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Ch10 - Marketing Channels & Supply Chain - Coggle Diagram
Ch10 - Marketing Channels & Supply Chain
Nature & Importance of Marketing Channels
What is a Marketing Channel?
Marketing Channel
Set of individuals & firms involved in process of making product or service available
Intermediaries
Are the individuals and firms
Middleman
Another name for intermediary
Agent/broker
Any intermediary with legal authority to act on behalf of another channel member
Wholesaler
Any intermediary who sells to other intermediaries, usually to retailers. Term usually applies to intermediaries who deal in consumer goods
Retailer
Intermediary who sells to consumers
Distributor
General term used to describe intermediaries who perform variety of functions, inc. selling, maintaining inventories, extending credit, and others (usually used for those in business markets)
Dealer
General term that can mean same as distributor, retailer, wholesaler
Allows for flow of goods from a producer, through intermediaries to a buyer
Value is Created by Intermediaries
Helps producers by selling goods & services more efficiently cause minimize number of sale contacts necessary to reach target market (e.g. Tv producers can sell to Best Buy instead of individual customers, so they only have to maintain connection to one company to get their products into the world)
Functions
All 3 must be performed in marketing channel even if each channel member doesn't participate in every function
Channel member often negotiate which specific functions they will perform
Transactional function
Buying - Purchasing products for resale
Selling - Contacting potential customers, promoting products, seeking orders
Risk-taking - Assuming business risks in ownership of inventory
Logistical function
Selection - Putting together selection of products from several different sources
Storing - Assembling & protecting products at convenient location
Sorting - Purchasing large quantities & dividing into smaller amounts
Transporting- Physically moving a product to customers
Facilitating function
Financing - Extending credit to customers
Marketing info & research - Providing info to customers & suppliers, inc. competitive conditions & trends
Consumer Benefits
Time utility - Having product/service when you want it
Place utility - Having product/service available where consumers want it
Form utility - Enhancing product/service to make it more appealing to buyers
Information utility - Providing consumers with info needed to make informed choice. Info-packed websites & user manuals provide this
Possession utility - Efforts by intermediaries to help buyers take possession of product or service (e.g. providing ways for payment to be made for product)
Channel Structure & Organization
Marketing Channels for Consumer Goods & Services
As the number of intermediaries between producer & buyer increases, channel is viewed as increasing in length
Producer >> Consumer
Direct channel - No intermediaries
Producer must perform all channel functions
Producer >> Retailer >> Consumer
Indirect channels - Intermediaries inserted between producer & consumer & perform numerous channel functions
Most common when retailer is larger & can buy large quantities from producer (buy in big quantities is more cost-effective for producer to deal with only a retail intermediary)
Producer >> Wholesaler >> Retailer >> Consumer
Indirect channel
Most common when wholesaler sells to small retailers like independent convenience stores & small grocery that don't buy enough for producer to sell directly to retailers
Most common in low-cost, low-unit value items that are frequently purchased by consumers (candy, confectionary, magazines)
Producer >> Agent >> Wholesaler >> Retailer >> Consumer
Most indirect channel
Used when many small manufacturers & many small retailers & an agent used to help coordinate large supply of product
Marketing Channels for Business Goods & Services
Producer >> Industrial User
Direct channel
Firms able to maintain own sales force & perform all channel functions
Used when buyers are large & well-defined, sales effort requires extensive negotiations, & products are high unit value & require hands-on expertise in terms of installation or use
Producer >> Industrial Distributor >> Industrial User
Indirect channels
Industrial distributor - Performs variety of marketing channel functions (selling, stocking, delivering full product assortment & financing). Act like wholesalers
Producer >> Agent >> Industrial User
Indirect channel
Agent - Services as independent selling arm of producers & represents producer to industrial users
Producer >> Agent >> Industrial Distributor >> Industrial User
Indirect channel
Longest channel & includes agents & distributors
Electronic Marketing Channels
Employ Internet to make goods & services available to consumers or business buyers
Unique Feature
Can combine electronic & traditional intermediaries to create time, place, form, info, possession utility for buyers
Electronic Intermediaries
