Notes - Managing Marketing Channels and Supply Chains

CHAPTER 15 – Managing Marketing Channels and Supply Chains PLACE (one of the 4Ps of Marketing) – Delivering the value proposition  We need to figure out what the best way is to get our product, our service, or whatever value we are creating to our customers. (how we are going to deliver that value proposition to our customers) o What channels are we going to have? GETTING THE VALUE WE CREATE TO OUR CUSTOMERS. o Target – They’ve done a great job making the store atmosphere really something that is adding value to the customer, so you don’t mind spending the money. The place makes you want to shop more; you walk in there, and you spend money!  WEBSITE o Must be clear and concise, easy to manage. The more intuitive your website is, the simpler it is to use, the quicker it can bring value to the customers, so they can buy the products faster.  SUPPLY CHAIN o Correct delivery, timely delivery, fully stocked stores, undamaged goods, good shopping environment.  Dominos Pizza, delivery in 30 minutes or less. So they need to figure out how to deliver that value in that time in terms of how they will cook the pizza, what kind of pizzas will they have to offer, were are locations going to be?  How we keep our stores stocked, is it fully stocked? How do we make sure that there are enough materials in our store in order to get things done? We need to make sure that everyone can get that product WHEN they want one. (INVENTORY MANAGMENT)  Assortments: do we carry all the lines of Coca-Cola or do we carry the most popular ones? If you are a gas station, you probably lack the space for an entire array of CocaCola products.  Location – must consider were the stores will be, or where our distribution centers are going to be. FEDEX is in Memphis, Tennessee because it’s in the center of the country, so they go to all kinds of different places. COMPONENTS OF DISTRIBUTION  CHANNEL OF DISTRIBUTION o  the organizations that move things around. This is strategic – how should we best partner with other organizations to get a product to end users in a way that is consistent with the brand. o Marketing Channel  individuals and firms involved in the process of making a product or service available for use or consumption by consumers or individual users.  Marketing channels make possible the flow of products and services from the producer, through intermediaries, to a buyer.  There are two kinds of Intermediaries: o Intermediaries who purchase items from the seller, store them, and resell them to buyers.  Wholesalers – Intermediary who sales to other intermediaries, usually to retailers.  Retailer – Intermediary who sales to customers  Distributors. o Intermediaries who represent sellers but do not actually take title to products, they only bring a seller and buyer together.  Agent or Broker – any intermediary with legal authority to act on behalf of the manufacturer.  Intermediary Functions (We only choose to add intermediaries if they ADD VALUE! There are three ways they can add value…)  NOTE: Adding intermediaries adds value, but we have to share our profit as a manufacturer with that intermediary for making it easier for people to get the product they want, where and when they want it. TRANSACTIONAL FUNCTION – Occur when intermediaries buy and sell products or services.  Buying: Purchasing products for resale or as an agent for supply of a product.  Selling: Contacting potential customers, promoting products and seeking orders.  Risk Taking: Risk is shared with different intermediaries when they stock merchandise in anticipation of sales. If the stock is UNSOLD, the intermediary suffers the loss, not the producer. o LOGISTICAL FUNCTION – Involve the details of preparing and getting a product to buyers.  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. o FACILITATING FUNCTION – Intermediaries perform this when they make transactions easier for buyers. (Easy for customers to get the product)  Macys issues credit cards to customers so they can buy now and pay later.  Financing: extending credit to customers.  Grading: inspecting, testing, or judging products and assigning them quality grades.  Marketing Information and Research: providing information to customers and suppliers, including competitive conditions and trends. o o COMMON MARKETING CHANNELS    e to u r Asama n u f a c t u r e ra ndb r a ndma n a g e r ,weha v et od e c i d eh o wt ob e s tg p r od u c tt oou rc u s t o me r . Ou rd i s t r i b u t i o nme t h o dh a st ob et h ebe s ti tc a nf o ro ur p r od u c t , o u rc u s t o me r ,a n dou ri ma g e . Direct Channel (A) – Sometimes we choose not to have an intermediary. Meaning that the producer and the ultimate customers deal directly with each other.  BENEFITS – 1) You don’t have to share profits 2) It allows the most control over the distribution function. Indirect Channel – Intermediaries are inserted between the producer and consumers and perform numerous channel functions.  Retailer (B) – Manufacturers often add a retailer so that the retailer can provide service and selection for the customer o Automobile manufacturers such as Toyota use this channel, a LOCAL CAR DEALER acts as a retailer.  