Marketing plan 3

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Marketing: An Introduction

Thirteenth Edition

Chapter 10

Marketing Channels: Delivering Customer Value

Learning Objectives (1 of 4)

10-1. Explain why companies use marketing channels and discuss the functions these channels perform.

10-2. Discuss how channel members interact and how they organize to perform the work of the channel.

10-3. Identify the major channel alternatives open to a company.

This chapter explains why companies use marketing channels and discusses the functions these channels perform. It discusses how channel members interact and how they organize to perform the work of the channel. The chapter also identifies the major channel alternatives open to a company.

Learning Objectives (2 of 4)

10-4. Explain how companies select, motivate, and evaluate channel members.

10-5. Discuss the nature and importance of marketing logistics and integrated supply chain management.

This chapter further explains how companies select, motivate, and evaluate channel members and discusses the nature and importance of marketing logistics and integrated supply chain management.

First Stop: Uber Radically Reshaping Urban Transportation

Uber lets passengers hail the nearest cab from any location using its smartphone app.

Uber lets passengers hail the nearest cab from any location using its smartphone app, then track the vehicle on a map as it approaches.

Uber—the fast-growing, app-based ride service—is revolutionizing urban transportation channels in cities around the globe. As Uber grows, traditional taxi

cab services must innovate or risk extinction.

Learning Objective 10-1

Explain why companies use marketing channels and discuss the functions these channels perform.

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.

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.

Value Delivery Network (1 of 2)

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

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.

Value Delivery Network (2 of 2)

Pepsi manages a huge network to create customer value and establish the brand’s positioning.

Pepsi manages an extensive value delivery network in making and marketing its classic colas. The company manages a huge network of people within the company plus thousands of outside suppliers, bottlers, retailers, and marketing service firms that must work together to create customer value and establish the brand’s “Pepsi: live for now” positioning.

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

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.

Figure 10.1 - How a Distributor Reduces the Number of Channel Transactions

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.

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.

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

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.

Number of Channel Levels (1 of 2)

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

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.

Number of Channel Levels (2 of 2)

Types of flows that connect the institutions in the channel:

Physical flow of products

Flow of ownership

Payment flow

Information flow

Promotion flow

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.

Figure 10.2 - Consumer and Business Marketing Channels

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.

Learning Objective 10-1 Summary

Value delivery network

Intermediaries form the marketing channel (or distribution channel)

Marketing channel functions:

Transaction, information, communication, matching, negotiation, physical distribution, financing, and risk taking

In creating customer value, a company can’t go it alone. It must work within an entire network of partners—a value delivery network—to accomplish this task. Individual companies and brands don’t compete; their entire value delivery networks do.

Most producers use intermediaries to bring their products to market. They forge a marketing channel (or distribution channel)—a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.

Marketing channels perform many key functions. Some help complete transactions by gathering and distributing information needed for planning and aiding exchange, developing and spreading persuasive communications about an offer, performing contact work (finding and communicating with prospective buyers), matching (shaping and fitting the offer to the buyer’s needs), and entering into negotiation to reach an agreement on price and other terms of the offer so that ownership can be transferred. Other functions help to fulfill the completed transactions by offering physical distribution (transporting and storing goods), financing (acquiring and using funds to cover the costs of the channel work), and risk taking (assuming the risks of carrying out the channel work).

Learning Objective 10-2

Discuss how channel members interact and how they organize to perform the work of the channel.

Channel Behavior (1 of 2)

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.

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.

Channel Behavior (2 of 2)

“There’s a huge connection” between franchisee satisfaction and customer service.

Growing McDonald’s franchisee discontent may explain the increasing lack of smiles on the faces of both McDonald’s cashiers and customers.

Figure 10.3 Comparison of Conventional Distribution Channel with Vertical Marketing System

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.

Vertical Marketing Systems

A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system.

There are three types of VMSs:

Corporate

Contractual

Administered

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.

Horizontal Marketing System (1 of 2)

Two or more companies at one level join together to follow a new marketing opportunity.

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.

Horizontal Marketing System (2 of 2)

General Mills and Nestlé

operate a joint venture—Cereal Partners Worldwide.

As an example of horizontal marketing systems, General Mills and Nestlé operate a joint venture—Cereal Partners Worldwide—that markets General Mills Big G cereal brands outside North America.

Multichannel Distribution Systems

A single firm sets up two or more marketing channels to reach customer segments.

Advantages:

Expansion of sales and marketing coverage

Tailor-made products and services for the specific needs of customer segments

Disadvantages:

Harder to control

Generates conflict

Almost every large company and many small ones distribute through multiple channels. A multichannel distribution system refers to a single firm that sets up two or more marketing channels to reach one or more customer segments.

Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments. But such multichannel systems are harder to control, and they can generate conflict as more channels compete for customers and sales.

Figure 10.4 – Multichannel Distribution System

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 (1 of 2)

Occurs when product or service producers cut out marketing channel intermediaries or when radically new types of channel intermediaries displace traditional ones

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.

