Channels Can Create Efficiency V1 V2 V3 V4 C1 C2 C3 C4 C1 C2 C3 C4 V1 V2 V3 V4 RS Direct: V x C...
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Transcript of Channels Can Create Efficiency V1 V2 V3 V4 C1 C2 C3 C4 C1 C2 C3 C4 V1 V2 V3 V4 RS Direct: V x C...
Ch. 14: Channel Relationships and Supply
Chains
Channels Can Create Efficiency
V1
V2
V3
V4
C1
C2
C3
C4
C1
C2
C3
C4
V1
V2
V3
V4
RS
Direct: V x C transactions
Via Reseller: V + C transactions
V = Vendors; C=Customers; RS=Reseller
Rationale for Channel Design
Marketing Channels & Economic Utility
Form Time Place Possession
Marketing Channels & Economic Utility:
Form
The usable quantity or mode of the product most preferred by the customer
Marketing Channels & Economic Utility:
Time
The availability of the product when the customer needs it
Marketing Channels & Economic Utility:
Place
“Locational Convenience,” the availability of the product where the customer needs it
Marketing Channels & Economic Utility:
Possession
Methodology by which the customer obtains ownership or the right to use of the product or service
Marketing Channel Flows Supplier to Customer
Manufacturers/Suppliers
End Users
Distributors
Manufacturers’ Representative
s
Direct Sellers
Missionary Sellers/Fiel
d Marketing
Sales and Marketing Flows
Product & Ownership
Flows
Install, Train, & Service Flows
Value-added Resellers
Specialized Installation &
Service Providers
Ancillary Members of the Channel (Facilitating
Agencies)
Transportation
Insurance
Promotion
Financing
Real estate/ Storage
This Exhibit is not intended to imply that all channels contain all flows shown or that all possible flows are shown here .
Exhibit 14-2a
Manufacturers/Suppliers
End Users
Distributors
Manufacturers’ Representative
s
Direct Sellers
Missionary Sellers/Field Marketing
Value-added Resellers
Specialized Installation &
Service Providers
This Exhibit is not intended to imply that all channels contain all flows shown or that all possible flows are shown here.
Customer and Market Information Flows
Payment Flows
Financial Institutions
Marketing Channel Flows Customer to Supplier Exhibit 14-2b
“Backward” Vertical Integration
Henry Ford developed his own iron ore mining operation, steel mills, glass factories, tire manufacturing, and so on
“Forward” Vertical Integration
Apple owns its own retail channels
Vertical Integration
Advantages
Economies of Scale
Complete Control Reliability and
Availability
Disadvantages
Lack of Flexibility Significant
Investment Slow to Innovate
(Myopia)
Functional Spin-Off
Alternative to Vertical Integration
Ancillary services are provided most efficiently by experts in each service› a basic application of the principle
of division of labor
A Value Network
SUPPLY CHAIN
MARKETING/DISTRIBUTION
CHANNEL
SUPPLIERCUSTOMER
OFFERING
SUPPLIER PARTNERS
Exhibit 14-5
Value Networks
“Fast Vertical Integration” create a lot of the advantages without the disadvantageso Greater flexibilityo Lower initial investmento Fast response to market
Distributors Serve Buyers and Sellers
Seller Benefits
Buy and hold inventory.
Combine supplier outputs (reduce discrepancy of assortment).
Share credit risk.
Share selling risk.
Forecast market needs.
Provide market information.
Buyer Benefits Provide fast delivery.
Provide market segment-based product assortment.
Provide local credit.
Provide product information.
Assist in buying decisions.
Anticipate needs.
Exhibit 14-4
Business Logistics
The management of movement, sorting, and storage of goods an important tactical function
Supply Chain Management
Creation of value for customers through effective and efficient flow of materials, components, finished goods, and services
Extends from raw materials through to end use customers
Physical Distribution Concept
System design aimed at minimizing costs while maintaining a given level of customer service through the simultaneous management of three elements Inventory Transportation Warehousing
Physical Distribution Concept: Inventory Management
Often largest cost associated with logistics system
Inventory implies carrying and finance charges and costs of storage and creating assortment
Tools to manage include, JIT inventory and manufacturing methods and facility location, and so on
Lower inventory quantities lead to lower costs but can result in more costly transportation needs and/or stockouts
Physical Distribution Concept: Transportation
Tradeoff of speed versus cost Slower transportation implies
larger safety stocks If transportation costs are
minimized with out regard necessary inventory levels, carrying costs increase
Physical Distribution Concept: Warehousing
Two primary functions of warehousing
Product flow/movement (associated with the creation of assortment) (Distribution Centers)
Product storage (Warehouses)
Logistics of a Competitive Edge
As technology and product advantages become more fleeting, efficient supply chains have become a competitive advantage
Best designs match “the way a customer buys” in that the marketing channel is differentially invisible to the customer
Differentially Invisible
Customer should not be required to adapt to the vendor o The process should be invisible
Channel Design – Dual Distribution
Different market segments require different channel design
Manufacturer
Multi-brand Distributor
Logistics Provider
Large Customer –
Direct Channel
Integrated Retailers
Independent Retailers
Auto Manufacturers – GM, Ford, Honda,
etc.