Can and do perform transactional & facilitating functions effectively & at lower cost than traditional intermediaries cause of efficiencies made possible by info tech
Incapable of performing elements of logistical function (esp. for products like books & automobiles) - Remains traditional intermediaries or with producer
Multiple Channels & Strategic Alliances
Dual distribution
An arrangement where firm reaches different buyers by employing two or more different types of channels for same basic product
Firms pair multiple channels with multibrand strategy
Done to minimize cannibalization of firm's family brand & to differentiate channels (e.g. Hallmark sells its greeting cards through Hallmark stores & select dept stores & its Ambassador brand of cards through discount & drugstore chains
Strategic Channel Alliances
Firm's marketing channel used to sell another firm's products
Popular in global marketing where creation of marketing channel relationship is expensive & time-consuming
Multichannel Marketing to the Online Consumer
Traditional marketplace
Buyers & Sellers engage in face-to-face exchange relationships in environ characterized by physical facilities (stores & offices) & mostly tangible objects
Marketspace
Internet/web-enabled digital environment characterized by face-to-screen exchange rela & electronic images & offerings
Consumers can shop for & purchase wide variety of products & services in either market environ - Behaviour is expected to continue in future
Today its common for orgs to maintain presence in both market environ = Called the multichannel marketing
Integrating multiple channels with multichannel marketing
Multichannel marketing
Blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, building relationships with consumers who shop & buy in traditional marketplace & in online marketspace
Multichannel marketing seeks to integrate firm's communication & delivery channels not differentiate them - Consumers can browse & buy any time, anywhere, any way, expecting exp will be similar regardless of channel
Benefits of multichannel marketing
Allows business to measure results & make changes rapidly while ensuring seamless customer exp
Can leverage value-adding capabilities of diff channels (leverage physical presence by allowing customers to pick up their online orders at a nearby store, or return or exchange non-store purchases at store if they wish)
Cross-channel shopper
Ppl who research products online and then purchase them at retail store
Both genders do this equally
Want right product at best price & don't want to wait several days for delivery
Reason to look online before buying: 1) Desire to compare products among different retailers, 2) need for more information than available in store, 3) ease of comparing options without having to go to multiple retail locations
Omni-channel retailing
Evo of how individuals make purchases
Creates seamless experience among all available shopping channels
Tech made it hard to distinguish between online & physical retail opp, so next step for retailers is make process seamless & potentially more engaging
Both online & offline retailers need to be ready for the changes in the competitive landscape - In future its an expectation for them to invest resources towards omni-channel to meet demand of consumers
Implementing Multichannel Marketing
2 general types of websites classified based on their intended purpose
Transactional websites
Electronic storefronts
Focus on converting online browser into an online, catalogue, or in-store buyer using website design elements
Most common among store & catalogue retailers
Used less frequently by manufacturers of consumer product but recurring issue for manufacturers is channel conflict by harming rela with their retailing intermediaries
Promotional website
No actual selling on them, but they showcase products & services & provide information
Global Channel Strategy
Distribution is critically important to global marketing
Availability & quality of retailers & wholesalers, as well as transportation, communication, & warehousing facilities often determined by country's economic infrastructure
Channels of distribution in global marketing
Seller >> Seller's international marketing HQ >> Channels between nations >> Channels within foreign nations >> Final consumer
Sophistication of country's distribution channels increases as economic infrastructure develops
Vertical Marketing Systems
Professionally managed & centrally coordinated marketing channels designed to achieve channel economies & maximum marketing impact
Encourage collaboration, shared responsibility, partnership between manufacturers & retailers in system
Types of vertical marketing systems (see Figure 10.8)
Corporate vertical systems
Firm at one lvl of channel owns firm at next level or owns entire channel
Forward integration
Producer might own intermediary at next level down in channel
Backward integration
Retailer owns manufacturing operation
Companies looking to reduce distribution costs and gain greater control over supply sources or resale of their products pursue forward & backward integration
