13

CHAPTER

MarketingChannelsand
SupplyChainManagement
Chapter Objectives
1 Describethetypesof
marketingchannelsand
therolestheyplayin
marketingstrategy.

4 Identifyanddescribethe 7 Comparethemajor
differentvertical
modesoftransportation.
marketingsystems.

5 Explaintherolesof
8
Discusstheroleof
Outlinethemajorchannel
logisticsandsupplychain
transportation
2 strategydecisions.
managementinanoverall
intermediaries,combined
distributionstrategy.
Describetheconceptsof
transportationmodes,and
warehousingin
3 channelmanagement,
conflict,andcooperation. 6
improvingphysical
Identifythemajor
distribution.
componentsofaphysical
distributionsystem.

CHAPTER 13 Marketing Channels and Supply Chain Management

DistributionMovementofgoodsandservices
fromproducerstocustomers.
Marketing(distribution)channelSystemof
marketinginstitutionsthatenhancesthephysical
flowofgoodsandservices,alongwithownership
title,fromproducertoconsumerorbusinessuser.
LogisticsProcessofcoordinatingtheflowof
information,goods,andservicesamongmembers
ofthedistributionchannel.
SupplychainmanagementControloftheactivitiesofpurchasing,
processing,anddeliverythroughwhichrawmaterialsaretransformedinto
productsandmadeavailabletofinalconsumers.
PhysicaldistributionBroadrangeofactivitiesaimedatefficient
movementoffinishedgoodsfromtheendoftheproductionlinetothe
consumer.

CHAPTER 13 Marketing Channels and Supply Chain Management

THE ROLE OF MARKETING CHANNELS

IN MARKETING STRATEGY
Marketingchannelsarekeybecausetheyarethemeansofmakinggoods
andservicesavailabletoultimateusers.
Fourfunctionsofmarketingchannels:
Channelsfacilitatetheexchangeprocessbyreducingthenumber
ofmarketplacecontactsnecessarytomakeasale.
Distributorsadjustfordiscrepanciesinthemarketsassortment
ofgoodsandservicesviasorting,channelingproductstomeetthe
buyersandproducersneeds.
Channelmemberstendtostandardizepaymentterms,delivery
schedules,prices,purchaselots,andotherconditions.
Channelsfacilitatesearchesbybothbuyersandsellersandbring
themtogethertocompletetheexchangeprocess.

CHAPTER 13 Marketing Channels and Supply Chain Management

TYPES OF MARKETING CHANNELS

Mostchanneloptionsinvolveatleastonemarketingintermediary,an
organizationthatoperatesbetweenproducersandconsumersorbusiness
users.
Aretailerownedandoperatedbysomeoneotherthanthe
manufactureroftheproductsitsells.
Awholesalerwhotakestitletothegoodsithandlesandthen
distributesthesegoodstoretailers,otherdistributors,orsometimes
endconsumers.
Servicefirmsmarketprimarilythroughshortchannelsbecausetheysell
intangibleproductsandneedtomaintainpersonalrelationshipswithintheir
channels.

CHAPTER 13 Marketing Channels and Supply Chain Management

DIRECTSELLING
Directchannelcarriesgoodsdirectlyfromaproducertothebusiness
purchaserorultimateuser.
Directsellingamarketingstrategyinwhichaproducerestablishesdirect
salescontactwithitsproductsfinalusers.
Internetanddirectmailarealsopotentiallyimportanttoolsfordirect
selling.

CHANNELSUSINGMARKETINGINTERMEDIARIES
Forsomeproducts,usingintermediariesmaybemoreefficient,less
expensive,andlesstimeconsuming.

CHAPTER 13 Marketing Channels and Supply Chain Management

DUALDISTRIBUTION
Movementofproductsthroughmorethanonechanneltoreachthefirms
targetmarket.
Usedtomaximizethefirmscoverageinthemarketplaceortoincreasethe
costeffectivenessofthefirmsmarketingeffort.

REVERSECHANNELS
Channelsdesignedtoreturngoodstotheirproducers.
Growingimportancebecauseofrisingpricesforrawmaterials,increasing
availabilityofrecyclingfacilities,andpassageofadditionalantipollution
andconservationlaws.
Alsousedforrecallsandrepairs.

CHAPTER 13 Marketing Channels and Supply Chain Management

CHANNEL STRATEGY DECISIONS

SELECTIONOFAMARKETINGCHANNEL
Multiplefactorsaffectselectionofamarketingchannel.
MarketFactors
ProductFactors
OrganizationalFactors
CompetitiveFactors

CHAPTER 13 Marketing Channels and Supply Chain Management

DETERMININGDISTRIBUTIONINTENSITY
IntensivedistributionDistributionofaproductthroughallavailable
channels.
SelectivedistributionDistributionofaproductthroughalimitednumber
ofchannels.
ExclusivedistributionDistributionofaproductthroughasingle
wholesalerorretailerinaspecificgeographicregion.
Restrictionsareillegaliftheyreducecompetitionorcreateamonopoly.

WHOSHOULDPERFORMCHANNELFUNCTIONS?
Intermediarymustprovidebetterserviceatlowercoststhanmanufacturers
orretailerscanprovideforthemselves.
Consolidationofchannelfunctionscanrepresentastrategicopportunity
foracompany.

CHAPTER 13 Marketing Channels and Supply Chain Management

CHANNEL MANAGEMENT AND LEADERSHIP

Marketershaverelationshipswithintermediariesindistributionchannels.
ChannelcaptainDominantandcontrollingmemberofamarketing
channel.

