DISTRIBUTION CHANNELS AND SUPPLY CHAIN MANAGEMENT

RAVIMOHAN

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2. 3. 4. 5.

Explain why companies use distribution channels and discuss the functions that 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 Discuss the nature and importance of physical distribution

LEARNING GOALS
12-2

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2. 3. 4. 5.

Explain why companies use distribution channels and discuss the functions that 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 Discuss the nature and importance of physical distribution

LEARNING GOALS
12-3

A supply chain consists of upstream and downstream partners Marketers have traditionally focused on the downstream side

Value Delivery Network

Supply chain make-and-sell view Demand chain sense-and-respond-view

The network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system.

SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK

12-4

Marketing channel
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.

NATURE & IMPORTANCE OF DISTRIBUTION CHANNELS

12-5

Channel choices affect other decisions in the marketing mix

Pricing, marketing communications

A strong distribution system can be a competitive advantage Channel decisions involve long-term commitments to other firms

NATURE & IMPORTANCE OF MARKETING CHANNELS

12-6

How Channel Members Add Value

Fewer contacts. Match product assortment demand with supply. Bridge, time, place, and possession gaps that separate products from users.

NATURE & IMPORTANCE OF MARKETING CHANNELS

12-7

Number of Channel Levels

The number of intermediary levels indicates the length of a marketing channel.
Direct Channels Indirect Channels

Producers lose more control and face greater channel complexity as additional channel levels are added.

NATURE & IMPORTANCE OF MARKETING CHANNELS

12-8

1.

2. 3. 4. 5.

Explain why companies use distribution channels and discuss the functions that 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 Discuss the nature and importance of physical distribution

LEARNING GOALS
12-9

Channel Conflict
Occurs when channel members disagree on roles, activities, or rewards. Types of Conflict:
Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels

CHANNEL BEHAVIOUR AND ORGANIZATION

12-10

Conventional Distribution Channels

Vertical Marketing Systems

Consist of one or more independent channel members Each seeking to maximize its own profits Often result in poor performance Producers, wholesalers, and retailers act as a unified system One channel member owns, has contracts with, or has so much power that they all cooperate Benefits should include greater control, less conflict, and economies of scale due to the size of the system

CHANNEL BEHAVIOUR AND ORGANISATION

12-11

Vertical Market System (VMS)

Corporate VMS Contractual VMS Administered VMS

Integrates successive stages of production and distribution under single ownership channel ownership is established through common ownership Coordination and conflict through regular organizational channels

CHANNEL BEHAVIOUR AND ORGANISATION

12-12

Vertical Market System (VMS)

Corporate VMS Contractual VMS Administered VMS

Individual firms who join through contracts Franchise organizations

Manufacturer-sponsored retailer franchise system Manufacturer-sponsored wholesaler franchise system Service-firm-sponsored retailer franchise system

CHANNEL BEHAVIOUR AND ORGANISATION

12-13

Vertical Market System (VMS)

Corporate VMS Contractual VMS Administered VMS

Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer

CHANNEL BEHAVIOUR AND ORGANISATION

12-14

Horizontal Marketing Systems

Companies at the same level work together with channel members

Multichannel Distribution Systems

Also called hybrid marketing channels Occurs when a firm uses two or more marketing channels

Changing Channel Organization

Disintermediation

CHANNEL BEHAVIOUR AND ORGANISATION

12-15

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2. 3. 4. 5.

Explain why companies use distribution channels and discuss the functions that 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 Discuss the nature and importance of physical distribution

LEARNING GOALS
12-16

Step 1: Analyzing Consumer Needs Step 2: Setting Channel Objectives

Cost and feasibility of meeting needs must be considered Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives

Nature of the company (size/financial position) and its products Marketing intermediaries Competition Marketing environment

CHANNEL DESIGN DECISIONS

12-17

Step 3: Identifying Major Alternatives

Types of intermediaries
Company sales force, manufacturers agency, industrial distributors

Number of marketing intermediaries

Intensive, selective, and exclusive distribution

Responsibilities of channel members

CHANNEL DESIGN DECISIONS

12-18

Step 4: Evaluating Major Alternatives

Economic criteria Control issues Adaptive criteria

CHANNEL DESIGN DECISIONS

12-19

1.

2. 3. 4. 5.

Explain why companies use distribution channels and discuss the functions that 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 Discuss the nature and importance of physical distribution

LEARNING GOALS
12-20

Selecting channel members Managing and motivating channel members Evaluating channel members

Which characteristics are important?

Years in business Lines carried Growth and profit record Cooperativeness and reputation Type of customer Location

CHANNEL MANAGEMENT DECISIONS

12-21

Selecting channel members Managing and motivating channel members Evaluating channel members

Partner relationship management (PRM) for long-term partnerships Software available to coordinate members

CHANNEL MANAGEMENT DECISIONS

12-22

Selecting channel members Managing and motivating channel members Evaluating channel members

Check channel performance of:

Sales Inventory Customer delivery Promotion and training Customer service

CHANNEL MANAGEMENT DECISIONS

12-23

Exclusive dealing. Sellers cannot demand exclusivity for their product from resellers if it can be proven that it will lessen competition or create a monopoly Exclusive territories. Sellers may grant exclusive territories, but may have trouble demanding that resellers deal only within that exclusive territory Tying agreements. demanding that resellers buy and/or stock all products within a product line, as a condition of doing business. Not illegal but a source of much channel conflict

PUBLIC POLICY AND DISTRIBUTION DECISIONS

12-24

Dealers rights. Producers are free to select dealers, but are limited in their ability to terminate dealers; they must show cause, and cannot drop dealers who refuse to participate in doubtful legal arrangements Sources of supply. Ethical concerns over supply sources from countries with human rights violations or use the proceeds to fund armed conflict

PUBLIC POLICY AND DISTRIBUTION DECISIONS

12-25

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3. 4.

Explain why companies use distribution channels and discuss the functions that 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

LEARNING GOALS
12-26