Ch10.pdf

Supply Chains • Upstream partners supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service. • Downstream partners serve as distribution channels that link the firm and its customers. Copyright © 2017 Pearson Education, Ltd. 10 - 3 Pro...

Supply Chains • Upstream partners supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service. • Downstream partners serve as distribution channels that link the firm and its customers. Copyright © 2017 Pearson Education, Ltd. 10 - 3 Producing a product or service and making it available to buyers requires building relationships not only with customers but also with key suppliers and resellers in the company’s supply chain. This supply chain consists of upstream and downstream partners. Upstream from the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service. Downstream marketing channel partners, such as wholesalers and retailers, form a vital link between the firm and its customers. The term supply chain may be too limited, as it takes a make-and-sell view of the business. A better term would be demand chain because it suggests a sense-and-respond view of the market. Yet, even a demand chain view of a business may be too limited because it takes a step-by-step, linear view of purchase-production-consumption activities. 3 Value Delivery Network A network composed 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 Copyright © 2017 Pearson Education, Ltd. 10 - 4 A value delivery network is 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. For example, Pepsi makes great beverages. But to make and market just one of its many lines—say, its classic colas—Pepsi manages a huge network of people within the company, from marketing and sales people to folks in finance and operations. 4 Marketing Channels (Distribution Channels) • Interdependent organizations that help make a product or service available for use or consumption • Channel decisions • Affect every other marketing decision • Can lead to competitive advantage • May involve long-term commitments to other firms Copyright © 2017 Pearson Education, Ltd. 10 - 6 A marketing channel or distribution channel is a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user. A company’s channel decisions directly affect every other marketing decision. Pricing depends on whether the company works with national discount chains, uses high-quality specialty stores, or sells directly to consumers online. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members. Companies often pay too little attention to their distribution channels. Distribution channel decisions often involve long-term commitments to other firms. Management must design its channels carefully, with an eye on both today’s likely selling environment and tomorrow’s as well. 6 Figure 10.1 - How a Distributor Reduces the Number of Channel Transactions A. Number of contacts without a distributor B. Number of contacts with a distributor Copyright © 2017 Pearson Education, Ltd. 10 - 7 Figure 10.1 shows how using intermediaries can provide economies. Part A of figure 10.1 shows three manufacturers, each using direct marketing to reach three customers. This system requires nine different contacts. Part B of the figure shows the three manufacturers working through one distributor, which contacts the three customers. Utilizing one distributor requires only six contacts and reduces the amount of work that must be done by both producers and consumers. How Channel Members Add Value • Intermediaries create greater efficiency in making goods available to target markets. • Marketing intermediaries transform the assortments of products made by producers into the assortments wanted by consumers. • Intermediaries bridge the major time, place, and possession gaps that separate goods and services from users. Copyright © 2017 Pearson Education, Ltd. 10 - 8 Producers use intermediaries because they create greater efficiency in making goods available to target markets. From the economic system’s point of view, the role of marketing intermediaries is to transform the assortments of products made by producers into the assortments wanted by consumers. Marketing channel members buy large quantities from many producers and break them down into the smaller quantities and broader assortments desired by consumers. In making products and services available to consumers, channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who use them. 8 Key Functions Performed by Channel Members Help to complete transactions • • • • • Information Promotion Contact Matching Negotiation Help to fulfill the completed transactions • Physical distribution • Financing • Risk taking Copyright © 2017 Pearson Education, Ltd. 10 - 9 Members of the marketing channel perform many key functions. Some function help to complete transactions: Information. Gathering and distributing information about consumers, producers, and other actors and forces in the marketing environment needed for planning and aiding exchange. Promotion. Developing and spreading persuasive communications about an offer. Contact. Finding and engaging customers and prospective buyers. Matching. Shaping offers to meet the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging. Negotiation. Reaching an agreement on price and other terms so that ownership or possession can be transferred. Other functions help to fulfill the completed transactions: Physical distribution. Transporting and storing goods. Financing. Acquiring and using funds to cover the costs of the channel work. Risk taking. Assuming the risks of carrying out the channel work. 9 Number of Channel Levels • Channel level: A layer of intermediaries that performs work in bringing the product and its ownership closer to the final buyer • Direct marketing channel: No intermediary levels • Indirect marketing channels: One or more intermediary levels Copyright © 2017 Pearson Education, Ltd. 10 - 10 Each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer is a channel level. Because both the producer and the final consumer perform some work, they are part of every channel. The number of intermediary levels indicates the length of a channel. A direct marketing channel refers to a marketing channel that has no intermediary levels. Whereas indirect marketing channels contain one or more intermediary levels. 