Chapter 12 Marketing Channels and Supply Chain Management

Chapter 12 Marketing Channels and Supply Chain Management Copyright © 2010 by Nelson Education Ltd.

Outline 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Role of Marketing Channels Alternative Channels Dual Distribution Reverse Channels Who should perform channel functions? Channel Conflict Vertical Marketing System Contractual Systems Physical Distribution Warehousing Inventory Control Order Processing Copyright © 2010 by Nelson Education Ltd. 12 -2

The Role of Marketing Channels in Marketing Strategy • Marketing channels are key because they are the means of making goods and services available to ultimate users. • Four functions of marketing channels: 1. Channels facilitate the exchange process by reducing the number of marketplace contacts necessary to make a sale 2. Distributors adjust for discrepancies in the market’s assortment of goods and services via sorting, channeling products to meet the buyer’s and producer’s needs 3. Channel members tend to standardize payment terms, delivery schedules, prices, purchase lots, and other conditions 4. Channels facilitate searches by both buyers and sellers and bring them together to complete the exchange process Copyright © 2010 by Nelson Education Ltd. 12 -3

Alternative Marketing Channels Copyright © 2010 by Nelson Education Ltd. 12 -4

Dual Distribution • Movement of products through more than one channel to reach the firm’s target market • Used to maximize the firm’s coverage in the marketplace or to increase the cost-effectiveness of the firm’s marketing effort ü Example: Sears Canada sells through stores, catalogues, and the Internet Copyright © 2010 by Nelson Education Ltd. 12 -5

Reverse Channels • Channels designed to return goods to their producers • Growing importance because of rising prices for raw materials, increasing availability of recycling facilities, and passage of additional antipollution and conservation laws ü Example: Every element in a spent automotive battery can be reclaimed, recycled, and reused in new batteries • Also used for recalls and repairs Copyright © 2010 by Nelson Education Ltd. 12 -6

Factors influencing Marketing Channel Strategies Copyright © 2010 by Nelson Education Ltd. 12 -7

Who Should Perform Channel Functions? • Intermediary must provide better service at lower costs than manufacturers or retailers can provide for themselves • Consolidation of channel functions can represent a strategic opportunity for a company ü Example: Auto manufacturers operate their own credit units that offer financing Copyright © 2010 by Nelson Education Ltd. 12 -8

Channel Conflict • Horizontal conflict Results from disagreements among channel members at the same level, such as two competing discount stores • Vertical conflict Occurs among members at different levels of the channel ü Example: When Tupperware struck a deal to sell its products through retailer locations, it lost three-quarters of its in-home sales force Copyright © 2010 by Nelson Education Ltd. 12 -9

Vertical Marketing Systems • Vertical marketing system (VMS) Planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution channel • Rely on forward or backward integration ü Forward integration―Firm attempts to control downstream distribution ü Backward integration―Manufacturer attempts to gain greater control over inputs to production process Copyright © 2010 by Nelson Education Ltd. 12 -10

Corporate and Administered Marketing Systems • Corporate marketing system Single owner runs organizations at each stage of the marketing channel • Administered marketing system Dominant channel member exercises power to achieve channel coordination Copyright © 2010 by Nelson Education Ltd. 12 -11

Contractual Systems Contractual marketing system Coordinates distribution through formal agreements among channel members Wholesaler-Sponsored Voluntary Chain Wholesaler has formal agreement with retailers to use a common name and to purchase the wholesaler’s goods Retail Cooperative Retailers establish a shared wholesaler operation Franchise Wholesaler or dealer (franchisee) agrees to meet the operating requirements of a manufacturer or other franchisor Copyright © 2010 by Nelson Education Ltd. 12 -12

Physical Distribution • Physical distribution system contains these elements: • Customer service • Transportation • Inventory control • Protective packaging and materials handling • Order processing • Warehousing Copyright © 2010 by Nelson Education Ltd. 12 -13

Comparison of Transport Modes Copyright © 2010 by Nelson Education Ltd. 12 -14

Warehousing • Storage warehouse Holds goods for moderate to long periods in an attempt to balance supply and demand for producers and purchasers • Distribution warehouse Assembles and redistributes goods, keeping them moving as much as possible Copyright © 2010 by Nelson Education Ltd. 12 -15

Inventory Control Systems • Companies must balance maintaining enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory • Firms use just-in-time (JIT) delivery systems, RFID technology, and vendor-managed inventory to help manage costs Copyright © 2010 by Nelson Education Ltd. 12 -16

Order Processing • Directly affects firm’s ability to meet customer service standards • Includes four major activities: • • Conducting a credit check Keeping a record of the sale Making appropriate accounting entries Locating orders, shipping them, and adjusting inventory records Copyright © 2010 by Nelson Education Ltd. 12 -17