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Marketing, 10e: Marketing in the 21st Centuryby Evans and Berman Chap 14
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Copyright Atomic Dog Publishing, 2007
Chapter 14:“Value Chain Management and Logistics”
Joel R. Evans & Barry Berman
Marketing, 10e: Marketing in the 21st Century
Copyright Atomic Dog Publishing, 2007
Chapter Objectives
• To discuss the role of the value chain and the value delivery chain in the distribution process
• To explore distribution planning and review its importance, distribution functions, the factors used in selecting a distribution channel, and the different types of distribution channels
• To consider the nature of distribution contracts, cooperation and conflict in a channel of distribution, the special aspects of a distribution channel for industrial products, and international distribution
• To examine logistics and demonstrate its importance
• To discuss transportation alternatives and inventory management issues
Copyright Atomic Dog Publishing, 2007
The Distribution Process
Value Delivery Chain
Value Chain
Total Delivered Product
Level of
Satisfaction
Supplier/ Manufacturer
Goals
Distribution
Intermediary Goals
Customer Goals
Copyright Atomic Dog Publishing, 2007
Key Points of the Distribution Process
• The goals of various channel members are considered as inputs to the value chain and value delivery chain.
• The value chain and value delivery chain are parallel processes.
• The total delivered product is the actual result of the value chain and value delivery chain.
• Satisfaction is based on the perceived value received from the value chain and value delivery chain.
• Feedback regarding service gaps and breakdowns must be handled systematically in the process.
Goals Satisfaction
Copyright Atomic Dog Publishing, 2007
Channel Functions
Functions Performed in a Channel
of Distribution
PromotionCustomer Services
Buying Product Plannin
g
Marketing Research
Distribution
Pricing
Copyright Atomic Dog Publishing, 2007
Distribution and the Web
The Internet affects marketing functions and logistics by: Speedily conveying information. Improving communication with channel
members. Allowing firms to reach distant parts of the world. Providing customers with the option of worldwide
vendors. Offering Web-enhanced services for each
distribution function.
Copyright Atomic Dog Publishing, 2007
Factors to Consider in Selecting a Distribution Channel
• The Consumer
• The Company
• The Product
• The Competition
• Distribution Channels
• Legalities
Copyright Atomic Dog Publishing, 2007
A Direct Distribution Channel
Manufacturer
200,000 Custome
rs
In this direct channel, an umbrella
manufacturer sells directly to final
consumers. It makes 200,000 separate
transactions, one for each customer.
Copyright Atomic Dog Publishing, 2007
An Indirect Distribution Channel
Manufacturer
Wholesaler
(East U.S.)
Wholesaler
(South U.S.)
Wholesaler
(North U.S.)
Wholesaler
(West U.S.)
50 Retailers 50 Retailers 50 Retailers50 Retailers
1,000 Customers
per Retailer
1,000 Customers
per Retailer
1,000 Customers
per Retailer
1,000 Customers
per Retailer
In this indirect
channel, an umbrella
maker has only 4
transactions. It sells to regional
wholesalers, which resell to
50 retailers each. The
retailers each sell to 1,000
final consumers.
Copyright Atomic Dog Publishing, 2007
Typical Indirect Channels of Distribution
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Retailer
Final Consumer
Final Consumer
Organizational Consumer
Retailer
Wholesaler Merchant Wholesaler or Sales Agent
Organizational Consumer
Distributor
Merchant Wholesaler or Sales
Agent
1 2 3 4
Copyright Atomic Dog Publishing, 2007
Pushing Versus Pulling Strategies
Manufacturer/ Service Provider
Distribution Intermediaries
Consumers
ConsumersDistribution Intermediarie
s
Manufacturer/ Service Provider
PushingPushing
PullingPulling
Copyright Atomic Dog Publishing, 2007
Intensity of Channel Coverage
ExclusiveDistribution
SelectiveDistribution
IntensiveDistribution
A firm severely limits the number of resellers in an area. It seeks a prestige image, channel
control, and high profit margins and accepts lower total sales.
A firm employs a moderate number of resellers inan area. It tries to combine some channel control
and a solid image with good sales volume and profits.