10 Number of Channel Levels • Types of flows that connect the institutions in the channel: • • • • • Physical flow of products Flow of ownership Payment flow Information flow Promotion flow Copyright © 2017 Pearson Education, Ltd. 10 - 11 From the producer’s point of view, a greater number of channel levels means less control and greater channel complexity. Moreover, all the institutions in the channel are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow. These flows can make even channels with only one or a few levels very complex. 11 Figure 10.2 - Consumer and Business Marketing Channels Copyright © 2017 Pearson Education, Ltd. 10 - 12 Figure 10.1 shows both consumer and business channels of different lengths. Part A of this figure shows several common consumer distribution channels. Channel 1, called a direct marketing channel, has no intermediary levels, that is, the company sells directly to consumers. The remaining channels are indirect marketing channels, containing one or more intermediaries. Part B of this figure shows some common business distribution channels. The business marketer can use its own sales force to sell directly to business customers. Or it can sell to various types of intermediaries, which in turn sell to these customers. 12 Channel Behavior • Channel conflict: Disagreements among marketing channel members on goals, roles, and rewards • Horizontal conflict occurs among firms at the same level of the channel. • Vertical conflict occurs between different levels of the same channel. Copyright © 2017 Pearson Education, Ltd. 10 - 14 Channel conflict refers to disagreements among marketing channel members on goals, roles, and rewards. Horizontal conflict occurs among firms at the same level of the channel. For instance, Holiday Inn franchisees might complain about other Holiday Inn operators overcharging guests or giving poor service, which hurts the overall Holiday Inn image. Vertical conflict, which is conflict between different levels of the same channel, is more common. For example, McDonald’s has recently faced growing conflict with its corps of almost 3,000 independent franchisees. Based on rising customer complaints that service isn’t fast or friendly enough, McDonald’s told its franchisees that their cashiers need to smile more. At the same time, franchise owners reflected growing franchisee discontent with the corporation. Much of the conflict stems from a recent slowdown in system wide sales that has both sides on edge. The most basic conflicts are financial. McDonald’s makes its money from franchisee royalties based on total system sales. In contrast, franchisees make money on margins—what’s left over after their costs. Some conflict in the channel takes the form of healthy competition. Such competition can be good for the channel because without it, the channel could become passive and non-innovative. 14 Figure 10.3 Comparison of Conventional Distribution Channel with Vertical Marketing System Copyright © 2017 Pearson Education, Ltd. 10 - 15 A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. In contrast, a vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. 15 Vertical Marketing Systems • A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. Copyright © 2017 Pearson Education, Ltd. 10 - 16 The three types of VMSs are explained below. First, a corporate VMS combines successive stages of production and distribution under single ownership. Second, a contractual VMS consists of independent firms at different levels of production and distribution that join together through contracts. The franchise organization is the most common type of contractual relationship. In franchise organizations, a channel member, called a franchisor, links several stages in the production-distribution process. There are three types of franchises: manufacturer-sponsored retailer franchise system, manufacturer-sponsored wholesaler franchise system, and service-firm-sponsored retailer franchise system. Third, an administered VMS coordinates successive stages of production and distribution through the size and power of one of the parties. 