Chapter 15 Marketing Channels and Supply Chain Management 15 1 Foundations of the Supply Chain Supply Chain all activities associated with the flow and transformation of products from raw materials through to the end consumer Operations Management the total set of managerial activities used by an organization to transform resource inputs into products service or both Logistics Management involves planning implementing and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption to meet customers needs and wants Supply Management refers to the processes that enable the progress of value from raw material to final consumer and back to redesign and final disposition Supply Chain Management a set of approaches used to integrate the functions of operations management logistics management supply management and marketing channel management so products are produced and distributed in the right quantities to the right locations and at the right time o Includes activities like manufacturing research sales advertising and shipping Supply chain management is critical to fulfilling customer requirements and requires coordination with all areas of the business 15 2 The Role of Marketing Channels in Supply Chains Marketing Channel a group of individuals and organizations that direct the flow of products from producers to customers within the supply chain o The role of a marketing channel is to make products available at the right time and place o Some marketing channels are direct manufacturer customer o Most marketing channels are indirect manufacturer marketing intermediaries in the right quantity customer o Marketing Intermediaries buy goods from manufacturers and resell them downstream ie eBay is an intermediary between internet sellers and buyers Wholesalers and retailers are examples of marketing intermediaries o Managing relationships with supply chain partners is crucial to satisfy customers 15 2A The Significance of Marketing Channels Channels are critical because they determine a product s market presence and buyers accessibility to the product Marketing channel decisions generally entail long term commitments among a variety of firm suppliers logistics providers operations firms etc Marketing channels create four types of utility o Time having products available when the customer wants them o Place making products available in locations where customers wish to purchase them o Possession access to the product to use or to store for future use o Form assembling preparing or refining the product to suite individual customer needs Marketing intermediaries can reduce the costs of exchanges by performing certain services or functions efficiently o Eliminating any one intermediary could raise the final price of a product due to the loss of efficiency even though there would be one less price markup 15 2B Types of Marketing Channels Channel A Dell computers sold straight to consumers from the factory Channel B Large retailers like Walmart and Kmart that buy from producers Channel C Wrigley s chewing gum when there are thousands of retailers Channel D Products intended for mass distribution such as foods Channel E more than half of all business products especially expensive ones use this process Channel F industrial distributors are independent businesses that carry inventories Channel G an agent is an independent businessperson who sells in assigned territories Channel H appropriate when the producer wishes to cover a large geographic area Dual Distribution the use of two or more marketing channels to distribute the same products to the same target market ie Kellogg sells its cereals directly to large retail grocery chains B and food wholesalers that then sell it to retailers C o Can cause dissatisfaction among wholesalers and smaller retailers when they must compete with large retail grocery chains that make direct purchases from manufacturers Strategic Channel Alliance when the products of one organization are distributed through the marketing channels of another The products of the two firms are often similar with respect to target markets or uses but they are not direct competitors ie a brand of bottled water being sold through a marketing channel for soft drinks 15 2C Selecting Marketing Channels Selecting marketing channels can be affected by one or many of the following o Business customers often prefer to deal directly with producers and are more likely to Customer Characteristics buy complex products in bulk quantities Product Attributes o Marketers of complex and expensive products like automobiles will likely employ short channels as will marketers of perishable products ie milk and dairy Types of Organization Competition Environmental Factors o Larger firms may be able to negotiate better deals with vendors or other channels o The success or failure of a competitor s marketing channel may encourage or dissuade an organization from considering a similar approach o Adverse economic conditions might force an organization to use a low cost channel even though customer satisfaction is reduced o Government regulations can also affect channel selection Characteristics of Intermediaries o An intermediary may not offer an appropriate mix of services or may not be promoting the organization s products adequately in which case the organization may choose to drop or switch the intermediary 15 3 Intensity of Market Coverage Marketers must also decide how many outlets should sell its products There are three major levels of market coverage o Intensive Distribution 15 3A Uses all available outlets for distribution of a product Appropriate for convenience products ie gum bread soft drinks etc that have a high replacement rate Sales may have a direct relationship to product availability o Selective Distribution 15 3B Uses only some available outlets in an area to distribute a product Appropriate for shopping products durable goods ie televisions stereos home computers etc that are more expensive Can be used to maintain a particular image of luxury ie perfumes and colognes o Exclusive Distribution 15 3C Uses only one outlet in a relatively large geographic area Suitable for products purchased infrequently consumed over a long period of time or requiring service or information to fit them to the buyer s needs Used for expensive high quality products ie Porsche BMW etc 15 4 Strategic Issues in Marketing Marketing channels require
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