pipeline; air; Internet.

Logistics information management

Companies manage their supply chain through information. Companies need

simple, accessible, fast, and accurate processes for capturing, processing, and

sharing channel information.

Integrated logistics management

Cross-functional teamwork inside the company

Logistics partnerships – work with other channel partners.

Third party logistcs – outsourcing of some or all part of logistics.

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RETAILING AND WHOLESALING – CH.13

RETAILING

Retailing includes all the activities involved in selling products or services

directly to final consumers for their personal, nonbusiness use. Most retailing is done

by retailers, businesses whose sales come primarily from retailing.

Retailing plays a very important role in most marketing channels. Many

marketers are now embracing the concept of shopper marketing, using in-store

promotions and advertising to extend brand equity to “the last mile” and enco urage

favorable in-store purchase decisions.

Types of retailers

Retailers can be classified in teerms of several characteristics, including theamount of service, the breadth and dept of the product line, the relative prices

and how they are organized.

Amount of service

o

Self-services serve customers who are willing to perform their own

“locate-compare-select” process to save tome or money and

increasingly also operate self-service chekouts (supermarkets).

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o Limited-service retailers provide more sales assistance because they

carry more shopping goods about wich customers need information

(electrical goods).

o

Full-service retailers, sales people assist customers in every phasdse

of the shopping (high-end speciality).

Product line

Speciality stores; department stoes; supermarkets; convenience stores;

superstores; category killers; service retailers.

Relative prices

Discount stores; Off-price retailers (independent off-price retailers; factory

outlets; warehouse clubs).

Organizational approach

Retailer marketing decisions

Today, a strategy through

differentiation in product line or

services offered is very difficult,

because those are very similar among

the retailers.

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Segmentation, targeting, differentiation and positioning decisions

Should the store focus on up market, middle-market or down-market

shoppers? Do target shoppers want variety, depth of assortment, convenience or

low prices? Until they define and profile their markets, retailers cannot make

consistent decisions about product assortment, services, pricing, store décor or any

of the other decisions that must support their positions.

Product assortment and services decisions

Retailers must decide on three major variables: product assortment, services

mix and store atmosphere.

o

Product assortment:

Offering of a product that no other competitor carries, such as storebrands or some manufacturer brand on which it holds exclusives.

Fresh produce.

Feature blockbuster merchandising events; offer surprise merchandise;

offer a highly targeted product assortment (extra large clothing sizes)

o

Service mix

o Store atmosphere offers a powerful tool by which retailers can

differentiate their stores from those of competitors. Retailers desire

to creations of unique store experiences that suits the target marketand moves customers to buy.

Hands-on experience with merchandise.

Manipulation of every aspect of the consumer store.

Price decision

Most retailers seek either high markups on lower volume (speciality stores)

or low markups on higher volume (mass merchandisers and discount stores).

Retailers must also decide on the extent to which they will use sales and other price

promotions. No price promotion – high quality positioning/constant low

prices/high-low pricing.

Promotion decision

Retailers use any or all of the five promotion tools – advertising, personal

selling, sales promotion, public relations and direct marketing.

Place decision

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It is very important retailers select locations that are accessible to the target

market in areas that are consistent with the retailer´s positioning.

WHOLESALING

Wholesaling includes all the activities involved in selling goods and services

to those buying for resale or business use.

Wholesalers add value forming one or more of the following channel functions:

Types of wholesalers

Wholesalers fall into three major groups: merchant wholesaler; agents and

brokers and manufacturers´ sales branches and offices.

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Wholesaler marketing decisions

Segmentation, targeting, differentiation and positioning decisions

Like retailers, wholesalers must segment and define their target markets and

differentiate and position themselves effectively.

They can choose a target group by size of customer, type of customer, the

need for service or other factors.

Marketing mix decisions

L ike retailers, wholesalers must decide on product and service assortment,

prices, promotion and place.

Nowadays, wholesalers are cutting down on the number of lines they

carry, choosing carry only more-profitable ones.

Regarding to price, they usually practice the standard markupstrategy.

Most of wholesalers are not promotion minded.

They must to find strategically good locations.

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