16 Vertical Marketing Systems • There are three types of VMSs: • Corporate : combines successive stages of production and distribution under single ownership ‫مراحل متتالية‬ • Contractual :consists of independent firms at different levels of production and distribution that join together through contracts • Administered :coordinates successive stages of production and distribution through the size and power of one of the parties Copyright © 2017 Pearson Education, Ltd. 17 Horizontal Marketing System Two or more companies at one level join together to follow a new marketing opportunity. For example, Walmart partners with McDonald’s Copyright © 2017 Pearson Education, Ltd. 10 - 18 Another channel development is the horizontal marketing system, in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. For example, Walmart partners with McDonald’s to place express versions of McDonald’s restaurants in Walmart stores. McDonald’s benefits from Walmart’s heavy store traffic, and Walmart keeps hungry shoppers from needing to go elsewhere to eat. 18 Figure 10.4 - Multichannel Distribution System Copyright © 2017 Pearson Education, Ltd. 10 - 19 In the figure, the producer sells directly to consumer segment 1 using catalogs, online, and mobile channels and reaches consumer segment 2 through retailers. It sells indirectly to business segment 1 through distributors and dealers and to business segment 2 through its own sales force. These days, almost every large company and many small ones distribute through multiple channels. Disintermediation • Occurs when product or service producers cut out marketing channel intermediaries or when radically new types of channel intermediaries displace traditional ones Copyright © 2017 Pearson Education, Ltd. 10 - 20 Changes in technology and the explosive growth of direct and online marketing are having a profound impact on the nature and design of marketing channels. One major trend is toward disintermediation, which refers to the cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional resellers by radical new types of intermediaries. 20 Channel Design Decisions • Marketing channel design involves designing effective marketing channels by: • • • • Analyzing customer needs Setting channel objectives Identifying major channel alternatives Evaluating the alternatives Copyright © 2017 Pearson Education, Ltd. 10 - 22 Marketing channel design calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating the alternatives. Designing the marketing channel starts with finding out what target consumers want from the channel. The faster the delivery, the greater the assortment provided, and the more add-on services supplied, the greater the channel’s service level. Companies should state their marketing channel objectives in terms of targeted levels of customer service. The company’s channel objectives are influenced by the nature of the company, its products, its marketing intermediaries, its competitors, and the environment. Environmental factors such as economic conditions and legal constraints may also affect channel objectives and design. The company should next identify its major channel alternatives. These alternative are discuss in detail on the next slide. Each alternative should then be evaluated against economic, control, and adaptability criteria. 22 Major Channel Alternatives • Types of intermediaries refers to channel members available to carry out channel work. • Number of intermediaries to use • Intensive distribution • Exclusive distribution • Selective distribution • Responsibilities of each channel member Copyright © 2017 Pearson Education, Ltd. 10 - 23 The company should next identify its major channel alternatives in terms of the types of intermediaries, the number of intermediaries, and the responsibilities of each channel member. Companies must also determine the number of channel members to use at each level. Three strategies are available: intensive distribution, exclusive distribution, and selective distribution. Each alternative should then be evaluated against economic, control, and adaptability criteria. Types of intermediaries refers to channel members available to carry out channel work. Most companies face many channel member choices. A company may use many types of resellers in a channel. Companies must determine the number of intermediaries to use at each level. Three strategies are available: Producers of convenience products and common raw materials typically seek intensive distribution— a strategy in which they stock their products in as many outlets as possible. Some producers purposely limit the number of intermediaries through exclusive distribution, in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Exclusive distribution is often found in the distribution of luxury brands. Between intensive and exclusive distribution lies selective distribution—the use of more than one but fewer than all of the intermediaries who are willing to carry a company’s products. Most consumer electronics, furniture, and home appliance brands are distributed in this manner. The responsibilities of each channel member must be determined. The producer should establish a list price and a fair set of discounts for the intermediaries. It must define each channel member’s territory, and it should be careful about where it places new resellers. Mutual services and duties need to be spelled out carefully, especially in franchise and exclusive distribution channels. 23 Marketing Channel Management Selecting channel members Managing and motivating channel members Evaluating channel members Copyright © 2017 Pearson Education, Ltd. 10 - 25 Marketing channel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time. When selecting intermediaries, the company should determine what characteristics distinguish the better ones. It will want to evaluate each channel member’s years in business, other lines carried, location, growth and profit record, cooperativeness, and reputation. Once selected, channel members must be continuously managed and motivated to do their best. Many companies practice strong partner relationship management to forge long-term partnerships with channel members. This creates a value delivery system that meets the needs of both the company and its marketing partners. The company must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs, and services to the customer. Companies need to be sensitive to the needs of their channel partners. Those that treat their partners poorly risk not only losing their support but also causing some legal problems. 