Supply Chain, Distribution Channels, and Promotions

Value Chain and Value Network

• Value chain activities relevant to supply chain and distribution:

  • Inbound logistics: raw materials coming into the factory.

  • Outbound logistics: finished product moving to distribution center.

  • Operations: converting raw materials into finished goods.

Important Terms

• Supply Chain: All organizations involved in supplying to a firm, including members in its distribution channel and end users (consumers and business users).

• Supply Chain Management: Managing value-adding flows among entities to maximize overall value.

• Value Network: An overarching system of formal and informal relationships within which a firm participates to procure, transform, enhance, and supply the finished product in the market space.

  • Companies utilize each other's competitive advantages to create value for the end customer.

• Network Organizations/Virtual Organizations: Firms formalizing contracts with suppliers, distributors, and other partners to contribute to aspects of the value chain.

Example: H&M

• Outsources production and processing to various countries (mainly Asian and Southeast Asian).

• Core company (H&M) distributes functions to different companies in different countries.

  • Product development in Australia.

  • Call center in New Zealand.

  • Accounting in Australia.

  • Distribution in Singapore.

  • Manufacturing in Malaysia.

• Companies outsource to reduce costs (e.g., cheap labor in China). Outsourcing production to suppliers to reduce costs.

Nimble Organizations

• Companies that are flexible, adaptable, and speedy in response to key changes affecting business.

Example: Zoom

• Transformed its business after COVID-19.

• Quickly adapted to issues from the influx of customers.

Channels and Intermediaries

Channel of Distribution

• Interdependent entities aligned to transfer possession of a product from producer to consumer or business user.

• Group of companies physically moving the product from manufacturer to the end customer.

Intermediary (Middleman)

• Plays a role in exchange processes between manufacturer and consumer.

Types of Intermediaries

• Agent: Acts as supplemental sales force for manufacturer; does not take title to goods.

• Distributor: Provides support functions like inventory management, promotions, financing.

• Wholesaler: Focuses on storing and handling goods, reducing holding costs; takes title to goods.

• Jobber: Sells goods bought from the producer and provides labor savings for a retailer by stocking shelves.

• Retailer: Distribution outlet where the end customer buys the product.

End User Consumer Channel

• Direct Channel: Manufacturer sells directly to the end user without intermediaries.

• Indirect Channel: Has intermediaries between manufacturer and end user.

Organizational Channels

• Typically, channel intermediaries are wholesalers and agents (no retail).

Functions of Channel Intermediaries

• Physical Distribution Function

  • Breaking bulk.

  • Accumulating bulk and sorting.

  • Creating assortments.

  • Reducing transactions.

  • Transportation storage.

• Transaction and Communication Function

  • Selling, buying, and marketing communications.

• Facilitating Function

  • Financing.

  • Market research.

  • Risk taking.

  • Other services.

Physical Distribution Function

• Breaking Bulk: Delivering single units from distribution centers to retail outlets (rather than multiple units).

  • Example: Distribution center breaks bulk of tissue paper rolls into smaller units for retail.

• Accumulating Bulk: Taking in product from multiple sources and sorting it into classifications.

  • Example: Processing house taking eggs from farm operators, sorting by grade and size, and packaging.

• Creating Assortments: Accumulating products from several sources for convenient consumer assortments.

  • Example: Retailer providing assortment of shampoo brands.

• Reducing Transactions: Saves end users money and convenience by purchasing multiple products from one retailer.

  • Example: Buying clothes, milk, and eggs from Target rather than multiple manufacturers.

• Transportation Storage: Warehouses providing storage and transportation functions.

Transaction and Communication Function

• Selling: Intermediaries providing a sales force to represent a manufacturer's product line.

• Buying: Wholesalers and retailers purchasing a assortment of products from manufacturers.

• Marketing Communications: Intermediaries receiving incentives to promote a company's product.

Facilitating Function

• Financing: Intermediaries providing financing options (e.g., car dealerships).

• Market Research: Intermediaries providing market research to manufacturers.

• Risk Taking: Intermediaries reducing risk in the channel.

• Other Services: Training, repair, maintenance.

Disintermediation, Outsourcing, and Reintermediation

• Disintermediation: Shortening marketing channels by eliminating intermediaries.

• Outsourcing/3PL: Handing over core internal functions (e.g., supply chain activities) to third-party companies.

• Reintermediation: Adding intermediaries to the distribution channel (often due to the Internet).

Vertical Marketing System (VMS)

• Vertically aligned networks behaving as a unified system for efficiencies in distribution.

• Three kinds of VMS:

  • Corporate: One channel partner buys other companies in the distribution channel (backward or forward integration).

    • Forward Integration: manufacturer opening a retail store.

    • Backward Integration: Manufacturer buying a supplier.

  • Contractual: Independent entities legally bound through contractual agreements (franchising, licensing, cooperatives).

  • Administered: One channel partner's size and clout enables them to control others (e.g., Walmart).

Channel Conflict

• Occurs when channel members experience disagreement.

• Unresolved conflict can cause inefficiencies.

• Impacts end user experience (bad quality, bad service, higher prices).

Sources of Power in Distribution Channel

• Coercive Power: Implicit or explicit threat.

  • Example: Walmart's tight delivery appointment standards resulting in financial penalties.

• Reward Power: Being rewarded for working with a channel captain (e.g., Walmart).

• Expert Power: Utilizing unique competencies to influence others in the channel (e.g., providing expert knowledge).