Goodyear Sponsored/
Franchised Dealers
Sears, Wheel
Works, etc.
Example: Goodyear Tires
Goodyear may or may not use the
same distributor/logistics
provider as the independent stores.
Channel Design – Multi-Distribution
Customers within a segment with similar needs will expect locational convenience
Manufacturer
Dealer/Retaile
r
Example: Honda Automobiles
Dealer/Retaile
r
Dealer/Retaile
r
Dealer/Retaile
rNumber of dealers with same channel design
relates to the desired intensity of distribution.
Channel DesignReduce the Discrepancy of
Assortment
Channels convert manufacturers’ product lines to product assortments desired by particular market segments
When to Use DistributorsFavoring
• Product requires local stock.• Product line is small, unable to support direct sales.• Product is somewhat generic.• Product has low unit value.• Product is near end of PLC.• Customers are widely dispersed.• Local repackaging, sizing, or fabrication is required.• Market has many small-volume buyers.• Product requires extensive sales effort directed at buying
professionals.• Start-up venture or established company is entering a new
market.• Competition Uses distributors.• Customers prefer distributors.
Not Favoring• Product is highly customized. • Product is new or innovative.• Product is technically sophisticated.• Significant missionary selling is required.• Manufacturer requires control over product application.• Large buyers are geographically concentrated.
Exhibit 14-6
Selecting and Caring for Distributors
Determine right distributor for your marketing plan
Ask customers who they recommend Train and support them well, at both
your facilities and theirs Make calls on them Make calls with them
Bases of Power in Marketing Channels “Soft” Bases of Power
oExpertiseoInformationoIdentification
“Hard” Bases of PoweroRewardoCoercion oLegitimate
Control and Cooperation in Vertical Marketing Systems
Increasing centralized control
Mutual Goals
Contractual systems
Corporate vertical marketing systems(CVMS)
Administered systems
Conventional Systems
Horizontal Sprawl
Value Networks
Contractual systems include wholesaler and retailer sponsored voluntary chains, and franchise Systems. Ace and Tru-Value Hardware and IGA are voluntary chains. New car dealers and fast food restaurants (e.g., McDonalds, Burger King) are franchises.
CVMS were likely developed when there were no other channel alternatives. In a CVMS all functions and flows are performed by (or contracted by) the integrator. CVMS have the greatest degree of centralized control but less flexibility. Many Goodyear tire dealers are forms of a forward integrated CVMS; Sears is a backward integrated CVMS.
By most traditional views, administered marketing systems are the closest to conventional systems. Independent intermediaries agree on goals related to a particular administrative leader’s market segment while maintaining disparate goals associated with their own operations.
Conventional systems, not a vertical channel patterns, are similar to administered channels but without agreement on goals. Intermediaries are independent businesses with concerns only for their own operations.
Horizontal Sprawl is a term applied to the Japanese keiretsu channel pattern. A keiretsu is a group of loosely associated companies that may have many ties at the ownership and management level. A keiretsu is often a complete supply chain with many buyers, sellers, and ancillary service providers. There is significant sharing of goals, risks, and benefits among members of the chain.
Value Networks are almost totally dependent on relationships that create cooperation and win-win scenarios. The assembled team creates a solution to a particular customer need. The team will be unified in the approach at that customer, but there is not necessarily any agreement to participate together beyond the immediate collaboration. Today’s may be part of a competing network tomorrow.
Directed GoalsIncreasing Voluntary Cooperation
Exhibit 14-7
Control and Cooperation in Vertical Marketing Systems
Increasing centralized control
Administered Systems
Horizontal Sprawl / Keiretsu
Contractual systems
Corporate Vertical
Marketing Systems
Conventional Systems
Value
Networks
Mutual Goals Directed GoalsIncreasing Voluntary Cooperation
Exhibit 14-7
Web Opportunities for B2B Marketers
Better and faster channel flows market data more readily available
Faster communications provides rapid ordering and order tracking
Reduced transaction costs through online processing and tracking
Product information available at the customers’ convenience
New Channel Types
Affiliates - link on a web site that refers to a product or service supplier’s site
Hubs – Intermediate that brings
buyers and sellers together in a market