A firm uses a large number of resellers in an area.Its goals are to have wide market coverage,channel acceptance, and high total sales and
profits. Per-unit profits are low.
Copyright Atomic Dog Publishing, 2007
International Distribution Planning
International distribution requires additional considerations and planning:
The channel length may depend on a nation’s stage of economic development.
Less-developed and developing nations tend to use shorter, more direct channels than industrialized ones.
Limited transportation and communication networks foster local shopping.
Cultural norms always affect channel member interactions.
Copyright Atomic Dog Publishing, 2007
Logistics
• Logistics, also known as physical distribution, encompasses the activities concerned with efficiently delivering raw materials, parts, semi-finished items, and finished products to designated places.
• It includes customer service, shipping, warehousing, inventory control, trucking operations, packaging, receiving, materials handling, and plant, warehouse, and store location planning.
• It affects costs, the value of customer service, its relationship with other functional areas.
Copyright Atomic Dog Publishing, 2007
Logistics and Other Functional Areas
There is a critical interaction between logistics and each of the firm’s marketing functions and this requires careful coordination. Product variations (color, size, features,
styles) may impose a burden on distribution facilities.
Logistics planning is related to overall channel strategy.
Promotion campaigns must realistically coordinate with potential logistics delivery.
Pricing may be the firm’s differential advantage based on superior logistical service.
Copyright Atomic Dog Publishing, 2007
Selected Physical Distribution Activities Involved in a Typical Order
Cycle
Production
scheduled
Inventory on hand checked
Supplier receives and enters order
Customer places an order
Orders shipped to individual customers
Goods stored until
enough orders are
placed
Goods packaged,
sorted, tagged, and sent to local
warehouse
Insufficient goods in stock
Sufficient goods in
stock
Copyright Atomic Dog Publishing, 2007
An Illustration of the Total-Cost Approach in Distribution
Carrier
Air
Rail
Truck
$1.6 mill.
Annualfreight costs$100,000
Annualwarehousing costs
Annual costs of lost sales due to being out of stock
Costs
$500,00
$1.5 mill
$300,000 $800,000 $300,000
$1.4mil.
$1.2 mil.$500,000
$200,000
Copyright Atomic Dog Publishing, 2007
What Happens When a Firm Has Stock Shortages
Most Desirable Action Least Desirable Action
Wait until merchandise is
available.
Purchase a substitute
product from the same
seller.
Switch to a new seller while
merchandise is not available.
Permanently switch to a new seller for all
purchases.
When a firm runs out of
stock, customers can
Copyright Atomic Dog Publishing, 2007
5 Transportation Forms for Shipping
Next Day, Inc.
Railroads carry heavy, bulky items over long distances but have high fixed costs due to facility investments.
Motor Carriers usually transport small shipments short distances and handle most U.S. shipments less than 500 or 1,000 pounds.
Waterways in the U.S. include barges on inland rivers, and tankers and freighters on Great Lakes, and intercoastal shipping.
Airways are fast and expensive but move high-value perishable and emergency goods. Speed may provide a differential advantage.
Pipelines move gas and petroleum products with low costs.
Copyright Atomic Dog Publishing, 2007
Inventory Management
• Good inventory management matches the quantity of goods kept in inventory with customer demand.
• To improve efficiency, many firms use a just-in-time inventory system and electronic data interchange.
• Four specific aspects of inventory management are stock turnover, when to reorder, how much to reorder, and warehousing.
• Stock turnover refers to the number of times during a stated period that average inventory on hand is sold.
• A reorder point depends on lead time, usage, and safety stock.
• The economic order quantity (EOQ) is the order volume corresponding to the lowest sum of order-processing and inventory-holding costs.
Copyright Atomic Dog Publishing, 2007
Chapter Summary
• This chapter discusses the role of the value chain and the value delivery chain in distribution.
• It explores distribution planning and examines its importance, distribution functions, the factors used in selecting a distribution channel, and the different types of distribution channels.
• It considers distribution intermediary contracts, cooperation and conflict in a distribution channel, special aspects of a distribution channel for industrial products, and international distribution.
• It examines logistics and shows its importance.• It discusses transportation alternatives and
inventory management issues.
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