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PRINCIPLES OF MARKETING

Chapter 12 Chapter 12

Distribution Channels and Logistics Management

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Distribution Channels Distribution Channels

A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption. Channel decisions
affect other marketing decisions involve long-term commitments

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Role of Intermediaries Role of Intermediaries

Greater efficiency in making goods available to target markets. Intermediaries provide
Contacts Experience Specialization Scale of operation

Match supply and demand.

Channel Functions Channel Functions

Information Promotion Contact Matching Negotiation Physical Distribution Financing Risk taking

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Channel Levels Channel Levels

Manufacturer Wholesaler Retailer Consumer

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Channel Behavior and Conflict Channel Behavior and Conflict

The channel will be most effective when:
each member is assigned tasks it can do best. all members cooperate to attain overall channel goals and satisfy the target market.

Focus on individual goals leads to conflict

Horizontal Conflict occurs among firms at the same level of the channel. Vertical Conflict occurs between different levels of the same channel.

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Vertical Marketing Systems Vertical Marketing Systems

Corporate
common ownership at different channel levels

Contractual
contractual agreement among channel members

Administered
leadership assumed by dominant members

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Innovations in Marketing Systems Innovations in Marketing Systems

Horizontal Marketing Horizontal Marketing System System Two or more companies at one channel level join together to increase coverage Example:Banks in Grocery Stores Hybrid Marketing Hybrid Marketing System System A single firm sets up two or more marketing channels to increase coverage Example:Retailers, Catalogs, and Sales Force

Channel Design Decisions Channel Design Decisions

Analyzing Consumer Service Needs Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints Identifying Major Alternatives Identifying Major Alternatives
Intensive Intensive Distribution Distribution Selective Selective Distribution Distribution Exclusive Exclusive Distribution Distribution

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Evaluating the Major Alternatives Evaluating the Major Alternatives

Channel Management Decisions Channel Management Decisions Selecting Selecting

FEEDBACK

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Motivating Motivating

Evaluating Evaluating

Logistics Logistics
Involves entire supply chain Increasing importance of logistics

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effective logistics is becoming a key to winning and keeping customers. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. information technology has created opportunities for major gains in distribution efficiency.

Goals of Logistics system Goals of Logistics system

Maximize Profits, Not Sales.

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Provide a Targeted Level of Customer Service at the Least Cost.

Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels

Logistics Functions Logistics Functions

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Order Processing Warehousing Inventory Management Transportation

Design system to minimize costs of attaining objectives

Transportation Modes Transportation Modes

Nations largest carrier, cost-effective Nations largest carrier, cost-effective for shipping bulk products, piggyback for shipping bulk products, piggyback Flexible in routing & time schedules, efficient Flexible in routing & time schedules, efficient for short-hauls of high value goods for short-hauls of high value goods Low cost for shipping bulky, low-value Low cost for shipping bulky, low-value goods, slowest form goods, slowest form Ship petroleum, natural gas, and chemicals Ship petroleum, natural gas, and chemicals from sources to markets from sources to markets

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Rail Rail

Truck Truck

Water Water

Pipeline Pipeline

High cost, ideal when speed is needed or to High cost, ideal when speed is needed or to ship high-value, low-bulk items ship high-value, low-bulk items

Air Air

Integrated Logistics Management Integrated Logistics Management

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Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All Teamwork the Marketing Channel Organizations. Cross-Functional Teamwork inside Cross-Functional Teamwork inside the Company the Company Building Channel Partnerships Building Channel Partnerships Third-Party Logistics Third-Party Logistics