25 Marketing Logistics (Physical Distribution) • Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to consumption • Customer-centered logistics: Marketplace backwards to the factory or sources of supply • Outbound logistics • Inbound logistics • Reverse logistics ‫ أو التخلص من‬، ‫الخدمات اللوجستية العكسية التي تتضمن اإعادة التدوير والتجديد‬ .‫المنتجات المكسورة أو غير المرغوب فيها أو الزائدة التي يعادها المستهلكون أو البائعون‬ Copyright © 2017 Pearson Education, Ltd. 10 - 27 Marketing logistics, also called physical distribution, involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit. Today’s customer-centered logistics starts with the marketplace and works backward to the factory or even to sources of supply. Marketing logistics involves not only outbound logistics, which is moving products from the factory to resellers and ultimately to customers, but also inbound logistics, which is moving products and materials from suppliers to the factory, and reverse logistics which involves reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers. 27 Figure 10.5 - Supply Chain Management Copyright © 2017 Pearson Education, Ltd. 10 - 28 This figure illustrates supply chain management, which involves managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers. Marketing logistics involves the entirety of supply chain management. The logistics manager’s task is to coordinate the activities of suppliers, purchasing agents, marketers, channel members, and customers. These activities include forecasting, information systems, purchasing, production planning, order processing, inventory, warehousing, and transportation planning. 28 Marketing Logistics and Supply Chain Management • The goal of marketing logistics is to deliver a targeted level of customer service at the least cost. • Logistics functions include • • • • Warehousing ‫التخزين‬ Inventory management Transportation Logistics information management Copyright © 2017 Pearson Education, Ltd. 10 - 29 The goal of marketing logistics should be to provide a targeted level of customer service at the least cost. Maximum customer service implies rapid delivery, large inventories, flexible assortments, liberal returns policies, and other services—all of which raise distribution costs. The major logistics functions are warehousing, inventory management, transportation, and logistics information management. Each of these functions are discussed in greater detail in the following slides. 29 Inventory Management • Should be done in a cost effective and profitable manner • Just-in-time logistics systems • Radio frequency identification (RFID), smart tag technology, gives the physical location of a product. • ‫ استخدام رقائق‬، ‫ أو تقنية العﻼمات الذكية‬، ‫تتضمن تقنية تحديد الهوية بموجات الراديو‬ ‫أجهزة إرسال صغيرة مدمجة أو موضوعة على المنتجات‬ • .‫يمكن للمنتجات الذكية أن تجعل سلسلة التوريد بأكملها ذكية وآلية‬ Copyright © 2017 Pearson Education, Ltd. 10 - 30 Inventory management affects customer satisfaction. Managers must maintain the delicate balance between carrying too little inventory and carrying too much. Carrying too much inventory results in higher-than-necessary inventorycarrying costs and stock obsolescence. Thus, in managing inventory, firms must balance the costs of carrying larger inventories against resulting sales and profits. Many companies have greatly reduced their inventories and related costs through just-in-time logistics systems. In the not-too-distant future, handling inventory might even become fully automated. RFID, or smart tag technology, involves the use of small transmitter chips which are embedded in or placed on products and packaging for everything from flowers and razors to tires. Smart products could make the entire supply chain intelligent and automated. 30 Transportation Factors affected by choice of transportation • • • • Pricing of products Delivery performance Condition of goods Customer satisfaction Modes • Trucks, railroads, water carriers, pipelines, air carriers, and the Internet Multimodal transportation • Combining two or more modes of transportation • Piggyback, fishyback, trainship, and airtruck Copyright © 2017 Pearson Education, Ltd. 10 - 31 The choice of transportation carriers affects the pricing of products, delivery performance, and the condition of goods when they arrive, all of which will affect customer satisfaction. In shipping goods to warehouses, dealers, and customers, the company can choose among five main transportation modes: truck, rail, water, pipeline, and air, along with an alternative mode for digital products, the Internet. Shippers also use multimodal transportation, which combines two or more modes of transportation. Piggyback involves the use of rail and trucks, fishyback involve the use of water and trucks, trainship involves the use of water and rail, and airtruck involves the use of air and trucks. Combining modes provides advantages that no single mode can deliver. 31 ‫‪Multimodal transportation‬‬ ‫يستخدم الشاحنون النقل متعدد الوسائط ‪ ،‬والذي يجمع بين‬ ‫وضعين أو أكثر من وسائل النقل‬ ‫استخدام السكك الحديدية والشاحنات ‪Piggyback:‬‬ ‫‪fishyback‬‬ ‫استخدام المياه والشاحنات ‪:‬‬ ‫استخدام المياه والسكك الحديدية ‪trainship :‬‬ ‫ينطوي على استخدام الهواء والشاحنات‪airtruck :‬‬ ‫‪Copyright © 2017 Pearson Education, Ltd.‬‬ ‫‪32‬‬