Many companies favour contractual vertical marketing systems to achieve channel efficiencies & marketing effectiveness
Contractual vertical systems
Independent production & distribution firms combine efforts on contractual basis to obtain greater functional economies & marketing impact than they can achieve alone
Most popular among 3 types of vertical marketing systems & accounts for 40% of all retail sales
Wholesaler-sponsored voluntary chains
Involves wholesaler that develops contractural rela with small, independent retailers to standardize & coordinate buying practices, merchandising programs, & inventory management efforts
With org of large # of independent retailers, economies of scale & volume discounts can be achieved to compete with chain stores
Retailer-sponsored cooperatives
When small, indepedent retailers form org that operates wholesale facility cooperatively
Members then concentrate buying power through wholesaler & plan collaborative promotional & pricing activities
Franchising
Contractual arrangement between parent company & individual or firm that allows franchisee to operate certain type of business under established name & according to specific rules set by franchiser
Most visible variation
Manufacturer-sponsored retail franchise systems
Prominent in automobile industry, where manufacturer licenses dealers to sell its cars subject to various sales & service conditions
Manufacturer-sponsored wholesale franchise system
Appear in soft-drink industry where Pepsi-cola licenses wholesalers (bottlers) that purchase concentrate from Pepsi-cola and then carbonate, bottle, promote, and distribute its products to supermarkets & restaurants
Retail franchise systems
Provided by firms that have designed unique approach for selling merchandise to consumers
Service franchise systems
Exist when franchisers license individuals or firms to dispense service under trade name & specific guidelines
Service franchise arrangements - Fastest-growing type of franchise
Administered vertical marketing systems
Achieve coordination at successive stages of production & distribution by size & influence of one channel member
Ownership of marketing system is not always necessary to achieve desired results
Channel Choice & Management
Factors Affecting Channel Choice
Final choice of marketing channel by producer depends on number of market, product, company factors. Providing convenience to retail consumers may provide advantages in certain industries
Market Factors
Geographic concentration of the market
When customers in a few geo areas - Direct sale to customers is practical
When customers geo dispersed - Direct sales impractical due to high travel costs
Sellers may establish sales branches in densely populated markets & use intermediaries in less-concentrated markets
Number of potential customers
Manufacturer with few potential customers may use own sales force to sell directly to consumers or business users
Large number of customers - Use intermediaries
Type of market
Consumer products - Retailers
Business products - Sold direct or through intermediaries
Order size
Large order - Direct distribution
Small independent grocery & convenience stores - orders too small to justify direct sale
Product Factors
Technical factors
Highly sophisticated products - Distributed direct to buyers
Producer's sales force must provide considerable pre-purchase & post-purchase service for these types of products, & wholesalers don't do these tasks
Perishability
Products that go directly from producer to retailer no matter the order size
Unit value
Price attached to each unit of product affects amount of funds available for distribution - Intermediaries needed to carry low unit-value products
Product life cycle
Over time some products become very popular, easy to operate & available in more mainstream channels
Company Factors
Financial resources & ability of management
Business with limited financial resources may be unable to hire own salespeople so use intermediaries to reach customers
Businesses with limited or no marketing know-how may use intermediaries
Desire for channel control
Some producers establish direct channels because they want to control their product's distribution, even though direct channel may be more costly than indirect channel
Channel Design Considerations
1) Target market coverage
Attention to density - Number of stores in given geo area & type of intermediaries to be used at retail lvl of distribution. 3 degrees of distribution intensity:
Intensive distribution
Firm tries to place products & service in as many outlets as possible
Chosen for convenience products & services
Exclusive distribution
Extreme opposite of intensive distribution cause only 1 retail outlet in specified geo area carries firm's products
For specialty products or services
Sometimes, retailers sign exclusive distribution agreements with manufacturers & suppliers
Selective distribution
Firm selects few retail outlets in specific geo area to carry its products
Selective distribution combines some of the market coverage benefits of intensive distribution with control measures possible with exclusive distribution
