Managing Communication

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PRINCIPLES OF MARKETING Eighth Edition Philip Kotler and Gary Armstong

Chapter Chapter 12 12 Distribution Channels and Logistics Management  Copyright 1999 Prentice Hall

What What is is aa Distribution Distribution Channel? Channel? • A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. • Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

 Copyright 1999 Prentice Hall

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Why Why are are Marketing Marketing Intermediaries Intermediaries Used? Used?

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• Greater efficiency in making goods available to target markets. • Offer the firm more than it can achieve on it’s own through the intermediaries: – Contacts – Experience – Specialization – Scale of operation

• Match supply and demand.

 Copyright 1999 Prentice Hall

Distribution Distribution Channel Channel Functions Functions • All

Use Up Scarce Resources

• All May Often Be Performed Better Through Specialization • All Can Often Be Shifted Among Channel Members

Risk Risk Taking Taking

Information Information

Financing Financing

Promotion Promotion

Physical Physical Distribution Distribution

Contact Contact

Negotiation Negotiation  Copyright 1999 Prentice Hall

Matching Matching

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Consumer Consumer Marketing Marketing Channels Channels & & Levels Levels

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Channel Level - A Layer of Intermediaries that Perform Some Work in Bringing the Product and it’s Ownership Closer to the Buyer.

Channel 1

Direct Direct

M M

CC

Indirect Indirect

Channel 2 M M

RR

→

CC

RR

→

CC

RR

→

CC

Channel 3 M M

→

W W

Channel 4 M M

→

W W

→

JJ

→

 Copyright 1999 Prentice Hall

Channel Channel Behavior Behavior & & Conflict Conflict

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• The channel will be most effective when: – each member is assigned tasks it can do best. – all members cooperate to attain overall channel goals and satisfy the target market.

• When this doesn’t happen, conflict occurs: – Horizontal Conflict occurs among firms at the same level of the channel. – Vertical Conflict occurs between different levels of the same channel.

• For the channel to perform well, conflict must be managed.

 Copyright 1999 Prentice Hall

Types Types of of Vertical Vertical Marketing Marketing Systems Systems Greater

Corporate Corporate

Common Common Ownership Ownership at at Different Different Levels Levels of of the the Channel Channel

Degree Degree of of Direct Direct Control Control

Contractual Contractual

Contractual Contractual Agreement Agreement Among Among Channel Channel Members Members

Administered Administered

Lesser

Leadership Leadership is is Assumed Assumed by by One One or or aa Few Few Dominant Dominant Members Members  Copyright 1999 Prentice Hall

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Vertical Vertical Marketing Marketing Systems Systems

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Vertical Vertical Marketing Marketing Systems Systems (VMS) (VMS)

Contractual Contractual VMS VMS

Corporate Corporate VMS VMS

Wholesaler Wholesaler Sponsored Sponsored Voluntary VoluntaryChain Chain

Retailer Retailer Cooperatives Cooperatives

ManufacturerManufacturerSponsored Sponsored Retailer Retailer Franchise FranchiseSystem System

ManufacturerManufacturerSponsored Sponsored Wholesaler Wholesaler Franchise FranchiseSystem System

 Copyright 1999 Prentice Hall

Administered Administered VMS VMS

Franchise Franchise Organizations Organizations

Service-FirmService-FirmSponsored Sponsored Franchise FranchiseSystem System

Innovations Innovations in in Marketing Marketing Systems Systems Horizontal Horizontal Marketing Marketing System System

Hybrid HybridMarketing Marketing System System

Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.

A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.

Example:

Example:

Banks in Grocery Stores

Retailers, Catalogs, and Sales Force

 Copyright 1999 Prentice Hall

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Channel Channel Design Design Decisions Decisions

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Analyzing Analyzing Consumer Consumer Service Service Needs Needs Setting Setting Channel Channel Objectives Objectives & & Constraints Constraints Identifying Identifying Major Major Alternatives Alternatives Intensive Intensive Distribution Distribution

Selective Selective Distribution Distribution

Exclusive Exclusive Distribution Distribution

Evaluating Evaluating the the Major Major Alternatives Alternatives  Copyright 1999 Prentice Hall

Channel Channel Management Management Decisions Decisions

Motivating Motivating

Evaluating Evaluating  Copyright 1999 Prentice Hall

FEEDBACK

Selecting Selecting

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Nature Nature and and Importance Importance of of Marketing Marketing Logistics Logistics

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• Involves getting the right product to the right customers in the right place at the right time. • Companies today place greater emphasis on logistics because: – effective logistics is becoming a key to winning and keeping customers. – logistics is a major cost element for most companies. – the explosion in product variety has created a need for improved logistics management. – information technology has created opportunities for major gains in distribution efficiency.  Copyright 1999 Prentice Hall

Goals Goals of of the the Logistics Logistics System System

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• Provide a Targeted Level of Customer Service at the Least Cost. • Maximize Profits, Not Sales. Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels  Copyright 1999 Prentice Hall

Logistics Logistics Systems Systems

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Order OrderProcessing Processing

Costs Costs

Submitted Submitted Processed Processed Shipped Shipped

Minimize MinimizeCosts Costsof of Attaining AttainingLogistics Logistics Objectives Objectives

Logistics Transportation

Functions

Warehousing Warehousing Storage Storage Distribution Distribution

Water, Truck, Rail, Pipeline & Air

Inventory Inventory

When Whento toorder order How Howmuch muchto toorder order Just-in-time Just-in-time

 Copyright 1999 Prentice Hall

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Transportation Transportation Modes Modes Rail Rail

Nation’s Nation’slargest largestcarrier, carrier,cost-effective cost-effective for forshipping shippingbulk bulkproducts, products,piggyback piggyback

Truck Truck

Flexible Flexiblein inrouting routing&&time timeschedules, schedules,efficient efficient for forshort-hauls short-haulsof ofhigh highvalue valuegoods goods

Water Water

Low Lowcost costfor forshipping shippingbulky, bulky,low-value low-value goods, goods,slowest slowestform form

Pipeline Pipeline

Ship Shippetroleum, petroleum,natural naturalgas, gas,and andchemicals chemicals from fromsources sourcesto tomarkets markets

Air Air

High Highcost, cost,ideal idealwhen whenspeed speedis isneeded neededor orto to ship shiphigh-value, high-value,low-bulk low-bulkitems items  Copyright 1999 Prentice Hall

Choosing Choosing Transportation Transportation Modes Modes Checklist for Choosing Transportation Modes 1. Speed. 2. Dependability. 3. Capability. 4. Availability. 5. Cost.

 Copyright 1999 Prentice Hall

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Integrated Integrated Logistics Logistics Management Management

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Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Teamwork Both Inside the Company and Among All the Marketing Channel Organizations. Cross-Functional Cross-Functional Teamwork Teamwork inside inside the the Company Company Building Building Channel Channel Partnerships Partnerships Third-Party Third-Party Logistics Logistics

 Copyright 1999 Prentice Hall