Disintermediation (2 of 2)

Spotify is rapidly disintermediating both traditional music stores and music download services.

Streaming music services such as Spotify are rapidly disintermediating both traditional music-store retailers and even music download services such as iTunes.

Learning Objective 10-2 Summary

Horizontal and vertical channel conflict

Conventional distribution system, vertical management system (VMS) and horizontal marketing system

Multichannel distribution system

Disintermediation

The channel will be most effective when each member assumes the tasks it can do best. Ideally, because the success of individual channel members depends on overall channel success, all channel firms should work together smoothly. They should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals. By cooperating, they can more effectively sense, serve, and satisfy the target market.

In a large company, the formal organization structure assigns roles and provides needed leadership. But in a distribution channel composed of independent firms, leadership and power are not formally set. Traditionally, distribution channels have lacked the leadership needed to assign roles and manage conflict. In recent years, however, new types of channel organizations have appeared that provide stronger leadership and improved performance.

Learning Objective 10-3

Identify the major channel alternatives open to a company.

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

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.

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

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.

Designing International Channels

Channel strategies should be adapted to the existing structures within each country.

Distribution systems can have many layers and a large number of intermediaries.

Customs and government regulations can restrict distribution in global markets.

Global marketers must usually adapt their channel strategies to the existing structures within each country. In some markets, the distribution system is complex and hard to penetrate, consisting of many layers and large numbers of intermediaries. Distribution systems in developing countries may be scattered, inefficient, or altogether lacking.

Sometimes local conditions can greatly influence how a company distributes products in global markets. For example, in low-income neighborhoods in Brazil where consumers have limited access to supermarkets, Nestlé supplements its distribution with thousands of self-employed salespeople who sell Nestlé products from refrigerated carts door to door.

Learning Objective 10-3 Summary

Channel design begins with assessing needs, objectives and constraints

Company determines major channel alternatives

Types, number of intermediaries and channel responsibilities

Channel alternatives evaluated according to economic, control and adaptive criteria

Channel management - selecting qualified intermediaries, motivating them and evaluating regularly

Channel design begins with assessing customer channel service needs and company channel objectives and constraints.

The company then identifies the major channel alternatives in terms of the types of intermediaries, the number of intermediaries, and the channel responsibilities of each. Each channel alternative must be evaluated according to economic, control, and adaptive criteria.

Channel alternatives vary from direct selling to using one, two, three, or more intermediary channel levels. Marketing channels face continuous and sometimes dramatic change. Three of the most important trends are the growth of vertical, horizontal, and multichannel marketing systems. These trends affect channel cooperation, conflict, and competition.

Channel management calls for selecting qualified intermediaries and motivating them. Individual channel members must be evaluated regularly.

Learning Objective 10-4

Explain how companies select, motivate, and evaluate channel members.

Marketing Channel Management (1 of 2)

Selecting channel members

Managing and motivating channel members

Evaluating channel members

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.

Marketing Channel Management (2 of 2)

CVS Caremark’s decision leaves tobacco companies seeking new sales channels.

Even established brands may have difficulty keeping desired channels. CVS Caremark’s decision to stop selling cigarettes leaves tobacco companies seeking new sales channels.

Public Policy and Distribution Decisions

Exclusive distribution

Exclusive dealing

Exclusive arrangements (Clayton Act) are legal as long as the parties

Do not substantially lessen competition or tend to create a monopoly

Enter into the agreement voluntarily

Many producers and wholesalers like to develop exclusive channels for their products. When the seller allows only certain outlets to carry its products, this strategy is called exclusive distribution. When the seller requires that these dealers not handle competitors’ products, the strategy is called exclusive dealing.

Exclusive arrangements also exclude other producers from selling to these dealers. This situation brings exclusive dealing contracts under the scope of the Clayton Act of 1914. They are legal as long as they do not substantially lessen competition or tend to create a monopoly and as long as both parties enter into the agreement voluntarily. Exclusive dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. Producers of a strong brand sometimes sell it to dealers only if the dealers will take some or all of the rest of its line. This is called full-line forcing. Such tying agreements are not necessarily illegal, but they violate the Clayton Act if they tend to lessen competition substantially. Finally, producers are free to select their dealers, but their right to terminate dealers is somewhat restricted. In general, sellers can drop dealers “for cause.” However, they cannot drop dealers if, for example, the dealers refuse to cooperate in a doubtful legal arrangement, such as exclusive dealing or tying agreements.

Learning Objective 10-4 Summary

Marketing channel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

Company must sell not only through the intermediaries but also with them.

Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members, whereas others have to work hard to line up enough qualified intermediaries. When selecting intermediaries, the company should evaluate each channel member’s qualifications and select those that best fit its channel objectives.

Once selected, channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries but also with them. It should forge strong partnerships with channel members to create a marketing system that meets the needs of both the manufacturer and the partners.

Learning Objective 10-5

Discuss the nature and importance of marketing logistics and integrated supply chain management.

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

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.

Figure 10.5 – Supply Chain Management

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.

