Marketing Channels and Value Delivery Networks

Chapter 9: Place

• The chapter covers supply chains and value delivery networks, the nature and importance of marketing channels, channel behavior and organization, channel design decisions, channel management decisions, and public policy and distribution decisions.
• After reading the chapter, students will be able to define the decision process and list and define the major types of buying decision behavior.

Case Study: Caterpillar

• Caterpillar dominates heavy construction and mining equipment markets.
• Independent dealers are key to Caterpillar's success.
• A dealer network, linked through computers, supports its business model.
• Caterpillar focuses on dealer profitability and personal relationships with dealers.

Definitions

• Value Delivery Network: A network of suppliers, distributors, and customers who partner with each other.
• Marketing Channel: A set of interdependent organizations involved in getting a product or service to the consumer or business user.

Nature & Importance of Marketing Channels

• Channel choices influence other marketing mix decisions (pricing and communications).
• A strong distribution system is a competitive advantage.
• Channel decisions require long-term commitments to other firms.
• Intermediaries reduce the number of contacts needed to reach the final customer and match supply with assortment demand.
• They overcome differences in time, place, and possession between producers and consumers.

Key Functions of Channel Members

• Information: Providing information about products.
• Promotion: Promoting products through advertising.
• Contact: Contacting potential consumers for sales.
• Matching: Matching products to consumers' needs.
• Negotiation: Negotiating prices and sales arrangements.
• Physical Distribution: Carrying out the physical transfer of products.
• Financing: Providing funds for channel activities.
• Risk Taking: Taking risks associated with channel operations.

Number of Channel Levels

• The number of intermediaries defines the channel's length.
• Direct Channels: Channels that have no intermediaries between the producer and the customer.
• Indirect Channels: Channels with one or more intermediary levels.
• Additional channel levels mean reduced producer control and increased complexity.

Channel Members Are Connected Through Flows

• Products flow from producers to consumers.

• Information flows in both directions.

• Payments flow from consumers to producers.

• Ownership flows from producers to consumers.

• Channel Behavior and Organization

  • Channel Conflict: Disagreements among channel members on roles, activities, or rewards.
    • Horizontal Conflict: Conflict among firms at the same channel level.
    • Vertical Conflict: Conflict among firms at different channel levels.
  • Conventional Distribution Channels: Independent channel members without leadership or power.
  • Vertical Marketing Systems (VMS): Members work together as a unified system (corporate, contractual, and administered).
  • Corporate VMS: The same company owns all the levels of the channel.
  • Contractual VMS: Individual firms join through agreements.
  • Manufacturer-sponsored retailer franchise system: Manufacturers sponsor retailers to sell their products.
  • Manufacturer-sponsored wholesaler franchise system: Manufacturers sponsor wholesalers.
  • Service-firm-sponsored retailer franchise system: Service firms sponsor retailers to sell their services.
  • Administered VMS: Leadership exists through dominant channel members (manufacturer or retailer).
  • Horizontal Marketing Systems: Firms at the same level cooperate.
  • Multichannel Distribution Systems: Use multiple channels at the same time to sell products.
  • Changing Channel Organizations: Disintermediation (removing intermediaries).

  Channel Design Decisions

  • Step 1: Analyzing Consumer Needs (consider cost and feasibility).
  • Step 2: Setting Channel Objectives (targeted customer service level).
  • Step 3: Identifying Major Alternatives (intermediaries, distribution intensity).
  • Step 4: Evaluating Major Alternatives (economic, control, adaptive criteria).

  Designing International Channels

  • Global marketers adapt to existing foreign country structures.
  • Challenges include complexity, penetration difficulties, and scattered or inefficient systems.

  Channel Management Decisions

  • Selecting Channel Members: Identifying and choosing the appropriate channels based on their characteristics.
  • Managing and Motivating Channel Members: Motivating members and maintaining positive relationships.
  • Partner relationship management (PRM): Maintaining partnerships for long term goals.
  • Evaluating Channel Members: Performance monitoring and evaluating channel efficiency and effectiveness.
  • Channel members' performance is checked against standards.
  • Channel members' rewards are aligned with performance.

  Public Policy and Distribution Decisi

  • Exclusive Distribution: Certain outlets are permitted to carry specific products.ons

• Exclusive Dealing: Exclusive territorial agreements, tying agreements.

Marketing Logistics and Supply Chain Management

• Marketing Logistics: Includes outbound, inbound, and reverse distribution.
• Outbound Distribution: Moving goods from the producer to the consumer.
• Inbound Distribution: Bringing goods from suppliers to the producer.
• Reverse Distribution: Handling returns and recycling.
• This approach affects the whole supply chain operations.
• Logistics are becoming increasingly important for competitive advantages, cost savings, improved product variety, and distribution efficiency.
• This can be enhanced via the use of technologies and information.

Goals of the Logistics System

• Balancing customer service with cost.
• Setting specific customer service targets with cost efficiency.

Major Logistics Functions

• Warehousing
• Inventory Management
• Transportation
• Logistics Information Management
• Transportation carrier options include truck, rail, water, air, pipeline, and internet.