Most common form of distribution intensity
2) Satisfying buyer requirements
Gain access to channels & intermediaries that satisfy at least some of the interests buyers have when purchasing firm's products or services. 4 categories
Information
Import when buyers have limited knowledge or desire specific data about product or service. Properly chosen intermediaries communicate with buyers through in-store displays, demonstrations, personal selling
Convenience
Multiple meanings for buyers (e.g. proximity or driving time to retail outlet or hrs of operation, minimum time & hassle)
Variety
Reflects buyers' interest in having numerous competing & complementary items to choose from. Seen in both breadth & depth of products carried by intermediaries, which enhances attractiveness to buyers
Pre- & post- services
Services provided by intermediaries import buying requirement for products
3) Profitability
Revenues earned minus cost for each channel member & for channel as a whole
Cost is critical factor of channel proftiability
Cost inc. distribution, advertising, selling expenses
Extent to which channel members share these costs determines the profitability of each member & of channel as whole
Channel Relationships - Conflict & Cooperation
Conflict in marketing channels
Channel conflict
Happens when one channel member believes another channel member is engaged in behaviour that prevents it from achieving its goals
May have negative effect on channel performance, but can encourage channels to find better efficiencies to deliver results
Vertical conflict
Occurs between different levels in marketing channel (e.g. between manufacturer & wholesaler or manufacturer & retailer)
Disintermediation - Can happen when channel member bypasses another member & sells directly to consumers
Horizontal conflict
Occurs between intermediaries at same level in marketing channel (e.g. between two or more retailers or two or more wholesalers that handle same manufacturer's brands)
Cooperation in marketing channels
Conflict can have disruptive effects on workings of marketing channel so necessary to secure cooperation among channel members
Channel captain
Dominant channel member coordinates, directs, supports other channel members
Can be producers, wholesalers, retailers
Firm can become captain cause its the channel member with ability to influence behavior of other members
Types of influence
Economic influence - Ability of firm to reward other members cause of strong financial position
Expertise
Identification with particular channel member creates influence for that channel member
Influence from legitimate right of one channel member to direct behaviour of other members - Happens under contractual vertical marketing systems where franchiser can legitimately direct how franchisee behaves
Logistics & Supply Chain Management
Supply Chains vs. Marketing Channels
See Figure 10.9 - How Distribution channels work. Rela between supplier networks, marketing channels, logistics management, supply chain management
Supply chain
Series of firms that perform activities required to create & deliver good or service to consumers or industrial users
Differs from marketing channel in terms of firms involvement
Is longer & includes suppliers that provide raw material inputs to manufacturer & wholesalers & retailers that deliver finished goods to you
Supply chain management
Integration & organization of info & logistics activities across firms in supply chain for purpose of creating & delivering goods & services that provide value to consumers
Uses sophisticated info tech that allows companies to share & operate systems for order processing, transportation scheduling, & inventory & facility management
Sourcing, Assembling, & Delivering a New Car - The Automotive Supply Chain
All companies are members of one or more supply chains
A supply chain is essentially a series of linked suppliers & customers in which every customer is a supplier to another customer until finished product reaches ultimate consumer
Supply Chain Management & Marketing Strategy
Aligning supply chain with marketing strategy
3 steps
1) Understand the customer
ID needs of customer segment
Needs help company define relative importance of efficiency & responsiveness in meeting customer requirements
2) Understand the supply chain
Understand what supply chain does well
Supply chains range from those that emphasize being responsive to customer requirements & demand to those that emphasize efficiency with goal of supplying products at lowest possible delivered cost
3) Harmonize supply chain with marketing strategy
Know what supply chain is capable of doing well & is consistent with targeted customer's needs & marketing strategy
If mismatch company will either need to redesign supply chain to support marketing strategy or change marketing strategy
Walmart Stores - Efficient Supply Chaing
Cross docking
Practice involves unloading products from suppliers, sorting products for individual stores, quickly reloading products onto its trucks for particular store