Producer (C) – A wholesaler is often added to manage quantity discrepancies. This is usually done for low-cost, lowunit value items that are frequently purchased by consumers, such as candy, confectionary items, and magazines.  Mars sells case quantities of its line of candies to wholesalers, who then break down (sort) the cases so that individual retailers can order in boxes or much smaller quantities. o Kroger purchases high amounts of organic produce. Organic farms are typically very small. Instead of Kroger going to individual farmers, they have the wholesaler contact the farmers and amass the quantities of organic produce needed to stock all the stores nationwide. Agent (D – most indirect channel) – An agent is the only player in a channel that typically never sees the good he/she is helping move. An agent is used to help coordinate a large supply of the product. o Employed when there are many small manufacturers and many small retailers. o Mansar Products is a Belgian producer of specialty jewelry that uses agents to sell to wholesalers in the United States, who then sell to many small independent jewelry retailers. o In the wine industry, wineries typically sell to wholesalers to store and distribute the wine to retailers and restaurants. The agent works on behalf of the wholesaler to help identify what wines will be the best fit for a given restaurant or specialty retailer. o  o FACTORS IN CHOOSING A CHANNEL (How to decide what our channel should look like in the previous supply?)   s i n gama r k e t i n gc h a n ne l Ma r k e t i n ge x e c u t i v e sc o n s i d e rt h r e eq u e s t i o nswh e nc ho o a ndi n t e r me d i a r i e s : 1. Which channel and intermediaries will provide the best coverage of the target market? 2. Which channel and intermediate best satisfy the buying requirements of the target market? 3. Which channel in the chimichurri’s will be the most profitable? Target Market Coverage – How widely available do we want the product to be? Three degrees of distribution density exist:  Intensive distribution (Available in many outlets = BUY everywhere and often) – means that a firm tries to place its products and services in as many retailer outlets as possible. o Intensive distribution is usually convenience products or services such as: candy, fast food, pringles, Duracell batteries, newspapers and soft drinks. o Coke wants its product to be distributed this way so that anytime you are the least bit thirsty, a drink is just a few footsteps away.  Vending machines!!  Exclusive Distribution (Available in very few outlets = harder to find and held at high esteem + Opposite of intensive distribution) – only one retailer in a specific geographical area carries the firm’s products. o Most appropriate for luxury goods or things that people buy infrequently (specialty products). The products don’t need to be as widely available because customers aren’t looking for it as often.    Using this strategy also limits head-to-head competition for an identical product. o Gucci is one of the leading luxury products companies, uses this type of distribution for its various brands.  Selective Distribution (Available in SOME Outlets + Lies in between the two extremes + is the most common) – Strategy when you don’t want to show up everywhere nor too exclusively. = Comparison Process (less widely available) o More appropriate if we expect that people will buy products less often.  Shopping products such as iPods, televisions, DVD Players and shoes. o Dell Technologies chose selective distribution when they decided to sell their products through US retailers. There were plenty of retailers who told them “sell through us” but the company did not want to be shown everywhere. So they limited their range of its products through Walmart, Best Buy, and Costco. Satisfying Buying Requirements – This should take into consideration the customer purchase process for the product.  Lime Bike – the research the company performed revealed that people loke to feel the grip of the handlebars, which means they need an in-person shopping experience.  It’s all about gaining access to channels and intermediaries that satisfy at least some of the interests buyers might want fulfilled when they purchase a firm’s product or services. o These interests fall into four broad categories (Relates to customer experience)  Information – Since buyers have limited knowledge or require specific data about the product, properly chosen intermediaries communicate with buyers through in-store displays, demonstrations and personal selling.  Apple has opened about 500 retail outlets staffed with highly trained personnel to communicate how its products can better satisfy customer’s needs.  Convenience – (multiple meanings for buyers)  7-Eleven stores, with more than 50,000 outlets worldwide, which many are opened 24 hours a day, satisfy this interest for buyers.  For Internet shoppers, convenience means website must be easy to locate and navigate.  Variety – Reflects buyers’ interest in having numerous competing and complementary items from which to choose.  