Chapter 13 Marketing Channels and SupplyChain Management PrideFerrell

Chapter 13: Marketing Channels and Supply-Chain Management Pride/Ferrell Foundations of Marketing Fourth Edition Prepared by Milton Pressley University of New Orleans © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Objectives 1. Describe the foundations of supply-chain management. 2. Explore the role and significance of marketing channels and supply chains. 3. Identify types of marketing channels. 4. Understand factors that influence marketing channel selection. 5. Identify the intensity of market coverage. 6. Examine strategic issues in marketing channels, including leadership, cooperation, and conflict. 7. Examine physical distribution as a part of supplychain management. 8. Explore legal issues in channel management. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Distribution • The decisions and activities that make products available to customers when and where they want to purchase them © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Foundations of the Supply Chain • Supply Chain - all activities associated with the flow and transformation of product from raw materials through to the end customer Supply Management Operations Management Logistics Management © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Supply Chain Components • Operations Management – Total set of managerial activities used to transform resource inputs into products • Logistics Management – Planning, implementing, and controlling the flow and storage of products and information from the point of origin to consumption • Supply Management – The processes that enable the progress of value from raw material to final customer and back © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Foundations of the Supply Chain • Supply-chain management - a set of approaches used to integrate the functions of operations management, logistics management, supply management, and marketing channel management so that products are produced and distributed in the right quantities, to the right locations, and at the right time © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Tasks in Supply-Chain Management © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Technology Facilitates Supply-Chain Management Technology-based tools help supply-chain managers improve efficiency and effectiveness. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Role of Marketing Channels in Supply Chains • Marketing channel (channel of distribution or distribution channel) - A group of individuals and organizations that direct the flow of products from producers to customers within the supply chain • Marketing intermediaries - Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Marketing Channel Activities Performed by Intermediaries © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Marketing Channels Create Utility • Time utility - Having products available when the customer wants them • Place utility - Making products available in locations where customers wish to purchase them • Possession utility - Giving the customer access to the product to use or to store for future use • Form utility - Assembling, preparing, or otherwise refining the product to suit individual customer needs © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Discussion Question • Visit the Apple Web Site by clicking on the @ symbol below. After reviewing the Site, discuss what type of utility this marketing channel is creating. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Efficiency in Exchanges Provided by an Intermediary © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Typical Marketing Channels for Consumer Products © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Typical Marketing Channels for Business Products Industrial distributor – An independent business organization that takes title to industrial products and carries inventories © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Discussion Question • Visit the Dell Web Site by clicking on the @ symbol below. After reviewing the Site, discuss which of the channels shown in Figure 13. 3 best describes how Dell distributes its business products. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Multiple Marketing Channels and Channel Alliances • Dual distribution - The use of two or more marketing channels to distribute the same products to the same target market • Strategic channel alliance - An agreement whereby the products of one organization are distributed through the marketing channels of another Using Multiple Marketing Channels Coca-Cola products are available in grocery stores and restaurants around the world. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Factors Affecting Channel Selection © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Supply Chain Concerns © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Discussion Question • If you were selecting the marketing channel for a new type of nail gun for building contractors, what would be the most important things to consider? • Would this change if the nail gun was also going to be sold to consumers? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 13. 5 Intensity of Market Coverage © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Intensity of Market Coverage • Intensive Distribution - Using all available outlets to distribute product • Selective Distribution - Using only some available outlets to distribute a product • Exclusive Distribution - Using a single outlet in a fairly large geographic area to distribute a product © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Intensive Distribution Most brands of bottled water, like Aquafina, are distributed through intensive distribution. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Strategic Issues in Marketing Channels Competitive Priorities Strategic Issues Channel Integration Channel Leadership, Coordination, and Conflict © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Channel Leadership • Channel Captain - The dominant leader of a marketing channel or a supply chain • Channel Power - The ability of one channel member to influence another member’s goal achievement Channel Leadership The producer of Candie’s products provides channel leadership. