Chapter 12 Distribution Channels and Logistics Management 1

Issues Concerning Distribution Channels What is the Nature Of Distribution Channels? How do Channel Firms Interact and Organize to do the Work of the Channel? What Role Does Physical Distribution Play in Attracting and Satisfying Customers? What Problems do Companies Face in Designing and Managing Their Channels? 2

What is a Distribution Channel? A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision. 3

Why are Marketing Intermediaries Used? The use of intermediaries results from their greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: n n Contacts, Experience, Specialization, Scale of operation. Purpose: match supply from producers to demand 4 from consumers.

How a Marketing Intermediary Reduces the Number of Channel Transactions 5

Distribution Channel Functions These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers. Risk Taking Financing Information Promotion Physical Distribution Negotiation Contact Matching 6

Number of Channel Levels (Fig. 12. 2) Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. Channel 1 Direct Channel M C Channel 2 Indirect Channel M R C R C Channel 3 M W Channel 4 M W J 7

Channel Behavior & Conflict The channel will be most effective when: n n each member is assigned tasks it can do best. all members cooperate to attain overall channel goals and satisfy the target market. When this doesn’t happen, conflict occurs: n n Horizontal Conflict occurs among firms at the same level of the channel, i. e retailer to retailer. Vertical Conflict occurs between different levels of the same channel, i. e. wholesaler to retailer. For the channel to perform well, each channel member’s role must be specified and conflict must be managed. 8

Conventional Marketing Channel Vs. a Vertical Marketing System (Fig. 12. 3) Manufacturer Wholesaler Retailer Consumer Vertical Marketing System Manufacturer Wholesaler Conventional Marketing Channel Retailer Consumer 9

Types of Vertical Marketing Systems Corporate Common Ownership at Different Levels of the Channel i. e. Sears Degree of Direct Control Contractual Agreements Among Channel Members Administered Leadership is Assumed by One or a Few Dominant Members i. e. Kraft 10

Types of Vertical Marketing Systems (VMS) Corporate VMS Wholesaler Sponsored Voluntary Chain Manufacturer. Sponsored Retailer Franchise System Contractual VMS Retailer Cooperatives Administered VMS Franchise Organizations Manufacturer. Sponsored Wholesaler Franchise System Service-Firm. Sponsored Franchise System 11

Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Example: Banks in Grocery Stores Retailers, Catalogs, and Sales Force 12

Discussion Connections Describe the kinds of horizontal and vertical channel conflict that might occur in one of the following: n n Personal computer industry, Automobile industry, Music industry, Clothing industry. How would you remedy the problems you have just described? 13

Changing Channel Organization A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones. 14

Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Intensive Distribution Selective Distribution Exclusive Distribution Evaluating the Major Alternatives Designing International Distribution Channels 15

Channel Management Decisions Motivating Channel Members FEEDBACK Selecting Channel Members Evaluating Channel Members 16

Nature and Importance of Marketing Logistics Involves getting the right product to the right customers in the right place at the right time. Companies today place greater emphasis on logistics because: n n customer service and satisfaction have become the cornerstone of marketing strategy. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. Improvements in information technology has created opportunities for major gains in distribution efficiency. 17

Goals of the Logistics System Higher Distribution Costs; Higher Customer Service Levels Goal: To Provide a Targeted Level of Customer Service at the Least Cost. Lower Distribution Costs; Lower Customer Service Levels 18

Major Logistics Functions Order Processing Costs Received Processed Shipped Minimize Costs of Attaining Logistics Objectives Logistics Transportation Rail, Truck, Water, Pipeline, Air, Intermodal Functions Warehousing Storage Distribution Automated Inventory When to order How much to order Just-in-time 19

Transportation Modes Rail Nation’s largest carrier, cost-effective for shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Water Low cost for shipping bulky, low-value, non perishable goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or distance markets have to be reached 20

Choosing Transportation Modes Checklist for Choosing Transportation Modes 1. Speed 2. Dependability 3. Availability 4. Costs 5. Others 21

Integrated Logistics Management Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Teamwork Both Inside the Company and Among All the Marketing Channel Organizations. Cross-Functional Teamwork inside the Company Building Channel Partnerships Third-Party Logistics 22

Review of Concept Connections Explain why companies use distribution channels and discuss thee functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Discuss the nature and importance of physical distribution. Analyze integrated logistics, including how it may be achieved and its benefits to the company. 23