Lecture Principles of Marketing - Chapter 10: Marketing channels and supply chain management

Lecture Principles of Marketing - Chapter 10 explain why companies use distribution channels and discuss the 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, explain how companies select, motivate, and evaluate channel members.
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Lecture Principles of Marketing - Chapter 10: Marketing channels and supply chain management Chapter 10 Marketing Channels and Supply Chain Management Roadmap: Previewing the Concepts 1. Explain why companies use distribution channels and discuss the functions these channels perform. 2. Discuss how channel members interact and how they organize to perform the work of the channel. 3. Identify the major channel alternatives open to a company. 4. Explain how companies select, motivate, and evaluate channel members. 5. Discuss the nature & importance of marketing logistics and supply chain management. Copyright 2007, Prentice Hall, Inc. 10-2 Case Study Caterpillar – The Vital Role of Dealers Background Building Partnerships  Caterpillar dominates the  Distribution system is built world’s markets for heavy on a base of mutual trust construction and mining and shared dreams. equipment.  Caterpillar stresses dealer  Independent dealers are profitability, extraordinary key to success, providing dealer support, personal customer service, market relationships, dealer intelligence, and more. performance, and full,  Distribution system is a honest, and frequent competitive advantage. communications. Supply Chains  Producing and making products available to buyers requires building relationships with “upstream” and “downstream” partners. – Upstream: firms that supply the raw materials, components, parts, and other elements necessary to create a good. – Downstream: marketing channel partners that link the firm to the customer. Marketing Channel or Distribution Channel  A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. – Wholesalers – Distributors – Dealerships – Retailers How Channel Members Add Value  The use of intermediaries results from their greater efficiency in making goods available to target markets.  Offers the firm more than it can achieve on its own through the intermediaries: – Contacts – Experience – Specialization – Scale of operation Key Channel Functions  Transaction  Transaction Completing: Fulfilling: – Information – Physical – Promotion distribution – Contact – Financing – Matching – Risk taking – Negotiation Number of Channel Levels  Number of intermediary levels indicates the length of a channel. – Direct marketing channels • Have no intermediary levels between the manufacturer and the customer. – Indirect marketing channels • Contains one or more intermediaries.  All channel institutions are connected by several types of flows. Channel Behavior  The channel will be most effective when: – Each member is assigned tasks it can do best. – All members cooperate to attain overall channel goals.  If this does not happen, conflict occurs: – Horizontal Conflict occurs among firms at the same level of the channel (e.g., retailer to retailer). – Vertical Conflict occurs between different levels of the same channel (e.g., wholesaler to retailer).  Some conflict can be healthy competition. Vertical Marketing System  A distribution channel structure in which producers, wholesalers, and retailers act as a unified system.  One channel member owns the other, has contracts with them, or has so much power that they all cooperate. Types of Vertical Marketing Systems  Corporate VMS  Contractual VMS  Franchise organization  Administered VMS Franchise Organizations  Manufacturer-Sponsored Retailer Franchise – Ford and its independent franchised dealers  Manufacturer-Sponsored Wholesaler Franchise – Coca-Cola’s licensed bottlers  Service-Firm Sponsored Retailer Franchise – McDonald’s, Avis, and Holiday Inn Innovations in Marketing Systems  Horizontal Marketing System – Two or more companies at one level join together to follow a new marketing opportunity.  Multichannel Distribution System – Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. – Also called hybrid marketing system. Changing Channel Organization  Disintermediation: – Occurs when product and service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones. Channel Design Decisions  Analyzing Consumer Needs  Setting Channel Objectives  Identifying Major Alternatives  Evaluating the Major Alternatives Analyzing Consumer Needs  Answering key questions helps to determine customer needs: – Do consumers want to buy from nearby locations or are they willing to travel? – Do they value breadth of assortment or do they prefer specialization? – Do consumers want many add-on services?  Firm must balance needs against costs and consumer price preferences. Setting Channel Objectives  State objectives in terms of targeted levels of customer service.  Channel objectives are influenced by: – Cost – Nature of the company – The firm’s products – Marketing intermediaries – Competitors – Environment Identifying Major Alternatives  Types of Intermediaries – Company sales force – Manufacturer’s agency – Industrial distributors  Number of intermediaries – Intensive distribution – Exclusive distribution – Selective distribution  Responsibilities of intermediaries Evaluating the Major Alternatives  Economic Criteria: – A company compares the likely sales, costs, and profitability of diff ...