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Channel Integration • Vertical Channel Integration - Combining two or more stages of the marketing channel under one management • Horizontal Channel Integration - Combining organizations at the same level of operation under one management • Vertical marketing systems (VMSs) - A marketing channel managed by a single channel member to achieve efficient, low-cost distribution aimed at satisfying target customer © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Physical Distribution in Supply-Chain Management • Physical distribution (logistics) – Activities used to move products from producers to consumers and other end users • Outsourcing – The contracting of physical distribution tasks to third parties who do not have managerial authority within the marketing channel • Cycle time – The time needed to complete a process © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Proportional Cost of Each Physical Distribution Function as a Percentage of Total Distribution Costs Source: From Davis Database, 2005, reprinted by permission of Establish Inc. /Herbert W. Davis and Company © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Order Processing • The receipt and transmission of sales order information - Order entry - Order handling - Order delivery • Electronic data interchange (EDI) - A computerized means of integrating order processing with production, inventory, accounting, and transportation © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Inventory Management • Developing and maintaining adequate assortments of products to meet customers’ needs - Reorder point - Order lead time - Usage rate - Safety stock Inventory Management This handheld inventory management device allows employees to have an instant overview of every item – and its price – in the warehouse at any given time. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Just-In-Time • An inventory-management approach in which supplies arrive just when needed for production or resale © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Materials Handling • Physical handling of tangible goods, supplies, and resources – Unit loading • One or more boxes are placed on a pallet or skid; these units then can be loaded efficiently by mechanical means such as forklifts, trucks, or conveyer systems – Containerization • The consolidation of many items into a single, large container that is sealed at its point of origin and opened at its destination © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Warehousing • The design and operation of facilities for storing and moving – Enables firms to compensate for dissimilar production and consumption rates – Helps stabilize prices and the availability of seasonal items © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of Warehousing • Private warehouses - Company-operated facilities for storing and shipping products • Public warehouses - Storage space and related physical distribution facilities that can be leased by companies • Distribution centers - Large, centralized warehouses that focus on moving rather than storing © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transportation • The movement of products from where they are made to intermediaries and end users • Transport Modes – – – Railroads: Heavy, bulky full carloads of freight Trucks: Flexible schedules, speed, and access Waterways: Heavy, low-value, nonperishable goods Airplanes: Perishable goods, high-value, low-bulk Pipelines: Petroleum products, chemicals © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Characteristics and Ratings of Transportation Modes by Selection Criteria © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Waterway Transportation Waterway transportation is used to move heavy, nonperishable products, such as large equipment, grain, motor vehicles, and chemicals. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Coordinating Transportation • Intermodal transportation – Two or more transportation modes used in combination • Piggyback • Fishyback • Birdyback • Freight forwarders – Organizations that consolidate shipments from several firms into efficient lot sizes • Megacarriers – Freight transportation firms that provide several modes of shipment © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Legal Issues in Channel Management • Dual distribution • Restricted sales territories • Tying agreements – An agreement in which a supplier furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well • Exclusive dealing – A situation in which a manufacturer forbids an intermediary to carry products of competing manufacturers • Refusal to deal © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

After Reviewing This Chapter You Should: • • Know how to describe the foundations of supply-chain management. Be able to explore the role and significance of marketing channels and supply chains. Be able to identify types of marketing channels. Understand factors that influence marketing channel selection. Know how to identify the intensity of market coverage. Be able to examine strategic issues in marketing channels, including leadership, cooperation, and conflict. Be able to examine physical distribution as a part of supply-chain management. Know how to explore legal issues in channel management. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Concepts • Distribution • Exclusive distribution • Supply chain • Channel captain • Operations management • Channel power • Logistics management • Vertical channel integration • Supply management • Vertical marketing systems • Supply-chain management • Horizontal channel integration • Marketing channel • Physical distribution • Marketing intermediaries • Outsourcing • Industrial distributor • Cycle time • Dual distribution • Order processing • Strategic channel alliance • Electronic data interchange (EDI) • Intensive distribution • Inventory management • Selective distribution • Just-in-time (JIT) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Concepts • Materials handling • Warehousing • Private warehouses • Public warehouses • Distribution centers • Transportation • Intermodal transportation • Freight forwarders • Megacarriers • Tying agreement • Exclusive dealing © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.