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

Inventory management

Transportation

Logistics information management

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.

Warehousing (1 of 2)

Storage warehouses store goods for moderate to long periods.

Distribution centers are large, highly automated warehouses that receive goods, take orders, fill them, and deliver goods to customers.

Production and consumption cycles rarely match, so most companies must store their goods while they wait to be sold. A company must decide on how many and what types of warehouses it needs and where they will be located. The company might use either storage warehouses or distribution centers. Storage warehouses store goods for moderate to long periods. In contrast, distribution centers are designed to move goods rather than just store them. They are large and highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill orders efficiently, and deliver goods to customers as quickly as possible.

Warehousing (2 of 2)

Amazon employs teams of super-retrievers — day-glo orange Kiva robots.

Amazon’s high-tech distribution center employs teams of super-retrievers—day-glo orange Kiva robots—to keep its fulfillment centers humming.

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.

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 inventory-carrying 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.

Transportation (1 of 2)

Companies can choose among many transportation modes, including truck, rail, water, pipeline, and air.

In shipping goods to their warehouses, dealers, and customers, companies can choose among many transportation modes, including truck, rail, water, pipeline, and air. Much of today’s shipping requires multiple modes.

Transportation (2 of 2)

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

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.

Logistics Information Management

Flows of information closely linked to channel performance

Information can be shared and managed through

Electronic data interchange (EDI)

Vendor-managed inventory (VMI)

Companies manage their supply chains through information. Channel partners often link up to share information and make better joint logistics decisions.

Information can be shared and managed in many ways, but most sharing takes place through electronic data interchange (EDI), the digital exchange of data between organizations, which primarily is transmitted via the Internet.

Many large retailers work closely with the major suppliers to set up vendor-managed inventory (VMI) systems or continuous inventory replenishment systems. By using VMI, the customer shares real-time data on sales and current inventory levels with the supplier.

Integrated Logistics Management

Emphasizes teamwork both inside the company and among all the marketing channel organizations

Forming cross-functional teams inside the firm

Building logistics partnerships

Outsourcing to third-party logistics providers for functions required to get a client’s product to market

Integrated logistics management emphasizes teamwork both inside the company and among all the marketing channel organizations.

Most companies assign responsibility for various logistics activities to many different departments. The goal of integrated supply chain management is to harmonize all of the company’s logistics decisions. Some companies have created permanent logistics committees composed of managers responsible for different physical distribution activities. Companies can also create supply chain manager positions that link the logistics activities of functional areas.

Smart companies coordinate their logistics strategies and forge strong partnerships with suppliers and customers to improve customer service and reduce channel costs. Many companies have created cross-functional, cross-company teams. Other companies partner through shared projects.

A third-party logistics (3PL) provider is an independent logistics provider that performs any or all of the functions required to get a client’s product to market. Companies use third-party logistics providers for several reasons. First, because getting the product to market is their main focus. Second, outsourcing logistics frees a company to focus more intensely on its core business. Finally, integrated logistics companies understand increasingly complex logistics environments.

Learning Objective 10-5 Summary

Marketing logistics - outbound logistics, inbound logistics, and reverse logistics

Major logistics functions - warehousing, inventory management, transportation, and logistics information management

Integrated supply chain management

Third-party logistics (3PL) providers

Marketing logistics (or physical distribution) is an area of potentially high cost savings and improved customer satisfaction. Marketing logistics addresses not only outbound logistics but also inbound logistics and reverse logistics. That is, it involves the entire supply chain management—managing value-added flows between suppliers, the company, resellers, and final users. No logistics system can both maximize customer service and minimize distribution costs. Instead, the goal of logistics management is to provide a targeted level of service at the least cost. The major logistics functions are warehousing, inventory management, transportation, and logistics information management.

The integrated supply chain management concept recognizes that improved logistics requires teamwork in the form of close working relationships across functional areas inside the company and across various organizations in the supply chain. Companies can achieve logistics harmony among functions by creating cross-functional logistics teams, integrative supply manager positions, and senior-level logistics executive positions with cross-functional authority. Channel partnerships can take the form of cross-company teams, shared projects, and information-sharing systems. Today, some companies are outsourcing their logistics functions to third-party logistics (3PL) providers to save costs, increase efficiency, and gain faster and more effective access to global markets.

Learning Objectives (3 of 4)

10-1. Explain why companies use marketing channels and discuss the functions these channels perform.

10-2. Discuss how channel members interact and how they organize to perform the work of the channel.

10-3. Identify the major channel alternatives open to a company.

This chapter explained why companies use marketing channels and discusses the functions these channels perform. It discussed how channel members interact and how they organize to perform the work of the channel. The chapter also identified the major channel alternatives open to a company.

Learning Objectives (4 of 4)

10-4. Explain how companies select, motivate, and evaluate channel members.

10-5. Discuss the nature and importance of marketing logistics and integrated supply chain management.

This chapter further explained how companies select, motivate, and evaluate channel members and discussed the nature and importance of marketing logistics and integrated supply chain management.