Principles of Marketing

12 Principles of Marketing Marketing Channels and Supply Chain Management

Supply Chains and the Value Delivery Network Supply Chain Partners Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service Downstream partners include the marketing channels or distribution channels that look toward the customer 12-4

Supply Chains and the Value Delivery Network 12-4

Supply Chains and the Value Delivery Network Value Delivery Network The value delivery network is the firm’s suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system 12-6

Supply Chains and the Value Delivery Network Marketing Channel Questions • What is the nature of marketing channels and why are they important? • How do channel firms interact and organize to do the work of the channel? • What role do physical distribution and supply chain management play in attracting customers? 12-7

The Nature and Importance of Marketing Channels Marketing Channel Defined Marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the consumer or business users 12-8

The Nature and Importance of Marketing Channels HowChannel Members Add Value Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them 12-9

The Nature and Importance of Marketing Channels How Channel Members Add Value Producers use intermediaries because they create greater efficiency in making goods available to target markets. 12-10

The Nature and Importance of Marketing Channels How Channel Members Add Value Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations 12-11

The Nature and Importance of Marketing Channels How Channel Members Add Value Information - gathering and distributing research and intelligence about the marketing environment Promotion - development and spreading of persuasive communications about an offer Contacts refers to finding and communicating with prospective buyers 12-13

The Nature and Importance of Marketing Channels How Channel Members Add Value Matching - fitting the offer to the buyer’s needs, including activities such as manufacturing, assembling, and packaging Negotiation - reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred 12-14

The Nature and Importance of Marketing Channels How Channel Members Add Value Physical distribution - transporting and storing goods Financing - acquiring and using funds to cover the costs or carrying out the channel work Risk taking - assuming the risks of carrying out the channel work 12-15

The Nature and Importance of Marketing Channels Number of Channel Members Channel level - each layer of marketing intermediaries that performs some work in bringing the product closer to the final buyer Direct marketing channel has no intermediary levels; the company sells directly to consumers Indirect marketing channels contain one or more intermediaries 12-16

Channel Behavior and Organization Channel Behavior Marketing channel consists of firms that have partnered for their common good with each member playing a specialized role 12-18

Channel Behavior and Organization* Channel Behavior Channel conflict refers to disagreement over goals, roles, and rewards by channel members • Horizontal conflict • Vertical conflict 12-19

Channel Behavior and Organization Conventional Distribution Systems Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits and there is little control over the other members and no formal means for assigning roles and resolving conflict. 12-21

Channel Behavior and Organization Vertical Marketing Systems Vertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: • Corporate marketing systems • Contractual marketing systems • Administered marketing systems 12-22

Channel Behavior and Organization Vertical Marketing Systems Corporate vertical marketing system integrates successive stages of production and distribution under single ownership 12-23

Channel Behavior and Organization Vertical Marketing Systems Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organization. 12-24

Channel Behavior and Organization Vertical Marketing Systems Administered vertical marketingsystem has a few dominant channel members without common ownership. Leadership comes from size and power. 12-26

Channel Behavior and Organization Horizontal Marketing Systems Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. 12-27

Channel Behavior and Organization Multichannel Distribution Systems Hybrid Marketing Channels Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments 12-28

Channel Behavior and Organization Multichannel Distribution Systems Hybrid Marketing Channels • Advantages • Increased sales and market coverage • New opportunities to tailor products and services to specific needs of diverse customer segments • Challenges • Hard to control • Create channel conflict 12-29

Channel Behavior and Organization Changing Channel Organization Disintermediation - product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones 12-30

Channel Design Decisions Analyzing Consumer Needs* Designing a channel system requires: • Analyzing consumer needs • Setting channel objectives • Identifying major channel alternatives • Evaluation 12-31

Channel Design Decisions Analyzing Consumer Needs Designing a marketing channel starts with finding out what target customers want from the channel 12-32

Channel Design Decisions Setting Channel Objectives In terms of: • Targeted levels of customer service • What segments to serve • Best channels to use • Minimizing the cost of meeting customer service requirements 12-33

Channel Design Decisions Setting Channel Objectives Objectives are influenced by: • Nature of the company • Marketing intermediaries • Competitors • Environment 12-34

Channel Design Decisions Identifying Major Alternatives In terms of: • Types of intermediaries • Number of intermediaries • Responsibilities of each channel member 12-35

Channel Design Decisions Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Examples include: • Company sales force • Manufacturer’s agency • Industrial distributors 12-36

Channel Design Decisions Identifying Major Alternatives Company sales force strategies • Expand direct sales force • Assign outside salespeople to territories • Develop a separate sales force • Telesales 12-37

Channel Design Decisions Identifying Major Alternatives Manufacturer’s agencies are independent firms whose sales forces handle related products from many companies in different regions or industries 12-38

Channel Design Decisions Identifying Major Alternatives Industrial distributors • Find distributors in different regions or industries 12-39

Channel Design Decisions Identifying Major Alternatives Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible 12-41

Channel Design Decisions Identifying Major Alternatives Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories • Luxury automobiles • High-end apparel 12-42

Channel Design Decisions Identifying Major Alternatives Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products • Televisions • Appliances 12-43

Channel Design Decisions Responsibilities of Channel Members Producers and intermediaries need to agree on: • Price policies • Conditions of sale • Territorial rights • Services provided by each party 12-44

Channel Management Decisions Channel management involves*: • Selecting channel members • Managing channel members • Motivating channel members • Evaluating channel members 12-48

Channel Management Decisions Selecting Channel Members Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members • Years in business • Lines carried • Profit record 12-49

Channel Management Decisions Selecting Channel Members Selecting intermediaries that are sales agents involves evaluating: • Number and character of other lines carried • Size and quality of sales force 12-50

Channel Management Decisions Selecting Channel Members Selecting intermediaries that are retail stores that want exclusive or selective distribution involves evaluating: • Store’s customers • Locations • Growth potential 12-51

Public Policy and Distribution Decisions Exclusive distribution is when the seller allows only certain outlets to carry its products Exclusive dealing is when the seller requires that the sellers not handle competitor’s products 12-53

Public Policy and Distribution Decisions Benefits of exclusive distribution include: • Seller obtains more loyal and dependable dealers • Dealers obtain a steady and stronger seller support 12-54

Marketing Logistics and Supply Chain Management Nature and Importance of Marketing Logistics Marketing logistics (physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit 12-57

Principles of Marketing