chapter 15 Flashcards
Marketing Channel
consists of individuals & firms involved in the process of making a product/serv available for use or consumption by consumers/industrial users
Intermediaries
make possible the flow of products from producers to buyers by performing three basic functions
Types of Intermediaries
wholesalers
agents/brokers
retailers
Wholesaler
an intermediary who sells to other intermediaries, usually to retailers
-buys from the manufacturer & sells it down the chain (sells to retailer)
-Independent/owns product
-Takes possession of the product
Distributor
intermediaries who perform a variety of distribution functions
-They do everything (full service)
Jobber
Hired for a particular service (limited service)
Agent/Broker
any intermediary with legal authority to act on behalf of the manufacturer
- Representative/facilitates the sale but doesn’t take possession of the product
- represents sellers but doesn’t buy the products
- Independent/doesn’t own product
Ex: Car dealers that represent Toyota
Manufacturer’s Sales Branch
essentially a merchant wholesaler that is owned by a manufacturer
- paid by the manufacturer
- buys product from manufacturer
Manufacturer Sales Office
does not carry inventory, typically performs only a sales function, and serves as an alternative to agents and brokers
-Under manufacturer but doesn’t own product
Retailer
an intermediary who sells to consumers
- Store/nonstore (web based)
Three Functions Performed by Intermediaries
transactional
logistical
facilitating
Transactional Function
buying, selling, risk taking
Ex: Publix is facilitating this activity of SELLING to the customer for me so I don’t have to open my own Frito Lay store
Buying (transactional)
purchasing products for resale/as an agent for supply of a product
Selling (transactional)
contacting potential customers, promoting products, & seeking orders
Risk-taking (transactional)
assuming business risks in the ownership of inventory that can become obsolete/deteriorate
Logistical Function
involves the details of preparing & getting a product to buyers
- Includes gathering, sorting, & dispersing products
Logistical Function
assorting, storing, sorting, transporting
Assorting
creating product assortments from several sources to serve customers
Storing
assembling and protecting products at a convenient location to offer better customer service
Sorting
purchasing in large quantities and breaking into smaller amounts desired by customers
Transporting
physically moving a product to customers
-gets product from Point A to Point B
Logistical Functions (Lecture)
- Transportation
- Warehousing/Material Handling
- Order Processing
- Inventory Management
Transportation
Gets product from point A to point B
Warehousing/Material Handling
Houses products/putting everything in one place & grabbing one order at a time
Includes Cross docking
Ex:Amazon
Order Processing
Way to process orders
Ex:EDI
Electronic Data Exchange (EDI)
Electronic form of your order (more efficient/automated)
Inventory Management
When you go to the store you want stuff to be there
Ex: JIT/VDI
Just In Time (JIT)
Orders are done automatically so they can arrive by the time you need it again
-Alleviates the amount of time you waste in having inventory just sitting on the shelf
Vendor-Managed Inventory (VMI)
Allows you to put products in our stores but you own it until we sell it
Ex: P&G sends inventory to Walmart. They invoice Walmart once the product gets sold. Walmart only pays for it once it gets sold.
