Marketing Channels and Supply Chain Management Chapter 12

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Marketing Channels and Supply Chain Management Chapter 12 1

Marketing Channels and Supply Chain Management Chapter 12 1

Issues Concerning Distribution Channels What is the Nature Of Distribution Channels? How do Channel

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 Problems do Companies Face in Designing and Managing Their Channels?

What is a Distribution Channel? w A set of interdependent organizations (intermediaries) involved in

What is a Distribution Channel? w 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. w A strong distribution system can be a competitive advantage w Channel decisions involve long-term commitments to other firms

Nature & Importance of Marketing Channels w How Channel Members Add Value n n

Nature & Importance of Marketing Channels w How Channel Members Add Value n n n Intermediaries require fewer contacts to move the product to the final purchaser. Intermediaries help match product assortment demand with supply. Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

How a Marketing Intermediary Reduces the Number of Channel Transactions

How a Marketing Intermediary Reduces the Number of Channel Transactions

Distribution Channel Functions These Functions Should be Assigned to the Channel Member Who Can

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

Number of Channel Levels Channel Level - Each Layer of Marketing Intermediaries that Perform

Number of Channel Levels 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

Channel Behavior and Organization w Channel Conflict n n Occurs when channel members disagree

Channel Behavior and Organization w Channel Conflict n n Occurs when channel members disagree on roles, activities, or rewards. Who should do what and for what rewards? Types of Conflict: l l Horizontal conflict: occurs among firms at the same channel level e. g: Dealers’ conflict, or retailer to retailer Vertical conflict: occurs among firms at different channel levels e. g. Conflict between parent company and re-sellers. w For the channel to perform well, each channel member’s role must be specified and conflict must be managed.

Conventional Marketing Channel Vs. a Vertical Marketing System Manufacturer Wholesaler Retailer Consumer Vertical Marketing

Conventional Marketing Channel Vs. a Vertical Marketing System Manufacturer Wholesaler Retailer Consumer Vertical Marketing System Manufacturer Wholesaler Conventional Marketing Channel Retailer Consumer

Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major

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

Channel Design Decisions w Step 1: Analyzing Consumer Needs n Cost and feasibility of

Channel Design Decisions w Step 1: Analyzing Consumer Needs n Cost and feasibility of meeting needs must be considered Do consumers want to buy from nearby locations? l Do they want add-on services? l Would they buy in person or over phone or via the Internet? l

Channel Design Decisions w Step 2: Setting Channel Objectives n n Set channel objectives

Channel Design Decisions w Step 2: Setting Channel Objectives n n Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives Nature of the company: size and financial situation l Its products: perishable or durable l Its competitors: avoid channels used by competitors. E. g. Avon l Economic conditions: depressed economy l

Channel Design Decisions w Step 3: Identifying Major Alternatives n Types of intermediaries l

Channel Design Decisions w Step 3: Identifying Major Alternatives n Types of intermediaries l n Number of marketing intermediaries l n Company sales force, distributors, wholesalers, retailers Intensive, selective, and exclusive distribution Responsibilities of channel members: Agree on price policies, territorial rights, ad specific services to be performed by each party.

Channel Design Decisions w Step 4: Evaluating Major Alternatives n n n Economic criteria:

Channel Design Decisions w Step 4: Evaluating Major Alternatives n n n Economic criteria: compare the likely sales, costs and profitability of different channel alternatives. Control issues: how much control to be given over the marketing of the product. Adaptive criteria: flexibility of channel members to adapt with environmental changes.

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

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

Channel Management Decisions w Selecting Channel Members n Identify characteristics (years in business, other

Channel Management Decisions w Selecting Channel Members n Identify characteristics (years in business, other lines carried, growth and profit record, cooperativeness and reputation) that distinguish the best channel members w Managing and Motivating Channel Members n Partner relationship management (PRM) is key w Evaluating Channel Members n n Performance should be checked against standards (sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion, and training programs, and services to the customer. Channel members should be rewarded or replaced as dictated by performance