Pre-or-post sale service – these services are important buying requirements provided by intermediaries.  Specially for products such as large household appliances that required delivery, installation, and credit. Most Profitable – This is determined by the margins earned. (revenues – costs) for each channel member and for the channel as a whole.  These costs include distribution, advertising, and selling expenses associated with the different types of marketing channels.  Sometimes, adding an intermediary, even though it rises prices for the end-user, ultimately is more profitable. This occurs due to the fact that bringing the product physically closer, and giving the chance for interaction means customers will pay a higher price. o CHANNEL CONFLICT AND COOPERATION   Channel Captain – Channel member that has MOST POWER in the channel and coordinates, directs and supports other channel members  Most often, that’s the retailers because they have so much data about what people are buying. (this is one way to secure cooperation between channel members)  Walmart uses checkout data to tell manufacturers what products to make.  Ideally Channel members – divide tasks so each member does what it does best. Channel Conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.  Types of Conflict that occur in marketing channels: o Vertical Conflict – Occurs between DIFFERENT levels of the channel.  When McDonalds released the McWrap, franchisers were expected to sell it for $.99, but their cost to produce the wrap was $1.72. Corporate stores didn’t mind because they absorbed the loss, but franchisers lost money directly from their own pockets.  Conflict between manufacturer and a wholesaler or retailer.  Conflict between a wholesaler and a and a retailer.  3 Types of Vertical Conflict are most common:  Disintermediation – When we cut out a member of the distribution channel. (Bypass another member and sell product direct) => A channel member who previously profited from the relationship, no longer has the opportunity to do so.  Conflict occurs due to disagreements over how profit margins are distributed among channel members. o This happened when Amazon and the Hatchette Book Group (third largest trade book and education of publisher) engaged in a 7-month dispute about how e-book revenue should be divided between the two companies.  Conflict situation arises when manufacturers believe wholesalers or retailers are not giving their product adequate attention. o Nike stopped shipping popular sneakers to Foot Locker in retaliation for the retailer’s decision to give more shelf space to shoes costing under $120. Horizontal Conflict – Occurs between members of the channel o (intermediaries) at the SAME level.  Occasionally, a Starbucks location will begin selling Pumpkin Spice Lattes ahead of schedule, frustrating other store managers because customers flock to that location.  Conflict occurring between two or more retailers.  2 Sources of Horizontal Conflict are most common:  When a manufacturer increases its distribution coverage in a geographical area. o A franchised Cadillac dealer in Chicago might complain to General Motors that another franchised Cadillac dealer has located too close to its dealership.  Dual distribution causes conflict when different types of retailers carry the same brands. o VERTICAL MARKETING SYSTEMS (Professionally managed and centrally coordinated marketing channels designed to achieve channel economies maximum marketing impact.)  Degree of Direct Control   Corporate – One organization owns all levels of distribution.  DISADVANTAGES – 1) No outside impute 2) less resources 3) expansion is very difficult.  Apple  Ralf Lauren manufactures clothing and also owns apparel shops. Contractual – (most popular) different levels make legal agreements to do business together => this is where franchises (you pay to sell the name and in return you have control over store) sit.  BINDING LEGAL AGREEMENT that holds two businesses together.  Many companies have their hands in it. Administered – Businesses work together, but there is nothing binding them together.  Fast and with NO CONTRACTS. o Hey achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.  Walmart – they say jump and you say how high (in order to keep doing business)  Proctor and Gamble – given its broad product assortment ranging from disposable diapers to detergents, is able to obtain cooperation from supermarkets in displaying, promoting and pricing its products.  SUPPLY CHAIN MANAGEMENT o  From the raw materials all the way through to the final customer, the organizations that partner to produce and distribute a final product.  Supply Chain Management – The integration and organization of information and logistics activities across firms in a supply chain for the purpose of creating and delivering products and services that provide value to customers.   LOGISTICS o  The decisions we make during production and afterwards about HOW a product is made and HOW it gets to where it needs to be.  Focus on getting the right amount of the products to the right place at the right time in the right condition at the right (lowest possible cost) price.  