No warehousing or storing of products occurs, except for few hours or at most a day
Walmart can operate only small # of distribution centres to service vast network of stores - Contributes to efficiency
Uses fleet-management software to enhance operations
Increases cost & investment but benefits for responsiveness justify cost
RFID
Radio Frequency Identification
Tag that incorporates product for tracking purposes
Improves efficiency of inventory tracking & management
Some suppliers complied but many don't cause cost is too high
3 Lessons from examples
There's no one best supply chain for every company
Best supply chain is consistent with needs of the customer segment being served & complements company's marketing strategy
Supply chain managers often called to make trade-offs between efficiency & responsiveness on various elements of company's supply chain
Reverse Logistics
Process of reclaiming recyclable & reusable materials, returns, reworks from point of consumption or use for repair, remanufacturing, redistribution, disposal
Effects can be seen in reduced waste in landfills & lowered operating costs for companies
Logistics
Involves activities that focus on getting right amount of right products to right place at right time at lowest cost
Logistics management
Practice of organizing cost-effective flow of raw materials, in-process inventory, finished goods, and related info from point of origin to point of consumption to satisfy customer requirements. Looking at the performance of these activities
3 Elements
1) Flow of product
Logistics deals with decisions from source of raw materials to consumption of final product
2) Cost-effective
Decisions must be cost-effective
3) Customer service
While import to drive down logistics costs, there's a limit - Firm needs to drive down logistics costs as long as it can deliver expected customer service, while satisfying customer requirements.
Collaboration, coordination, info sharing among manufacturers, suppliers, distributors necessary to create seamless flow of goods & services to customers
Key Logistics Functions in a Supply Chain
So complex that many companies outsource to third-party logistics providers
Successful logistics management minimizes total costs to logistics while delivering appropriate level of customer service factors of time, dependability, communication, convenience
Transportation
5 basic modes
Railroads, motor carriers, air carriers, water carriers, pipelines
Combo involving 2 or more modes
Some retailers negotiate with vendors to absorb expenses
6 basic service criteria for vendors
Costs
Charges for transportation
Time
Speed of transit
Capability
What can be realistically carried with this mode (controlled temp & humidity levels)
Dependability
Reliability of service regarding time, loss, damage
Accessibility
Ability to move products over specific route or network
Frequency
How often marketer can ship products by specific transportation mode
Pipelines provide continuous shipments whereas railways & water follow specific schedules for moving products from one location to another
Order Processing
Electronic data interchange (EDI)
Computer-to-computer exchange of business documents from retailer to supplier & back
Purchase orders & invoices can be transmitted back and forth electronically, replacing manual processing
Increases speed, accuracy, streamlining of operations between retailer & supplier
Inventory Management
Just-in-time (JIT) inventory system
Designed to deliver less merchandise on a more frequent basis than traditional inventory system
Requires fast on-time delivery
Firm gets merchandise "just-in-time" for it to be used in production of another product, or for sale when the customer wants it, in case of consumer products
Issue
Logistics function becomes more complicated with more frequent deliveries
Greater order frequencies results in smaller orders, which are more expensive to transport & more difficult to coordinate
Warehousing
Places to store products, whereas distribution centres described below receive, store, redistribute goods to customers
Public warehouse
Offers storage for small companies or individuals
Private warehouse
Used usually by large firms
Most storage warehouses located in outskirts of the city where rail & truck transportation are easily available
Distribution centres
Traditional
Merchandise unloaded from trucks & placed on shelves for storage
When the merchandise is required in stores, worked goes to shelf, picks up item & places it in bin
Conveyer transports merchandise to staging area, where its consolidated and made ready for shipment to stores
Cross-docking
Heinz ships ketchup pre-packaged in the quantity required for each Walmart store
It's then sent to staging area rather than into store
When all merchandise going to particular Walmart store has arrived in the stanging area, its loaded onto a Walmart truck that goes directly to store
Combo of the two
Most modern distribution centres use this type
Hard for company to operate without some storage facilities, even if merchandise stored for only a few days