Marketing: Distribution and Supply Chain

Nature and importance of marketing channels:

Marketing channel: the set of individuals or firms involved in the process of making a product available.

Intermediaries: Individuals or firms performing a role in the marketing channel, involved in making a product available.

Functions performed by intermediaries:

–          Transactional function: This is done when they buy and sell goods or services. But they also have risk when they stock merchandise in anticipation of sales.

–          Logistical function: Involves the details of preparing and getting a product to buyers. Gathering, sorting, and dispersing products.

–          Facilitating function: Make a transaction easier for buyers, sears credit card so they can buy now and pay later.

Consumer benefits from intermediaries:

–          Time utility: Refers to having a product or service when you want it. For example, fedex provides next-morning delivery.

–          Place utility: Having a product or service available where consumers want it, such as a gas station on the highway.

–          Form utility: Involves enhancing a product or service to make it more appealing to buyers. (Example, unfinished pcs distributed to dealers who add memory cards)

–          Information utility: Providing consumers with the information they need to make an informed choice, information packed websites

–          Possession utility: Efforts by intermediaries to help buyers take possession of a product or service, such as various ways of paying. (Credit, debit, cash)

Channel structure and organization

Marketing channels for consumer goods and services:

Producer -> Consumer (Direct channel, insurance)

Producer -> Agent -> Wholesaler -> Retailer -> Consumer (Longest channel), also indirect. All channels other than directly from producer to consumer are indirect.

Marketing channels for business goods and services:

Producer -> Industrial user (Direct channel, computer sellers IBM)

Producer -> Agent -> Industrial distributor -> Industrial user (Longest channel), also indirect. All channels other than directly from producer to consumer are indirect.

Electronic marketing channels: Channels that use the Internet to make goods and services available to consumers or business buyers. (Chart is the same as business, Book publisher, book wholesaler, Amazon, consumer)

Dual distribution: Arrangement whereby a firm reaches buyers by using two or more different types of channels for the same basic product. (Hallmark sells its greeting cards through hallmark stores and selects department stores.)

Strategic alliance: One firm’s marketing channel is used to sell another firm’s products. (Kraft foods and star bucks work together, Kraft distributes Starbucks coffee in North American supermarkets and Internationally.)

Multichannel marketing: Blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with customers. (Eddie Bauer, catalogue, website and stores).

Implementing multichannel marketing: Websites can be used in different ways for multichannel marketing.

–          Transactional websites: Electronic storefronts. They focus mainly on converting an online browser into an online, catalogue, or in-store buyer using website design elements. (Frequent by direct sellers such as Gap), Victoria’s secret is also an example as men do not want to be seen buying their merchandise in public therefore they go online.

–          Promotional websites: No actual selling takes place on them, but they showcase products and services and provide information.

Global channel strategy: The availability and quality of retailers and wholesalers as well as transportation, communication, and warehousing facilities are often determined by a country’s economic infrastructure.

Seller -> Sellers International marketing headquarters -> Channels between nations -> channels within foreign nations -> Final consumer

Vertical marketing systems: Professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. This is the combination of successive stages of production and distribution.

Corporate systems: Combination of successive stages of production and distribution under a single ownership is a corporate vertical marketing system. (A producer might own the intermediary at the next level down in the channel).

Contractual systems: Independent production and distribution firms combine their efforts on a contractual basis to obtain greater functional economics and marketing impact than they could achieve alone. 3 different contractual systems:

–          Wholesaler-sponsored voluntary chains: a wholesaler that develops a contractual relationship with small, independent retailers (IGA).

–          Retailed sponsored cooperatives: Small, independent retailers form an organization that operates a wholesale facility cooperatively (Home hardware).

–          Franchising: Arrangement between a parent company (franchiser) and an individual or firm (a franchise) that allows the franchisee to operate a certain type of business under an established name and according to specific rules. Types of franchises are;

• Manufacturer-sponsored retail franchise systems: Prominent in the automobile industry where a manufacturer such as ford licenses dealers to sell its car subject to various sales and service conditions.
• Manufacturer sponsored wholesale franchise systems: Appear in the 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.
• Retail franchise systems: Provided by firms that have designed a unique approach for selling merchandise to consumers. Canadian tire represents this franchising approach.
• Service franchise systems: Exist when franchisers license individuals or firms to dispense a service under a trade name and specific guidelines. An example is H&R block tax services.

Administered systems: Achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership. Example: Wal-Mart can obtain cooperation from manufacturers in terms of product specifications, price levels…

Channel choice and management

Factors in choosing a marketing channel:

• Which channel and intermediaries will beat reach the target market?
• Which channel and intermediaries will best serve the needs of the target market?
• Which channel and intermediaries will lead to the most cost-efficient and profitable results?

1. Target market coverage: Achieving the best coverage of the target market requires attention to the density; the number of stores in a certain area and type of intermediaries to be used at the retail level of distribution. There are 3 levels of distribution:

–          Intensive distributions: The firm tries to place its products and services in as many outlets as possible. Usually chosen for convenience products like candy.

–          Exclusive distribution: Opposite of intensive, only one retail outlet in a specific geographical area carries the products. Products like specialty automobiles.

–          Selective distribution: Lies between the two extremes. A firm selects a few retail outlets in a specific geographical area to carry its products. Items such as clothing, Samsung TVs.

2. Satisfying buyer requirements: Gaining access to channels and intermediaries that satisfy at least some of the interests buyers might have when they purchase a firms products or services. Requirements are:

–          Information: Properly chosen intermediaries communicate with buyers through in-store displays, demonstrations, personal selling. Apple for example has opened its own stores with highly trained professionals.

–          Convenience: Proximity or driving time, operation hours, minimum time and hassle. Jiffy Lube, which promise to change oil quickly, is an example.

–          Variety: This reflects buyers interest in having numerous competing a complementary items from which to choose. Example of this is Petcetera.

–          Services: Important buying requirement for products such as large household appliances that require delivery and installation.

Channel relationships: Conflict and cooperation

Conflicts in marketing channels: Conflicts arise when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. There are two types of conflicts:

• Vertical conflict: Occurs between different levels in a marketing channel. For example, between manufacturer and wholesaler. The main conflict arises when a channel member bypasses another member and sells or buys products direct, a practice called disintermediation. Another conflict occurs when there are disagreements over how profits are distributed among channel members. Another conflict situation arises when manufacturers believe wholesalers or retailers are not giving their products adequate attention.
• Horizontal conflict: Occurs between intermediaries at the same level in a marketing channel, such as between two or more retailers. For instance, when they disagree on who can stock what.

Cooperation in marketing channels: Conflicts can have disruptive effects, therefore it is necessary to secure cooperation among channel members. One way is through a channel captain, who coordinates, directs, and supports other channel members. Wal-mart is a retail channel captain because of their strong consumer image, a number of outlets, and purchasing volume.

Logistics and supply chain management:

Logistics: Activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost.

Supply chain: Sequence of firms that perform activities required to create and deliver a product to consumers or industrial users. A supply chain is longer than a marketing channel.

Supply chain management: Integration and organization of information and logistics activities across firms in a supply chain for the purpose of creating and delivering goods and services that provide value to consumers.

Aligning a supply chain with marketing strategy:

• Understand the customer.
• Understand the supply chain
• Harmonize the supply chain with the marketing strategy

Two concepts of logistics management in a supply chain

Total logistics cost: Expenses associated with transportation, materials handling and warehousing, inventory, stock outs, order processing, and return goods handling.

Customer service: Ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience.