LESSON 6.pdf

LESSON 6: CHANNELS OF DISTRIBUTION AND CHANNEL RELATIONSHIPS LOGISTICS A jobber is a wholesaler who connects retailers and o CONSUMER WANTS CYCLE - 'channel' = canal, w...

LESSON 6: CHANNELS OF DISTRIBUTION AND CHANNEL RELATIONSHIPS LOGISTICS A jobber is a wholesaler who connects retailers and o CONSUMER WANTS CYCLE - 'channel' = canal, wholesalers, buying from wholesalers and selling to referring to the route products take from smaller retailers, with intermediaries connected production to intermediate and final use. through three types of flow. Marketing is a key factor in a continuous cycle, 1. Physical flow - The movement of goods from starting with consumer wants and combining raw material to final consumer, such as cotton them with market data to establish production yarn in a towel manufacturer, involves points. transporters from the grower to the manufacturer's warehouses and plants. o THE PRODUCER–USER GAP - Despite the growth of 2. Title flow - Ownership transfer occurs from one direct marketing in today's economy, most institution to another, like in towel producers still sell to consumers through marketing manufacturingwhere raw materials are passed intermediaries. from supplier to manufacturer, finished towels Distribution channels bridge the gap between are passed towholesaler or retailer users and producers, influencing relationships 3. Information flow - Direct promotion involves among channel members and forming activities like advertising, personal selling, sales interdependent organizations for product or promotion, and publicity, directing influence service availability from manufacturers to retailers or wholesalers, and endusers to consumers. o DISTRIBUTION SYSTEM DESIGN - Marketing channel design starts with understanding consumer CONVENTIONAL MARKETING CHANNELS - Independent purchasing patterns (outlet availability, customer business units perform marketing functions, with low number, size, and concentration also influence loyalty and instability. Food grocery products in the EU channel organization) are marketed through conventional channels, with independent producers growing, rearing, and Product characteristics, environmental manufacturing products. characteristics, and economic conditions also influence channel choice. VERTICAL MARKETING SYSTEMS - interdependent activities across different channels,with one dominant STRATEGIC CHANNEL CHOICES firm as the leader. o Intensive Distribution - involves placing products in CORPORATE VERTICAL MARKETING - Corporate vertical multiple outlets, aiming for maximum coverage. channels are companies that own two or more o Selective Distribution - focuses on promising or traditional levels of the supply chain, driven by growth profitable outlets, while; and control over access to supply or demand. o Exclusive Distribution - strengthens partnerships between seller and reseller, resultin in loyalty. ADMINISTERED VERTICAL MARKETING SYSTEMS (VMS) - co-ordinated system of distribution channel TYPES AND CLASSIFICATION OF CHANNELS - four main organization in which the flow of products from the types in consumer markets:The first three levels (zero, producer to the end user is controlled by the power and one and two) are self explanatory. The three level size of one member of the channel system rather than channel includes a ‘jobber’, or merchant by common ownership or contractual ties. MARKETING CHANNEL HAS TWO BASIC ASPECTS: 1. The placement of intermediary types of channel in relation to each other. 2. The number of different intermediary levels or stages in the channel FOUR LOGICAL STEPS CAN BE IDENTIFIED: 1. The efficiency of the process can be increased via an intermediary  2. Channel intermediaries arise to adjust the FLOWS IN MARKETING CHANNELS discrepancy of assortments through the performance of the sorting processes 3. Marketing agencies remain together in channel arrangements to provide the routine of transactions. 4. Channels exist to facilitate deliveries and to avoid inventory stock-outs. CHANNEL CONFLICT - conflicts of interest and distribution channels will exhibit levels of conflict.  Horizontal Conflict - is related to competition among similar types of intermediaries at the same level in the channel.  Intertype Conflict - refers to competition among different types of intermediaries at the RATIONALE FOR INTERMEDIARIES - As the number of same level in the channel. transactions increases, the need for intermediaries becomes greater. The marketing channel is a ‘canal’  Vertical Conflict - refers to competition among which contains thephysical flow of products. different levels in a channel. POSITION AND ROLE - Each channel member chooses a TYPES OF CONFLICT position or location in the channel. 1. Goal Incompatibility - Channel members o ‘Role’ - functions and degree of appear to share a common goal – maximizing performance expected of the firm filling a the efficiency and effectiveness of the total position. system. o Channel intermediaries perform the 2. Position, Role, and Domain Incongruence - Changes in position pecification, or poorly distribution function at a lower unit cost than the manufacturer defined positions, can precipitate conflict among channel members, so the manufacturer ASSORTMENT AND SORTING - The cost of distribution must anticipate and understand the expected can be minimized if transactions are routinized. In behavior of such members. effect, through routinization, a sequence of marketing 3. Communication Breakdown - may cause agencies is able to hang together ina channel conflict in two ways; (a) The failure of one firm arrangement or structure. to pass on vital information to other channel members and; (b) Distortion within the SEARCHING - Buyers and sellers are often engaged in message process is called ‘noise’ that often similar activities within the marketplace arises from confused language nuances. Marketing channels facilitate the searching process in Communication breakdowns are common in two way: specialist business areas. 4. Differing Perceptions of Reality - Different 1. Wholesale and retail institutions are organized solutions to mutual problems can lead to by different product groups conflict behavior 2. Many products are widely available from wide 5. Ideological Differences - Pressures exerted by ranging locations. the manufacturer will lead to stress and conflict in the relationship.  METHODS OF RESOLVING CONFLICT 1. Problem solving - A solution exists to PHYSICAL DISTRIBUTION - Physical distribution and alleviate communications noise in logistics are part of the ‘place’ element of the marketing distribution channels mix and these have had a major impact on channel 2. Persuasion - involves communication strategy and design between conflicting parties. 3. Politics - resolution of conflict involving Total systems approach to physical distribution new organizations in the agreement- The science of moving items from production to reaching process. consumption in a timely economical manner, is 4. Diplomacy - Channel diplomacy is the referred to as logistics. The emergence of a normal method by which inter- total systems (logistics) view of distribution is organizational relations are conducted, based on analogies and ideas drawn from the adjusted and managed by ‘ambassadors’, military. envoys or other persons operating at the Developments and trends in manufacturing and boundaries of member organizations. purchasing have heightened the importance THE DYNAMIC NATURE OF CHANNELS - Marketing attached to the service elements of the logistics constantly evolves, requiring marketers to adapt to systems of suppliers. changing channels and innovations to meet customer THE NATURE OF PHYSICAL DISTRIBUTION AND needs. LOGISTICS THE GROWTH OF MULTI-CHANNELS - companies now  subject of physical distribution and logistics can utilize various channel arrangements to reach target be defined as having the right quantity of an customers, transitioning from using a single channel item, in the right place, at the right time. In configuration to multiple configurations in marketing marketing terms we could add: at the right strategies. price. Physical distribution and logistics belies the complexity of decisions and planning in to increase market coverage by reaching new customers; order to achieve the objectives. to reduce costs of selling to certain customers Physical distribution’, ‘Logistics’ and ‘Materials where for example such customers require less service than that provided through the Management’ are often used as alternative terms company’s normal channels; when discussing flows of materials into, through to achieve a more customized service to particular customers than would be available and out of an organization. through the company’s normal channels.  Physical Distribution relates primarily to those GROWTH OF DIRECT CHANNELS - The growth of direct elements that facilitate the flow of materials marketing methods such as catalogue selling and direct from the company to its distributors, retailers, mail are examples of developments in channels as well final customers or all three. as promotion. In addition to direct marketing channels,  Materials Management is primarily concerned another key area of growth in direct distribution is the with elements that facilitate the flow of goods development of home shopping mainly through the and raw materials into and through the Internet. organization.  Business Logistics encompasses allof these in a INTERNET CHANNELS - The impact of the Internet on total systems view of the ‘place’ element of traditional retail channels like bookstores, travel marketing. agencies, and record stores has been significant, forcing them to adapt to changing customer purchasing IMPLICATIONS OF THE TOTAL SYSTEMS APPROACH behaviors. Before considering the design and planning of the Amazon, founded by Jeff Bezos in 1994, started business logistics system and its relationship to as an online bookstore and quickly grew to offer marketing strategy, we need to consider some of a wide range of products including DVDs, toys, the major implications of the total systems clothing, and more. approach to business logistics.  ORDER CYCLE AND TIME (LEAD TIMES) - We feel frustration when having selected a product and a 1. COMPLEXITY - web of interrelationships it supplier, placed the order and paid a deposit, we introduces poses considerable problems in then have to wait weeks for delivery. its planning and management, particularly when trying to optimize the performance of Inventory level - We might seek to decrease the system order lead time by only keeping limited or 2. TRADE OFF BETWEEN ELEMENTS - In trying possibly no stock to optimize the performance of the total Order transmission - This affects order lead system we are confronted with trade-offs times through the length of time it takes for between the different elements; the supplier to receive the orde 3. EFFECTIVE CO-ORDINATION AND Transport - In relation to the mode and ORGANIZATION - effective coordination organization of transport used to deliver and organization is the need in a systems products to customers we might look to approach for individual elements to the faster modes of transport. effectively coordinated and planned. STEPS IN IMPROVING LOGISTICS SERVICE 4. POTENTIAL FOR CONFLICT - The trade-off element and the need for effective co- PERFORMANCE ordination and organization mean that Step 1. Establish the importance of the various logistics implementing and managing business service elements tocustomers logistics can give rise to conflict between different functions in the system. Step 2. Establish current company and competitor 5. NEED TO INCORPORATE RELATIONSHIPS performance with regardto these service elements OUTSIDE THE ORGANIZATION THAT Step 3. Determine costs and benefits of making changes AFFECT THE SYSTEM - The system's view of to current company performance in levels of logistics business logistics is that it must be planned service: profit maximization and coordinated, taking account of relationships outside the organizational Step 4. Establish specific objectives for areas and levels system that affect planning and of logistical services effectiveness. Step 5. Planning , implementing and controlling the DESIGNING AND OPERATING A BUSINESS logistics systems LOGISTICS SYSTEM: MARKETING STRATEGY DEVELOPMENTS AND TRENDS IN LOGISTICS - number IMPLICATIONS of developments and trends in the area of logistics have Having established the need for business logistics, implications for the marketer with regard to the design we turn our attention to the design and operation and operation of their marketing logistics systems. of the system. Strategic marketing should be Information technology and logistics - IT developments managed to gain maximum competitive advantage have greatly impacted logistics management by Starting with customer needs; the service output - enhancing integration and flexibility. Advanced Starting with customer needs is not only consistent transaction processing systems allowreal-time inventory with a marketing-oriented approach that should monitoring, and Electronic Data Interchange (EDI) pervade all business decisions, but also recognizes strengthens supply chain relationships. logistics as being a ‘demand generating’ tool.