Facilitating Function
makes a transaction easier for buyers
-Tries to make it easier for customers to purchase
Facilitating Function
financing, grading, marketing information and research
Financing (facilitating)
extending credit to customers
Ex: Buy/Now Pay Later: company is able to get some of the interest that customers pay
Grading (facilitating)
inspecting, testing, or judging products and assigning them quality grades
Marketing Information & Research (facilitating)
providing information to customers and suppliers, including competitive conditions and trends
-Gathers info about customers
Ex: Publix shelvers gather info that Doritos chips have sold the most & product is selling well
Marketing Channels Help Create Value for Consumers through the Four Utilities
Time
Place
Form
Possession
Time Utility
having a product/serv when you want it
Ex: FedEx provides next morning delivery
Convenience/Speed
Place Utility
having a product/serv where consumers want it
Ex: Having a Chevron gas station located on a long stretch of lonely highway
Convenience: should be readily available
Prestige: special things/expensive products
Form Utility
enhancing a product/serv to make it more appealing to buyers
Ex: Coca Cola bottlers
Possession Utility
efforts by intermediaries to help buyers take possession of a product/serv
Ex: Easy payment methods or leasing contracts
Types of Channels
direct
indirect
mixed
Direct Channel
the producer & the ultimate consumers deal directly with each other
-Manufacturer sells directly to the consumer
Ex: Insurance companies
Ex: Apple selling to customers through Apple stores/website
Indirect Channel
intermediaries are inserted b/w the producer & consumers and perform numerous channel functions
-Manufacturer going through someone to sell to customers
Ex: Manufacturer > Intermediary > Customer
Mixed Channel
Does both direct & indirect
Ex: Apple sells directly (Apple store/website) & indirectly (through Target/Walmart)
Digital Marketing Channels
use the internet to make products/servs available for consumption or use by consumers/organizational buyers
Ex: Car rental reservations are distributed through this
Direct to Consumer (D2C) Marketing Channels
allow consumers to buy products by interacting w/ various print or electronic media without a face-to-face meeting w/ a salesperson
› Includes mail-order selling, direct-mail sales, catalog sales, telemarketing, websites, & televised home shopping
Ex: Nike sells its apparel directly to consumers through Nike Direct
Multichannel Marketing
blending of different communication & delivery channels that are mutually reinforcing in attracting, retaining, & building relationships with consumers who shop and buy in traditional intermediaries & online
› Seeks to integrate a firm’s electronic marketing & delivery channels
Ex: Buy online & pick up in store, websites help consumers do their hw before visiting a store
Dual Distribution
an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product
Ex: GE large appliances are sold directly to home & apartment builders while retail stores, including Lowe’s home centers sell to consumers
Strategic Channel Alliances
one firm’s marketing channel is used to sell another firm’s products
Ex: Starbucks relies on PepsiCo’s distribution network to sell its cold, ready to drink coffee products & Nestle’s distribution network to sell its packaged coffee pods in supermarkets/convenience stores
Vertical Marketing Systems
professionally managed & centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact
› Improves efficiency & achieves greater marketing effectiveness
Three Major Types of VMSs
- Corporate/Vertically Integrated
- Contractual
- Administered
Corporate VMS
combination of successive stages of production & distribution under a single ownership
Forward Integration
a producer might own the intermediary at the next level down in the channel
Ex: Ralph Lauren manufactures clothing & also owns apparel shops
Backward Integration
a retailer might own a manufacturing operation
Ex: Kroger supermarkets operate manufacturing facilities that produce everything from aspirin to cottage cheese for sale under the Kroger label
Contractual VMS
independent production & distribution firms integrate their efforts on a contractual basis to obtain greater functional economies & marketing impact than they could achieve alone
- Most popular among the three types of VMSs
-Have an agreement
Ex: Franchising
Ex: Franchise has a contract with McDonald’s but pays a certain amount back to McDonald’s
Three Variations of Contractual VMSs
- Wholesaler-Sponsored Voluntary Chains
- Retailer-Sponsored Cooperatives
- Franchising
Wholesaler-Sponsored Voluntary Chains
involve a wholesaler that develops a contractual relationship w/ small, independent retailers to standardize & coordinate buying practices, merchandising programs, & inventory management efforts
Ex: IGA grocery stores
Retailer-Sponsored Cooperatives
exist when small, independent retailers form an organization that operates a wholesale facility cooperatively
Ex: Ace Hardware
Franchising
a contractual arrangement b/w a parent company (a franchisor) & an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name & according to specific rules
4 Types of Franchise Arrangements
- Manufacturer-sponsored retail franchise systems
- Manufacturer-sponsored wholesale franchise systems
- Service-sponsored retail franchise systems
- Service-sponsored franchise systems
Manufacturer-Sponsored Retail Franchise Systems
prominent in the automobile industry, where a manufacturer such as Ford licenses dealers to sell its cars subject to various sales & service conditions
Manufacturer-Sponsored Wholesale Franchise Systems
exist in the soft-drink industry
Ex: Pepsi-Cola licenses wholesalers (bottlers) that purchase concentrate from Pepsi-Cola and then carbonate, bottle, promote, & distribute its products to retailers and restaurants
Service-Sponsored Retail Franchise Systems
used by firms that have designed a unique approach for performing a service & wish to profit by selling the franchise to others
Ex: Holiday Inn, Avis, McDonald’s use this
Service-Sponsored Franchise Systems
franchisors license individuals/firms to dispense a service under a trade name & according to specific guidelines
Ex: H&R Block tax servs
Administered VMS
achieve coordination at successive stages of production & distribution by the size & influence of one channel member rather than through ownership
-Large partner that dictates the way its done
Ex: To be a supplier at Walmart you need to agree to their terms
Vertically Integrated
buy your channel partner to eliminate a step
Ex: Bottlers couldn’t bottle ready to drink coffee so Pepsi bought the bottlers so that they could rearrange the whole system & finally create their ready to drink coffee
Factors Affecting Channel Choice & Management
- Which channel and intermediaries will provide the best coverage of the target market?
