Marketing Channels Delivering Customer Value Chapter 10

Marketing Channels Delivering Customer Value Chapter 10

Rest Stop: Previewing the Concepts 1. Explain why companies use marketing channels 2. 3. 4. 5. and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and integrated supply chain management. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 2

First Stop Enterprise Leaves Competitors in the Dust! Competitive Market Background: Hertz and Avis were historically #1 and #2 in car rental market. In the late 1990’s Enterprise became #1 in revenues, profits, locations and cars, and is currently 50% larger than Hertz. How Did They Do It? Enterprise catered to the “home-city” market via rental sites in neighborhood areas. Enterprise’s offer to pick customers up at repair shops, accident sites, etc., became the theme of its value proposition. Growth at Enterprise Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall Tapping New Markets: Enterprise expanded distribution to the airport market, and acquired Vanguard Car Rental group in 2007. More recently, Enterprise has ventured into the “car-sharing” and hourly rental market, called “WeCar,” in densely populated areas where many don’t own vehicles. Customer Satisfaction is Key: Enterprise uses the ESQi (Enterprise Service Quality index) to measure satisfaction; managers aren’t promoted unless customers are satisfied. 10- 3

Supply Chains and the Value Delivery Network Producing and making products available to buyers requires building relationships with “upstream” and “downstream” supply chain partners. Upstream: Firms that supply the raw materials, components, parts, and other elements necessary to create a good. Downstream: Marketing channel partners that link the firm to the customer. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 4

Supply Chains and the Value Delivery Network Value delivery network: The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system in delivering customer value. Marketing channels represent the downstream side of the value delivery network. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 5

Nature and Importance of Marketing Channels Marketing channel: A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business users. Channel decisions affect other marketing decisions. Channel decisions can lead to competitive advantage. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 6

Nature and Importance of Marketing Channels How channel members add value: The use of intermediaries results from their greater efficiency in making goods available to target markets. Channel members offer the firm more than it can achieve on its own in terms of: Contacts. Experience. Specialization. Scale of operation. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 7

Nature and Importance of Marketing Channels Key functions performed by channel members: Transaction completion: Transaction fulfillment: Information Physical Promotion distribution Financing Risk taking Contact Matching Negotiation Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 8

Nature and Importance of Marketing Channels Number of channel levels: The number of intermediary levels indicates the length of a channel. Direct marketing channels – Have no intermediary levels between the manufacturer and the customer. Indirect marketing channels – Contains one or more intermediaries. All channel institutions are connected by several types of flows. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 9

Channel Behavior and Organization The channel will be most effective when: Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals. If this does not happen, channel conflict occurs: Horizontal conflict occurs among firms at the same level of the channel (e.g., retailer to retailer). Vertical conflict occurs between different levels of the same channel (e.g., wholesaler to retailer). Some conflict can be healthy competition. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 10

Channel Behavior and Organization Conventional distribution channel: Consists of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole. Vertical marketing system (VMS): A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the other, has contracts with them, or has so much power that they all cooperate. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 11

Channel Behavior and Organization Types of vertical marketing systems: Corporate VMS. Contractual VMS. Franchise organization. Administered VMS. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 12

Channel Behavior and Organization Corporate VMS: Vertical marketing system that combines successive stages of production and distribution under single ownership. Channel leadership is established via common ownership. Contractual VMS: Vertical marketing system in which independent firms at different levels of production/distribution join together through contracts to obtain more economies of scale than they could alone. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 13

Channel Behavior and Organization Franchise organizations are a common form of contractual vertical marketing system in which a franchisor links several stages in the product-distribution process. Types of franchise organizations: Manufacturer-sponsored retailer franchise. Manufacturer-sponsored wholesaler franchise. Service-firm sponsored retailer franchise. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 14

Channel Behavior and Organization Horizontal marketing systems: Two or more companies at one level join together to follow a new marketing opportunity. Multichannel distribution system: Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. Also called hybrid marketing channel system. Offers many advantages. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 15

