Amity Business School

Marketing Channels and

Supply Chain Management
 Supply Chain Partners Amity Business School

Upstream partners include raw material

suppliers, components, parts, information,
finances, and expertise to create a product
or service

Downstream partners include the

marketing channels or distribution
channels that look toward the customer
 Supply Chain Views Amity Business School

Supply chain “make and sell” view includes the

firm’s raw materials, productive inputs, and
factory capacity

Demand chain “sense and respond” view

suggests that planning starts with the needs of
the target customer and the firm responds to
these needs by organizing a chain of resources
and activities with the goal of creating customer
value
 Value Delivery Network Amity Business School

The value delivery network is the firm’s

suppliers, distributors, and ultimately
customers who partner with each other to
improve the performance of the entire
system
 Marketing channel Amity Business School

Marketing channel is a set of

independent organizations that help make
a product or service available for use or
consumption by the consumer or business
users
How Channel Members Add Value
Amity Business School

Channel members add value by bridging

the major time, place, and possession
gaps that separate goods and services
from those who would use them
 How Channel Members Add ValueAmity Business School

Producers use intermediaries because they

create greater efficiency in making goods
available to target markets.
 How Channel Members Add Value Amity Business School

Intermediaries offer the firm more than it

can achieve on its own through their
contacts, experience, specialization, and
scale of operations
 How Channel Members Add Value Amity Business School

From an economic view, intermediaries

transform the assortment of products into
assortments wanted by consumers
 How Channel Members Add Value Amity Business School

Information refers to the gathering and distributing

research and intelligence information about actors and
forces in the marketing environment needed for planning
and aiding exchange

Promotion refers to the development and spreading

persuasive communications about an offer

Contacts refers to finding and communicating with

prospective buyers
 How Channel Members Add Value Amity Business School

Matching refers to shaping and fitting the

offer to the buyer’s needs, including
activities such as manufacturing, grading,
assembling, and packaging

Negotiation refers to reaching an

agreement on price and other terms of the
offer so that ownership or possession can
be transferred
 How Channel Members Add Value Amity Business School

Physical distribution refers to transporting

and storing goods

Financing refers to acquiring and using

funds to cover the costs or carrying out the
channel work

Risk taking refers to assuming the risks of

carrying out the channel work
 Number of Channel Members Amity Business School

Channel level refers to each layer of marketing

intermediaries that performs some work in
bringing the product and its ownership closer to
the final buyer

Direct marketing channel has no intermediary

levels; the company sells directly to consumers

Indirect marketing channels contain one or more

intermediaries
 Number of Channel Members Amity Business School

Connected by types of flows:

• Physical flow of products

• Flow of ownership

• Payment flow

• Information flow

• Promotion flow
 Channel Behavior Amity Business School

• Marketing channel consists of firms that

have partnered for their common good
with each member playing a specialized
role
 Channel Behavior Amity Business School

Channel conflict refers to disagreement

over goals, roles, and rewards by channel
members
• Horizontal conflict

• Vertical conflict
 Channel Behavior Amity Business School

Horizontal conflict is conflict among

members at the same channel level

Vertical conflict is conflict between different

levels of the same channel
Conventional Distribution Systems Amity Business School

• Conventional distribution systems

consist of one or more independent
producers, wholesalers, and retailers.
Each seeks to maximize its own profits
and there is little control over the other
members and no formal means for
assigning roles and resolving conflict.
 Vertical Marketing Systems Amity Business School

Vertical marketing systems (VMS) provide

channel leadership and consist of
producers, wholesalers, and retailers
acting as a unified system and consist of:
• Corporate marketing systems

• Contractual marketing systems

• Administered marketing systems

 Vertical Marketing Systems Amity Business School

Corporate vertical marketing system

integrates successive stages of production
and distribution under single ownership
 Vertical Marketing Systems Amity Business School

• Contractual vertical marketing system

consists of independent firms at different
levels of production and distribution who
join together through contracts to obtain
more economies or sales impact than
each could achieve alone. The most
common form is the franchise
organization.
 Vertical Marketing Systems Amity Business School

Franchise organization links several

stages in the production distribution
process
• Manufacturer-sponsored retailer franchise
system
• Manufacturer-sponsored wholesaler franchise
system
• Service firm-sponsored retailer franchise
system
 Vertical Marketing Systems Amity Business School

