Channels of Distribution PLACE 04 14 2014 Marketing Channel Management Supply Chain Management A set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers manufacturers warehouses stores and transportation intermediaries into a seamless operation in which merchandise is produced and distributed in the right quantities to the right locations and at the right time as well as to minimize systemwide costs while satisfying the service levels their customers require THE IMPORTANCE OF MARKETING CHANNEL SUPPLY CHAIN MANAGEMENT Wholesalers Buy from manufacturers sell to retailers Marketing Channels Add Value As transactions are limited the supply chain becomes more efficient which adds value to the customers making it more convenient and less expensive to purchase the merchandise o 3 manufacturers selling to 3 different customers creates 9 different transactions o 3 manufacturers selling to 1 retailer which then sells to 3 customers creates only 6 transactions Marketing Channel Management Affects Other Aspects of Marketing Distribution Center A facility for the receipt storage and redistribution of goods to company stores or customers may be operated by retailers manufacturers or distribution specialists Lose credibility with customers when you promise deliveries or run a promotion and then do not have the merchandise when the New small companies have a hard time choosing from whom it customer expects it DESIGNING MARKETING CHANNELS buys or to whom it sells Direct Marketing Channel seller Direct Marketing Channel No intermediaries between the buyer and the Seller is the manufacturer carpentry business sells bookcases through its store knitter sells blankets and scarves on eBay C2C Boeing sells planes to JetBlue B2B Indirect Marketing Channel Indirect Marketing Channel One or more intermediaries work with manufacturers to provided goods and service to customers can be only 1 Wholesalers are more common when the company does not buy in sufficient quantities to make it cost effective for the manufacturers to deal directly with them independent book sellers wine merchants or independent drug stores Wholesalers are more common in less developed economies where large retailers are rare MANAGING THE MARKETING CHANNEL AND SUPPLY CHAIN Vertical Channel Conflict Discord When supply chain members that buy and sell to one another are not in agreement about their goals roles or rewards Stanley tools wants Home depot to only sell their tools but Home depot wants to sell a variety of brands Horizontal Channel Conflict Disagreement or discord among members at the same level of marketing channel Two competing retailers or two competing manufacturers Home Depot and Lowes have a price ware with Stanley Tools o HD and L lower the tools prices as a result HD and L may pressure Stanley to lower its price to help recover lost profits from the lowered price they are offering in their stores o Other stores may avoid Stanley because they can t compete with the low prices of the price war Managing the Marketing Channel and Supply Chain through Vertical Marketing Systems Conflict is more pronounced when channel member are independent entities Conflict is less in marketing channels that are closely aligned by contract or ownership and share common goals Conventional Marketing Channel Independent Several independent members manufacturer wholesaler retailer all attempt to satisfy their own objectives and maximize profits often at the expense of the other members Vertical Marketing System Marketing channel in which member act as a unified system power Administered No common ownership or contractual relationships but the dominant channel member controls holds the o Power When one firm has the means or ability to dictate the actions of another member at a different level of distribution Reward Power Dominant member offers a monetary incentive for the other member to do what it wants it to do Coercive Power Dominant member threatens to punish punishes the other channel member for not undertaking certain tasks dominant company pays other member late for not delivering on time Referent Power Dominant member has power over other member if the supplier desperately wants to be associated with the Dominant Member because it will attract other retailers business Expertise Power Dominant member relies on its expertise in marketing Information Power Dominant member has vast information about the product s industry and can either provide or withhold such important market information Legitimate Power Getting the smaller firm to act a certain way because of a contractual agreement between the two firms EX Walmart and PenAgain Contractual Formalizing a relationship by entering into contracts that dictate various terms such as how much one member will by from the other and at what price also penalties for late deliveries o Independent firms at different levels of the marketing channel join together through contracts to obtain economies of scale and coordination to reduce conflict o Franchising A contractual agreement between the franchisor and a franchisee Corporate The parent company has complete control and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel such as manufacturing plants warehouse facilities and retail outlets o Potential conflict is limited o American Apparel Managing Marketing Channels and Supply Chains through Strategic Relationships Strategic Partnering Relationship Marketing channel members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial Significant incentives in Conventional and Administered channels REQUIRES Mutual Trust Belief that a partner is honest reliable stands by its word and benevolent concerned about the other party s welfare o Monitoring supply chain members is important when suppliers are located in less developed countries Open Communication Share informant develop sales forecasts together and coordinate deliveries o Helps them understand what is driving each other s business their roles each firm s strategies and any problems that may Common Goals Shared goals give members and incentive to pool their strengths and abilities and exploit potential opportunities arise together Interdependence When supply chain members view their goals and ultimate success as intricately linked they develop deeper long term