Channel Behavior and Organization Changing channel organization: Disintermediation occurs when product and service producers cut out traditional intermediaries or displace resellers with radical new types of intermediaries. Example: Airline firms sell tickets directly to consumers via the Internet. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 16

Channel Behavior and Organization Changing channel organization: Disintermediation presents both problems and opportunities for both producers and resellers. Resellers and intermediaries must innovate to survive. Producers must seek additional direct channels to remain competitive, though channel conflict often results. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 17

Channel Design Decisions Firms often struggle between what is ideal and what is practical. Marketing channel design: Designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major alternatives, and evaluating them. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 18

Channel Design Decisions Analyzing consumer needs: Do consumers want to buy from nearby locations or are they willing to travel? Do they want to buy-in person, by phone, or online? Do they value breadth of assortment or do they prefer specialization? Do consumers want many add-on services? Firm must balance needs against costs and consumer price preferences. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 19

Channel Design Decisions Setting channel objectives: Objectives are stated in terms of targeted levels of customer service. Channel objectives are influenced by: Cost of customer-service requirements. Nature of the company. The firm’s products. Marketing intermediaries. Competitors. Environment. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 20

Channel Design Decisions Identifying major alternatives: Types of intermediaries: Retailers, “value-added” retailers, independent distributors, dealers, etc. Number of marketing intermediaries: Intensive, selective, or exclusive distribution. Responsibilities of channel members: Price policies, conditions of sale, territories and services to be performed. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 21

Channel Design Decisions Evaluating the major alternatives involves comparing each alternative to: Economic criteria: A company compares the likely sales, costs, and profitability of different channel alternatives. Control issues: How and to whom should control be given? Adaptive criteria: Consideration of long-term channel commitment vs. channel flexibility. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 22

Designing International Channels Channel design decisions can be very challenging: Each country has its own unique distribution system. Distribution systems can be complex with many layers and a large number of intermediaries. Distribution systems in developing countries may be scattered or inefficient. Customs and government regulation can restrict distribution in global markets. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 23

Channel Management Decisions Marketing channel management: Selecting channel members. Managing and motivating channel members: Partner relationship management. Evaluating channel members. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 24

Public Policy and Distribution Decisions Laws affecting channel decisions seek to prevent the exclusionary tactics that some firms might use to keep another from using a desired channel. Situations with the potential to violate Clayton Act include: Exclusive distribution. Exclusive dealing. Exclusive territorial agreements. Tying agreements. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 25

Marketing Logistics and Supply Chain Management Marketing logistics (physical distribution): Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. Involves supply chain management: Outbound distribution. Inbound distribution. Reverse distribution. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 26

Marketing Logistics and Supply Chain Management Greater emphasis has been placed on logistics recently because: Firms can gain a competitive advantage when logistics result in better service or lower prices. Improved logistics can lower costs. Increased product variety has created a need for improved logistics management. Improvements in information technology have created the means for major gains in distribution efficiency. Logistics affect the environment as well as the firm’s environmental sustainability efforts. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 27

Marketing Logistics and Supply Chain Management Goals of the logistics system: Deliver a targeted level of customer service at the least cost. Major logistics functions: Warehousing. Inventory management. Transportation. Logistics information management. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 28

Marketing Logistics and Supply Chain Management Warehousing: Inventory How many, what types, and where? Storage warehouses Distribution centers Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall management: Balance between too much and too little inventory Just-in-time logistics systems RFID or “smart tag” technology 10- 29

Marketing Logistics and Supply Chain Management Transportation alternatives: Trucks Railroads Water carriers Pipelines Air carriers Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall Internet Intermodal transportation Piggyback, fishyback, trainship, airtruck 10- 30

Integrated Logistics Management Integrated logistics management: The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. Requires: Cross-functional teamwork inside the company. Building logistics partnerships. Outsourcing to third-party logistics providers. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 31

Rest Stop: Reviewing the Concepts 1. 2. 3. 4. 5. Explain why companies use marketing channels and discuss the functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Explain how companies select, motivate, and evaluate channel members. Discuss the nature and importance of marketing logistics and integrated supply chain management. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 10- 32