Marketing Channels and Supply Chain Management

marketing fundamentals -- part 10 -- summary

Marketing channel decisions are among the most important decisions that managers face. A company's channel decisions directly affect every other marketing decision. Each channel system creates a different level of revenues and costs and reaches a different segment of target consumers. Management must make channel decisions carefully, incorporating today's need to tomorrow's likely selling environment. Some companies pay too little attention to their distribution channels, the others have used to imaginative distribution systems to gain competitive advantage.

Most producers use intermediaries to bring their products to market. Then they try to forge a 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. Distribution channels perform many key functions. Some help complete transactions by gathering and distributing information needed for planning and aiding exchange; by developing and spreading persuasive communications about an offer; by performing contact work -- finding and communicating with prospective buyers: by matching -- shaping and fitting the offer to the buyers needs; and by entering into negotiation to reach an agreement on price and other terms of the offer so that ownership to be transferred. Other functions help to fulfill the completed transactions by offering physical distribution -- transporting and storing goods; financing -- acquiring in using funds to cover the costs of the channel work; and risk-taking -- assuming the risks of carrying out channel work.

channel members interaction

The channel will be most effective when each member is assigned the tasks they 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 except their roles, coordinate their goals 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 provide needed leadership. But in a distribution channel made up 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.

Channel alternatives

Each firm identifies alternative ways to reach its market. The available means vary from direct selling to using 1,2,3, 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 hybrid marketing systems. The trends affect channel cooperation, conflict, and competition. 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 management calls for selecting qualified intermediaries and motivating them. Individual channel numbers must be evaluated regularly.

Channel members

Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members. Others have to work hard to lineup enough qualified intermediaries. When selecting intermediaries, the company should evaluate each channel members qualifications and select those who 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 to them. They should work to forge long-term partnerships with their channel partners to create a marketing system that meets the needs of both the manufacturer and the partners. The company must also regularly check channel member performance against established performance standards, rewarding intermediaries who are performing well and assisting or replacing weaker ones.

Marketing logistics and integrated supply chain management

Just as firms are giving the marketing concept increased recognition, more business firms are paying attention to marketing logistics (or physical distribution). Logistics is an area of potentially high cost savings and improved customer satisfaction. The marketing logistics address not only outbound distribution but also inbound distribution and reverse distribution. That is, it involves 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 include order processing, warehousing, inventory management, and transportation.

The integrated supply chain management concept recognizes that improved logistics require 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, integrated supply manager positions, and senior-level logistics executives 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 providers to save costs, increase efficiency, and gain faster and more effective access to global markets.