Administered vertical marketing system has

a few dominant channel members without
common ownership. Leadership comes from
size and power.
 Horizontal Marketing SystemsAmity Business School

• Horizontal marketing systems include

two or more companies at one level that
join together to follow a new marketing
opportunity. Companies combine financial,
production, or marketing resources to
accomplish more than any one company
could alone.
 Multichannel Distribution Systems
Amity Business School

Hybrid Marketing Channels

• Hybrid marketing channels exist when a
single firm sets up two or more marketing
channels to reach one or more customer
segments
 Multichannel Distribution Systems Amity Business School

Hybrid Marketing Channels

• Advantages
• Increased sales and market coverage
• New opportunities to tailor products and
services to specific needs of diverse customer
segments
• Challenges
• Hard to control
• Create channel conflict
 Changing Channel Organization Amity Business School

• Disintermediation occurs when product

or service producers cut out
intermediaries and go directly to final
buyers, or when radically new types of
channel intermediaries displace traditional
ones
 Analyzing Consumer Needs Amity Business School

Designing a channel system requires:

• Analyzing consumer needs

• Setting channel objectives

• Identifying major channel alternatives

• Evaluation
 Analyzing Consumer Needs Amity Business School

• Designing a marketing channel starts with

finding out what target customers want
from the channel
 Setting Channel Objectives Amity Business School

In terms of:
• Targeted levels of customer service

• What segments to serve

• Best channels to use

• Minimizing the cost of meeting customer

service requirements
 Setting Channel Objectives Amity Business School

Objectives are influenced by:

• Nature of the company

• Marketing intermediaries

• Competitors

• Environment
 Identifying Major Alternatives
Amity Business School

In terms of:
• Types of intermediaries

• Number of intermediaries

• Responsibilities of each channel member

 Identifying Major Alternatives
Amity Business School

Types of intermediaries refers to channel

members available to carry out channel
work. Examples include:
• Company sales force

• Manufacturer’s agency

• Industrial distributors
 Identifying Major Alternatives Amity Business School

Company sales force strategies

• Expand direct sales force
• Assign outside salespeople to territories
• Develop a separate sales force
• Telesales
 Identifying Major Alternatives
Amity Business School

• Manufacturer’s agencies are

independent firms whose sales forces
handle related products from many
companies in different regions or
industries
 Identifying Major Alternatives Amity Business School

Industrial distributors
• Find distributors in different regions or

industries
• Exclusive distribution

• Margin opportunities

• Training

• Support
 Identifying Major Alternatives
Amity Business School

Number of marketing intermediaries to use

at each level
• Strategies:

• Intensive distribution
• Exclusive distribution
• Selective distribution
 Identifying Major AlternativesAmity Business School

Intensive distribution is a strategy used by

producers of convenience products and
common raw materials in which they stock
their products in as many outlets as
possible
 Identifying Major Alternatives Amity Business School

Exclusive distribution is a strategy in

which the producer gives only a limited
number of dealers the exclusive right to
distribute its products in their territories
• Luxury automobiles

• High-end apparel
 Identifying Major AlternativesAmity Business School

Selective distribution is a strategy when a

producer uses more than one but fewer
than all of the intermediaries willing to
carry the producer’s products
• Televisions

• Appliances
Responsibilities of Channel Members
Amity Business School

Producers and intermediaries need to agree

on:
• Price policies

• Conditions of sale

• Territorial rights

• Services provided by each party

 Evaluating the Major Alternatives
Amity Business School

Each alternative should be evaluated

against:
• Economic criteria

• Control

• Adaptive criteria
Evaluating the Major Alternatives Amity Business School

Economic criteria compares the likely sales costs

and profitability of different channel members

Control refers to channel members’ control over

the marketing of the product

Adaptive criteria refers to the ability to remain

flexible to adapt to environmental changes
Designing International Distribution
Amity Business School

Channels
Channel systems can vary from country to
country

Must be able to adapt channel strategies to

the existing structures within each country
 Channel management involves Amity Business School

• Selecting channel members

• Managing channel members
• Motivating channel members
• Evaluating channel members
 Selecting Channel Members Amity Business School

Selecting channel members involves

determining the characteristics that
distinguish the better ones by evaluating
channel members
• Years in business
• Lines carried
• Profit record
 Selecting Channel Members Amity Business School

Selecting intermediaries that are sales

agents involves evaluating:
• Number and character of other lines
carried
• Size and quality of sales force
 Selecting Channel Members Amity Business School