CHANNELCONFLICT
Horizontalconflictdisagreementsamongchannelmembersatthesame
level,suchastwocompetingdiscountstores.
Verticalconflictoccursamongmembersatdifferentlevelsofthechannel.
Thegraymarketgoodsproducedforoverseasmarketsthatreenterthe
U.S.marketandcompeteagainstdomesticversions.

ACHIEVINGCHANNELCOOPERATION
Bestachievedwhenallmembersofchannelseethemselvesasequal
components;channelcaptainshouldprovidethisleadership.

CHAPTER 13 Marketing Channels and Supply Chain Management

VERTICAL MARKETING SYSTEMS

Verticalmarketingsystem(VMS)Plannedchannelsystemdesignedto
improvedistributionefficiencyandcosteffectivenessbyintegratingvarious
functionsthroughoutthedistributionchannel.

CORPORATEANDADMINISTEREDSYSTEMS
Corporatemarketingsystemsingleownerrunsorganizationsateach
stageofthemarketingchannel.
Administeredmarketingsystemdominantchannelmemberexercises
powertoachievechannelcoordination.

CONTRACTUALSYSTEMS
Contractualmarketingsystemcoordinatesdistributionthroughformal
agreementsamongchannelmembers.
Includewholesalersponsoredvoluntarychains,retailcooperatives,and
franchises.

CHAPTER 13 Marketing Channels and Supply Chain Management

LOGISTICS AND SUPPLY CHAIN MANAGEMENT

SupplychainCompletesequenceofsuppliersandactivitiesthat
contributetothecreationanddeliveryofmerchandise.
Takesplaceintwodirections:upstreamanddownstream.

CHAPTER 13 Marketing Channels and Supply Chain Management

RADIOFREQUENCYIDENTIFICATION(RFID)
Radiofrequencyidentification(RFID)Technologythatusesatinychip
withidentificationinformationthatcanbereadbyascannerusingradio
wavesfromadistance.

ENTERPRISERESOURCEPLANNING
Softwaresystemthatconsolidatesdatafromamongthefirmsunits.
TwothirdsofERPsystemusersaremanufacturersconcernedwith
productionissuessuchassequencingandscheduling.

LOGISTICALCOSTCONTROL
Distributionfunctionaccountforhalfofatypicalfirmsmarketingcosts.
Thirdpartylogistics(3PL)firmsspecializeinhandlinglogisticalactivity.

CHAPTER 13 Marketing Channels and Supply Chain Management

PHYSICAL DISTRIBUTION
THEPROBLEMOFSUBOPTIMIZATION
Resultswhenthemanagersofindividualphysicaldistributionfunctions
attempttominimizecosts,buttheimpactofonetaskontheothersleadsto
lessthanoptimalresults.

CUSTOMERSERVICESTANDARDS
Stategoalsanddefineacceptableperformanceforthequalityofservice
thatafirmexpectstodelivertoitscustomers.
Afterthesestandardsaredefined,designersassembleotherphysical
distributioncomponentstomeetthesestandards.

CHAPTER 13 Marketing Channels and Supply Chain Management

TRANSPORTATION
82percentofU.S.commoditiesrelyentirelyontruckingfordelivery.
Transportationanddeliveryaddapproximately10percenttoproduct
costs.
Classesofcarriersincludecommoncarriers,contractcarriers,andprivate
carriers.
Majortransportationmodesincluderailroads,motorcarriers,water
carriers,pipelines,andairfreight.
IntermodaloperationsCombinationoftransportmodessuchasrailand
highwaycarriers(piggyback),airandhighwaycarriers(birdyback),and
waterandaircarriers(fishyback)toimprovecustomerserviceandachieve
costadvantages.
Freightforwardersandsupplementalcarriersconsolidateshipmentsto
gainlowerratesandfasterdeliveryservicefortheircustomers.

CHAPTER 13 Marketing Channels and Supply Chain Management

WAREHOUSING
Storagewarehouseholdsgoodsformoderatetolongperiodsinan
attempttobalancesupplyanddemandforproducersandpurchasers.
Distributionwarehouseassemblesandredistributesgoods,keepingthem
movingasmuchaspossible.
Automatedwarehousetechnologycancutdistributioncostsandimprove
customerservice.
Warehouselocationsareinfluencedbywarehouseandmaterialshandling
costsanddeliverycostsfromwarehousestocustomers.

INVENTORYCONTROLSYSTEMS
Companiesmustbalancecustomerdemandwithcostsofcarryingexcess
inventory.
Firmsusejustintimedeliverysystems,RFIDtechnologyorvendor
managedinventorytohelpmanagecosts.

CHAPTER 13 Marketing Channels and Supply Chain Management

ORDERPROCESSING
Directlyaffectsfirmsabilitytomeetcustomerservicestandards.
Includesfourmajoractivities:
Conductingacreditcheck.
Keepingarecordofthesale.
Makingappropriateaccountingentries.
Locatingorders,shippingthem,andadjustinginventoryrecords.

PROTECTIVEPACKAGINGANDMATERIALS
HANDLING
Materialshandlingsystemactivitiesformovingproductswithinplants,
warehouses,andtransportationterminals.
Unitizingcombiningasmanypackagesaspossibleintoeach
loadthatmoveswithinoroutsideafacility.
Containerizingcombiningseveralunitizedloads.