Supply Chain and Channel Management The Importance of Marketing Channel Supply Chain Management Firms that buy products from manufacturers and resell them to retailers o Wholesalers o Retailers Sell products directly to consumers o Marketing Channels Add Value Each participant in the channel adds value to the product Each transaction costs money As transactions are eliminated the channel and supply chain becomes o Marketing Channel Management Affects Other Aspects of Marketing Every marketing decision is affected by and has an effect on marketing more efficient channels Distribution Center Facility for the receipt storage and redistribution of goods to company stores of customers May be operated by retailers manufacturers or distribution specialists Designing Marketing Channels o Direct Marketing Channel No intermediaries between the buyer and the seller Typically seller is a manufacturer Carpentry business sells bookcases through its own store o Indirect Marketing Channel One or more intermediaries work with manufacturers to provide goods and services to customers Managing the Marketing Channel and Supply Chain o Each member of the marketing channel performs a specialized role o Vertical Channel Conflict Discord Results When supply chain members that buy and sell to one another are not in agreement about their goals roles or rewards Avoiding requires open honest communication o Horizontal Channel Conflict Occurs when there is a disagreement or discord among members at the same levels of marketing o Managing the Marketing Channel and Supply Chain Through Vertical Marketing Systems Conflict more likely when the channel members are independent entities Independent Marketing Channel Conventional Marketing Channel o Several independent members each attempts to satisfy its own objectives and maximize its profits Vertical Marketing System o Marketing channel in which members act as a unified system o Three types Administered No common ownership or contractual relationship Power o One firm has the means or ability to dictate the actions of another member at a different level o Reward Power Company offers rewards if the other company does what it wants o Coercive Power Company threatens to punish the other channel o Referent Power Supplier desperately wants to be associated with company o Expertise power Company relies on its expertise with marketing o Information Power Company provides or withholds important market information o Legitimate Power Getting a channel member to behave in a certain way because of a contractual agreement Contractual Independent firms at different levels join together through contracts to obtain economies of scale and coordination to reduce conflict Franchising o Franchisee pays a lump sum plus a royalty on all sales return in return for the right to operate the outlet Corporate Parent company has complete control and can dictate priorities and objectives o Managing Marketing Channels and Supply Chains through Strategic Relationships Strategic or Partnering Relationship The marketing channel members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial Mutual Trust Holds a strategic relationship together Less need for the supply chain members to constantly monitor Open Communication Common Goals Key to developing successful relationships Shared goals give both members an inventive to pool their strengths and abilities and exploit potential opportunities Supply chain members view their goals and ultimate success as Interdependence intricately linked Credible Commitments Marketing Information Flow Through Marketing Channels Both parties make credible commitments to the relationship o Flow 1 Customer to Store o Flow 2 Store to Buyer Sales associates scans the Universal Product Code UPC The point of sale terminal records the purchase information and electronically sends it to the buyer at corporate office The purchase information from each store is typically aggregated by the o Flow 3 Buyer to Manufacturer retailer as a whole o Flow 4 Store to Manufacturer Sales transaction data are sent directly from the store to the manufacturer and the manufacturer decides when to ship merchandise to the distribution centers o Flow 5 Store to Distribution Center Stores communicate with distribution center to coordinate deliveries and check inventory status o Flow 6 Manufacturer to Distribution Center and Buyer When manufacturer ships to distribution center it sends an advanced chipping note to the distribution center Purchase data collected at the point of sale goes into a huge database Computer to computer exchange of business documents from a retailer to o Data Warehouse o Electronic Data Interchange a vendor and back o Vendor Managed Inventory An approach for improving marketing channel efficiency in which the manufacturer is responsible for maintaining the retailer s inventory levels in each of its store Consignment Manufacturer owns the merchandise until it is sold by the retailer o Push versus Pull Marketing Channels Push marketing strategy Allocated to stores based on previous sales forecasts Manufacturer works with wholesalers and retailers to get the products on the shelf by providing incentives Pull Marketing Strategy The amount of merchandise sent to the store is determined based on sales data captured by POS terminals Customers pull the product into the marketing channel by demanding it Less likely to be overstocked or out of stock More costly and sophisticated information system Making Merchandise Flow Through Marketing Channels o Distribution Center vs Direct Store Delivery Advantages of Distribution Center More accurate sales forecast Enable retailer to carry less merchandise Easier to avoid running out of stock or having too much stock Retail store space more expensive Disadvantages If a retailer has a few outlets expense of a distribution center is unwarranted Slower delivery o Distribution Center Management of Inbound Transportation Receiving and Checking Using UPC and Radio Frequency Identification Storing and Cross Docking Getting Merchandise Floor Ready Preparing to Ship Merchandise to a Store Shipping Merchandise to Stores Retailing and Multichannel Marketing Retailing of their personal or family use Choosing Retailing Partners o Channel Structure o Set of business activities that add value to product and services sold to consumers The level of difficulty a manufacturer experiences in
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