- Which channel and intermediaries will best satisfy the buying requirements of the target market?
- Which channel and intermediaries will be the most profitable?
Factors Affecting Channel Choice & Management
- target market coverage,
- buyer requirements
- profitability
Target Market Coverage
achieving the best coverage of the target market requires attention to the density
Density
the number of stores in a geographical area-and type of intermediaries to be used at the retail level of distribution
Three Degrees of Distribution Density
- Intensive
- Exclusive
- Selective
Intensive Distribution
firm tries to place its products & servs in as many outlets as possible
-I want to be everywhere
› Ex: Convenience products/servs such as candy, fast food, soft drinks
Pepsi/Frito Lay in stores, gas stations, vending machines, etc
Exclusive Distribution
only one retailer in a specific geographic area carries the firm’s products
› Opposite of intensive distribution
-Only working with ONE retailer
› Ex: Specialty products/servs such as fragrances, apparel, accessories (Gucci)
Ex: Magnolia only selling their products at Target
Retailers/Industrial Distributors Prefer Exclusive Distribution for Two Reasons:
- Limits head-to-head competition for an identical product
- Provides a point of difference for a retailer or distributor
Selective Distribution:
lies b/w these two extremes & means that a firm selects a few retailers in a specific geographic area to carry its products
-I don’t want to be everywhere bc my products won’t sell everywhere anyway (don’t want to waste inventory)
Ex:Apple was selective with where they wanted to sell their products bc they wanted employees to be knowledgeable
Ex: Dell Technologies sells selected products through U.S. retailers along w/ its direct channel
Buyer Requirements
gaining access to channels & intermediaries that satisfy at least some of the interests buyers want fulfilled when they purchase a firm’s products/servs
These interests fall into four broad categories:
(1)information
(2)convenience
(3)variety
(4)pre- or post sale servs
*each relates to delivering customer experience
Information
important requirement when buyers have limited knowledge or desire specific data about a product/serv
-Properly chosen intermediaries communicate w/buyers through in store displays, demonstrations, & personal selling
Ex: Apple has highly trained staff to communicate how its products can better satisfy each customer’s needs
Convenience
has multiple meanings for buyers, such as proximity or driving time to a retail outlet
Ex: 7/11 stores are open 24 hrs a day
Variety
buyers’ interests in having numerous competing & complementary items from which to choose
-Is evident in the breadth & depth of products/brands carried by intermediaries
Ex: Manufacturers of pet food & supplies seek distribution through pet superstores such as Petco & PetSmart, which offer a wide array of pet products & servs
Pre- or Post-Sale Services
important buying requirement for products such as large household appliances that require delivery, installation, service, & credit
Ex: Whirlpool seeks dealers that provide such servs
Profitability
determined by the margins earned (revenue minus cost) for each channel member & for the channel as a whole. Channel cost is the critical dimension of profitability. These costs include distribution, advertising, & selling expenses associated w/ different types of marketing channels
Channel Conflict
arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals
Two Types of Conflict
vertical & horizontal
Vertical Conflict
occurs b/w different levels in a marketing channel
-Goes up & down the channel
Ex: B/w a manufacturer & a wholesaler/retailer or b/w a wholesaler & a retailer
Ex: Only can buy Apple from Amazon (this eliminates some intermediaries)
Three Sources of Vertical Conflict
- Disintermediation
- Conflict occurs due to disagreements over how profit margins are distributed among channel members
- Conflict situation arises when manufacturers believe wholesales or retailers are not giving their products adequate attention
Disintermediation
conflict arises when a channel member bypasses another member & sells/buys products direct
Ex: Conflict occurred when American Airlines decided to terminate its relationship w/ Orbitz & Expedia, & sell directly through AA Direct Connect