Selecting intermediaries that are retail stores

that want exclusive or selective distribution
involves evaluating:
• Store’s customers
• Locations
• Growth potential
 Managing and Motivating Channel Amity Business School

Members
• Partner relationship management (PRM)
and supply chain management (SCM)
software are used to forge long-term
partnerships with channel members and to
recruit, train, organize, manage, motivate,
and evaluate channel members
 Amity Business School

Exclusive distribution is when the seller

allows only certain outlets to carry its
products

Exclusive dealing is when the seller

requires that the sellers not handle
competitor’s products
Benefits of exclusive distribution
Amity Business School

• Seller obtains more loyal and dependable

dealers
• Dealers obtain a steady and stronger
seller support
 Amity Business School

Exclusive territorial agreement refers to an

agreement where 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

Tying agreements, while not necessarily illegal as

long as they do not substantially lessen
competition, are agreements where there is a
strong brand that producers sometimes sell to
dealers only if the dealers will take some or all of
the rest of the line
Nature and Importance of MarketingAmity Business School

Logistics
• Marketing logistics (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 consumer requirements at a profit
 Nature and Importance of Amity Business School

Marketing Logistics
Marketing logistics involves:
• Outbound distribution: Moving products
from the factory to resellers and
consumers
• Inbound distribution: Moving products and
materials from suppliers to the factory
• Reverse distribution: Moving broken,
unwanted, or excess products returned by
consumers or resellers
Nature and Importance of Marketing
Amity Business School

Logistics
Supply chain management is the process
of managing upstream and downstream
value-added flows of materials, final
goods, and related information among
suppliers, the company, resellers, and final
consumers
 Nature and Importance of Amity Business School

Marketing Logistics
Importance of logistics
• Competitive advantage by giving

customers better service at lower prices

• Cost savings to the company and its

customers
• Product variety requires improved logistics

• Information technology has created

opportunities for distribution efficiency

 Goals of the Logistics System Amity Business School

• To provide a targeted level of customer

service at the least cost with the objective
to maximize profit, not sales
 Major Logistics FunctionsAmity Business School

• Warehousing
• Inventory management
• Transportation
• Logistics information management
 Major Logistics Functions Amity Business School

Warehousing is the storage function that

overcomes differences in need quantities
and timing, ensuring that the products are
available when customers are ready to
buy them
• Storage warehouses

• Distribution centers
 Major Logistics Functions Amity Business School

Storage warehouses are designed to store

goods, not move them

Distribution centers are designed to move

goods, not store them
 Major Logistics FunctionsAmity Business School

Inventory management balances carrying

too little and too much inventory
• Just-in-time logistics systems

• RFID
 Major Logistics Functions Amity Business School

Just-in-time logistics systems allow

producers and retailers to carry small
amounts of inventories of parts or
merchandise

RFID (radio frequency identification devices)

are small transmitter chips embedded in or
placed on products or packages to provide
greater inventory control
 Major Logistics Functions Amity Business School

Transportation affects the pricing of products,

delivery performance, and condition of the
goods when they arrive
• Truck

• Rail

• Water

• Pipeline

• Air

• Internet
 Major Logistics Functions Amity Business School

Intermodal transportation combines two or

more modes of transportation
• Piggyback uses rail and truck

• Fishyback uses water and truck

• Airtruck uses air and truck

 Logistics Information Management
Amity Business School

Logistics information management is the

management of the flow of information,
including customer orders, billing,
inventory levels, and customer data
• EDI (electronic data interchange)

• VMI (vendor-managed inventory)

Integrated Logistics Management Amity Business School

Integrated logistics management is the

recognition that providing customer
service and trimming distribution costs
require teamwork internally and externally
• Cross-functional teamwork inside the

company
• Building partner relationships
Integrated Logistics Management Amity Business School

• Cross-functional teamwork inside the

company refers to the inter-relationship of
different departments within the company
to achieve the goals of integrated supply
chain management
Integrated Logistics Management Amity Business School

Building partner relationships refers to the

understanding that one company’s
distribution is another company’s supply
system
Integrated Logistics Management Amity Business School

Third-party logistics is the outsourcing of

logistics functions to third-party logistics
providers (3PLs)
• Provide logistics functions more efficiently

• Provide logistics functions at lower cost

• Allow the company to focus on its core

business
• Are more knowledgeable of complex
logistics
 Amity Business School

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