LOGISTICS MANAGEMEMT – Practice of organizing the cost-effective flow of raw materials, in process inventory, finished goods and related information from point of origin to point of consumption to satisfy customer requirements.  LOGISTICS deals with decisions needed to move a product from the source of raw materials to consumption.  Flow of the product  Decisions need to be COST EFFECTIVE o A firm needs to drive down logistics costs as long as it can deliver expected customer service (satisfy customer needs). Channels + Supply Chain + Logistics o NOTE - “Supply chain is the football coach, and logistics is the quarterback. They both provide direction regarding how field assets must be situated and positioned. But the coach provides the overall game plan, and the QB executes the moves, adapting on the fly as needed. o Supply chain = a series of linked suppliers and customers on which every customer is, in turn, a supplier to another customer until a finished product reaches the ultimate customer. The process of coordinating and scheduling the flow of materials and components for their assembly into actual automobiles by carmakers is heavily dependent on logistical  SUPPLY CHAIN MANAGEMENT AND MARKETING STRATEGY o Mar k e t e r sr e c o g n i z et h a tt h ec h o i c eofas u pp l yc h a i nf o l l o wsf r o m ac l e a r l yd e fin e dma r k e t i n g s t r a t e gya n di n v ol v e s3s t e p s : 1. Understand the Customer – To do so, a company must identify the needs of the customer segment being served. (desire for a low price or convenience of product) This is very important because it helps the company define the importance of efficiency and responsiveness in meeting customer requirements. 2. Understand the Supply Chain – Company must understand what a supply chain is designed to do well. Supply chains range from those that emphasize being responsive to customer requirements and demand to those that emphasize efficiency with a goal of supplying products at the lowest possible delivered cost. 3. Harmonize the Supply Chain with the Marketing Strategy – Company must ensure that what the supply chain is capable of doing well is consistent with the targeted customer’s needs and its marketing strategy. o Example of a Supply Chain for a T-Shirt  Walmart: An effective supply chain o They keep relatively low inventory levels, and most of it is stocked on stores available for sale, not in warehouses gathering dust. This low inventory arises from using Cross-Docking – a practice that involves unloading products from suppliers, sorting products for individual stores, and quickly reloading products onto its trucks from a particular store.  NO WAREHOUSING OR STORING OF PRODUUCTS OCCUR. Walmart even fines suppliers who deliver products earlier. o KEEP IN MIND – 1) there is no one best supply chain for every company. 2) The best supply chain is the one that is consistent with the needs of the customer segment being served and complements a company’s marketing strategy. 3) supply chain managers are often called upon to make trade-offs between efficiency and responsiveness on various elements of a company’s supply chain.  GOAL OF LOGISTICS MANAGEMENT IN SUPPLY CHIAN – minimize total logistics costs while delivering the appropriate level of customer service. TOTAL LOGISTICS COST CONCEPT   -  Includes expenses associated with transportation, material handling and warehousing, inventory, stockouts (being out of inventory), order processing, and return products handling. Many of these costs are interrelated so that changes in one will impact the others. If a company attempts to reduce its transportation costs by shipping in larger quantities, it will increase its inventory levels. While larger inventory levels will increase inventory costs, they should also reduce stockouts. CUSTOMER SERVICE CONCEPT  Is the ability to logfistics management to satisfy users in terms of:  Time – Order cycle or replenishment for an item. = the time between the ordering if an item and when it is received and ready for use or sell. - Example – When HP Printers are running low on ink and fall below the minimum levels, a replacement order is automatically produced.  Dependability – Consistency of replenishment (for firms in supply chain and to customers). How often do you return to a store if it fails to have in stock the item you want to purchase?  Communication– A two-way link between the buyer and supplier that helps in monitoring service and anticipating future needs.  Convenience– for a supply chain manager, it means that there should be a minimum of effort on the part of the buyer in doing business with the sellers. - Is it easy for the customer to order? - Vendor-Managed Inventory (VMI) – Supplier determines the product amount and assortment a customer (such as a retailer) needs and automatically delivers the appropriate items. EXTRA  The more complicated the product, the more complex the supply chain becomes  Inventory issues o Money is not moving  More inventory = more costs  But not having inventory is EVEN WORSE. o Expensive to maintain o Takes up space and needs to be protected while its there.