Conflict occurs due to disagreements over how profit margins are distributed among channel members
Ex: This happened when Amazon & Hachette Book Group engaged in a seven-month dispute about how e-book revenue should be divided b/w the two companies
Conflict situation arises when manufacturers believe wholesales or retailers are not giving their products adequate attention
Ex: Newell Brands, Inc stopped shipping Sharpie Markers to Office Depot because it believed Office Depot was not spending what the two companies agreed on for showcasing & marketing Sharpies
Horizontal Conflict
occurs b/w intermediaries at the same level in a marketing channel, such as b/w two or more retailers (Target or Kmart) or two or more wholesalers that handle the same manufacturer’s brands
-At the same level/happen b/w retailers
Ex: Apple selling on Amazon in addition to Best Buy (introduced a new retailer)
Two Sources of Horizontal Conflict
- Arises when a manufacturer increases its distribution coverage in a geographic area
2: Dual distribution causes conflict when different types of retailers carry the same brands
- Arises when a manufacturer increases its distribution coverage in a geographic area
Ex: Franchised Lexus dealer in Chicago might complain to Toyota that another franchised Lexus dealer has located too close to the dealership
- Dual distribution causes conflict when different types of retailers carry the same brands
Ex: When Under Armour began selling its athletic wear to department stores, sporting goods retailers became irate & began promoting their own store brands over Under Armour products
Channel Captain
a channel member that coordinates, directs, & supports other channel members
- Can be producers, wholesalers, or retailers
-Can influence the behavior of other members
Ex: P&G assumes this role bc it has a strong consumer following in brands, it can set policies/terms that supermarkets will follow
Four Forms of Channel Captain’s Influence
Economic Influence
Expertise
Identification
Legitimate Right
Economic Influence
arises from the ability of a firm to reward other members given its strong financial position/customer franchise
Ex: Amazon/Walmart
Expertise
Ex: American Hospital Supply helps its customers (hospitals) manage inventory & streamline order processing for hundreds of medical supplies
Identification
with a particular channel member can create influence for that channel member
Ex: Retailers may compete to carry Ralph Lauren line. The desire to be identified w/ a channel member gives that firm influence over others
Legitimate Right
of one channel member to direct the behavior of other members
Ex: Likely to occur in contractual VMSs where a franchisor can legitimately direct how a franchisee behaves
Legal Considerations
The FTC monitor channel practices that restrain competition, create monopolies, or otherwise represent unfair methods of competition under the Sherman Act (1890) & the Clayton Act (1914)
› Clayton Act prohibits exclusive dealing & tying arrangements
> Sherman Act prosecutes resale restrictions
Exclusive Dealing
a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products
Tying Arrangements
a supplier requires a distributor purchasing some products to buy others from the supplier
Full-line Forcing (Type of tying arrangement)
a supplier requiring that a channel member carry its full line of products in order to sell a specific item in the supplier’s line
Resale Restrictions
a supplier’s attempt to stipulate to whom distributors may resell the supplier’s products & in what specific geographical areas/territories they may be sold
Logistics
involves those activities that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost
Logistics Management
the practice of organizing the cost-effective flow of raw materials, in-process inventory, finished goods, & related information from point of origin to point of consumption to satisfy customer requirements
Supply Chain
the various firms involved in performing the activities required to create & deliver a product/serv to consumers or industrial users
› Includes suppliers that provide raw material inputs to a manufacturer as well as the wholesalers & retailers that deliver finished products to consumers
Supply Chain Management
the integration & organization of information and logistics activities across firms in a supply chain for the purpose of creating & delivering products/servs that provide value to consumers
The Alignment of a Company’s Supply Chain W/ Its Marketing Strategy Three Steps:
- Understand the Customer: must identify customer’s needs
- Understand the Supply Chain: must understand what a supply chain is designed to do well
- Harmonize the Supply Chain with the Marketing Strategy: needs to ensure that what the supply chain is capable of doing well is consistent w/ the targeted customer’s needs & its marketing strategy
Cross-Docking
·unloading products from suppliers, sorting products for individual stores, & quickly reloading products onto its trucks for a particular store
-No warehousing/storing products occurs, except for a few hours or, at most, a day
Ex: Publix diet centers get all the products being distributed from different vendors into an area, then take one truck & deliver it to Gainesville area
· The objective of logistics management in a supply chain is to reduce the …
“bullwhip effect” while minimizing total logistics costs & delivering the appropriate level of customer service
Bullwhip Effect
the tendency for supply chain managers at different levels of the supply chain to exaggerate the needs to increase/decrease inventory in response to variation or lack of predictability in customer demand
Ex: Covid, the demand for toilet paper, hand sanitizers, & disinfectants outstripped their supply in grocery stores & drugstores
Total Logistics Cost
expenses associated w/ transportation, materials handling & warehousing, inventory, stockouts (being out of inventory), order processing, and return products handling
-Are interrelated & changes in one will impact the others
Ex: If a company attempts to reduce its transportation cost by shipping in larger quantities, it will increase its inventory levels
Customer Service
the ability of logistics management to satisfy users in terms of time, dependability, communication, & convenience
-Key task is to balance these four customer service factors against six total logistics costs
Four Customer Service Factors
time, dependability, communication, convenience
Time
order cycle or replenishment time for an item
Order Cycle
the time b/w the ordering of an item & when it is received and ready for use/sale
› Current emphasis in SCM is to reduce order cycle time so that the inventory levels of customers may be minimized
› Another emphasis is to make the process of reordering & receiving products as simple as possible, often through. inventory systems called quick response & efficient consumer response delivery systems
Five Elements That Make Up The Typical Order Cycle
- Recognition of the need to order
- Order Transmittal
- Order Processing
- Documentation
- Transportation
Dependability
the consistency of replenishment
Three Elements of Dependability
- Consistent Lead Time
- Safe Delivery
- Complete Delivery
Communication
comps use blockchain tech to streamline communication within their supply chains so that they can focus on other logistics cost & customer service factors
Blockchain Technology
a decentralized digital system for recording, documenting, & facilitating transactions across all participants in a supply chain
Convenience
there should be a minimum of effort on the part of the buyer in doing business with the seller
-Uses VMI
Vendor-Managed Inventory (VMI)
the supplier determines the product amount & assortment a customer (such as a retailer) needs and automatically delivers the appropriate items
Reverse Logistics
process of reclaiming recyclable & reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution, or disposal
-Can be seen in the reduced waste in landfills & lowered operating costs for companies
Ex: Motorola & Nokia (return & reuse of mobile phones)
Amazon (returns & redistribution) have implemented reverse logistics programs
Multichannel Strategy
distributes product at the store, on mobile, web, social commerce. Has different ways to get product to customer. Offers all the options but doesn’t think about the customer experience.
Omnichannel Strategy
Thinks of all the pieces holistically & tries to make it super consistent. Focuses on the whole customer experience.
Ex: Best Buy
Customer Value Old View vs Modern View
Old View: Channel as pipeline
-Gets product in & out and you don’t really care how it looks like
Modern View: Channel as Value-Add Chain
-Partner together & bringing the best possible options to improve the customer experience