• Referent Power: Being respected admired.

• Legitimate Power: Resulting from contracts (franchise agreements).

Distribution Intensity

• Refers to the number of intermediaries involved in distributing the product.

• Strategies can be intensive, selective, or exclusive.

Distribution Strategies

• Intensive Distribution: Saturating every possible intermediary (low cost convenience goods).

  • Examples: milk, bread, eggs, gasoline, dry cleaners.

• Selective Distribution: Selecting specific retail places or distribution channels.

  • Examples: Appliances, mid-range fashion apparel, home furnishings.

• Exclusive Distribution: Exclusivity, prestige, premium pricing, scarcity.

  • Example: Louis Vuitton.

Push and Pull Strategy

• Push Strategy: Intensive promotional activities from the manufacturer through the distribution channel.

  • Providing incentives to distribution partners.

  • Example: Paying slotting fee.

• Pull Strategy: Directed towards consumers (end users).

  • Heavy advertising, direct marketing, couponing, mail in rebates.

Aspects of Supply Chain Management

• Order Processing

• Warehousing and Materials Handling

• Inventory Management

• Transportation

Order Processing

• Receiving and processing customer orders.

  • Errors can occur.

• If item is in stock, outbound processing occurs. If not, inbound replenishment is triggered.

• ERP (Enterprise Resource Planning): Software to integrate information related to logistic processes.

Warehousing and Materials Handling

• Efficient, orderly, clean, and well-marked warehouses.

• Just in Time: Inventory control system to balance having too many goods versus stock outs.

Transportation

• Efficient transportation management system to keep costs down and optimize delivery.

• Transportation costs can be up to 10\% of the cost of goods sold.

Legal Issues in Supply Chain

• Exclusive Dealing: Supplier prohibiting intermediary from handling products from competing firms.

• Exclusive Territory: Intermediary protected from competing with others selling the producer's goods.

• Tying Contracts: Requiring an intermediary to purchase a supplementary product to purchase a primary product.

Promotions

• Promotion = Communication.

• Communication with customers or potential customers designed to inform, persuade, or remind.

• Interactive Marketing: Promotion through digital technologies that involves a two-way exchange.

Promotional Mix Elements

• Advertising: Paid form of relatively less personal marketing communications to inform and persuade consumers.

• Sales Promotion: Provides an inducement for an end user consumer to buy a product.

• Public Relations: Non-paid form of promotion mix element that uses news and public events.

• Personal Selling: One-to-one personal communication with a customer by a salesperson.

Goals of Promotion

• Inform: Indicate features when introducing new products, explain functionality, articulate the company's brand, discuss users and applications.

• Persuade: Impact perceptions, get customers to try a product, influence immediate purchase, drive customers to seek more information.

• Remind: Maintain customer relationship, provide impetus for purchase based on an impending event.

Marketing Manager's Role in Promotional Strategy

• Identify target audience.

• Establish goals for promotion (inform, persuade, remind).

• Select the right promotional mix.

• Develop the message.

• Select the media for use in promotion (newspaper, television).

• Prepare a promotional budget.

• Establish measures of results.

Push and Pull Strategy (Revisited)

• Push Strategy: Focus on the channel of distribution and getting the offering into the channel.

• Pull Strategy: Shifting focus to creating demand at the consumer's end.

Internal Marketing

• Treating employees as customers.

• Marketing your brand to your employees as an organization.

• Employees must know about their own company's product.

AIDA Model

• Attention, Interest, Desire, Action

• Customers pass through cognitive, affective, and behavioral stages.

  • Cognitive (learn).

  • Affective (feel).

  • Behavioral (act).

• AIDA: Tool for marketers to entice consumers (originally developed for sales force training).

Coca-Cola Example

• Attention: Grab attention using a strong hook (posters in black with red questions).

• Interest: Make them feel interested in your product (incorporate "zero").

• Desire: Convince them that they want and desire the product (focus on no sugar).

• Action: Lead the customer toward taking a specific and measurable action (buying the product).

Role of Digital Marketing in Communicating Value

• Marketing of value offerings through digital technologies (desktops, laptops, tablets, smartphones).

• Three kinds of options for managers

  • Paid

  • Owned

  • Earned

• Objective: Get the right information to the right hands at the right time.

Paid Media

• Marketing communication channels where the marketer pays for customer access.

• Search ads, display ads, native ads. Common pricing models include:

  • Cost per impression.

  • Cost per click.

Owned Media

• Marketing communication channels that the marketer's organization has complete control over (firm's website).

Earned Media

• Customer or commercial entity acts as a marketing communication channel at no cost.

• Example: Customer sharing a blog post about a product launch.

Display Ads

• Banner Ad: Boxes embedded into websites with graphics, text, video elements, and hyperlinks.

• Interstitial Ad: Similar to pop-up ads but occupies the whole screen.

• Retargeting: Display ads for a product after a customer visits the website for that product.

• Search Ads: Displayed with search engine results.

• Social Network Ads: Digital ads displayed on social media.

• Native Ads: Digital ads designed to fit the format and style of the website's content.

Advertising

Institutional Advertising

• Promoting an industry (Got Milk ad).

Product Advertising

• Advertising a product or brand:

  • Pioneering Advertising: Stimulating demand (introductory and growth stage).

  • Competitive Advertising: Saying how better you are than competition (maturity stage).

  • Comparative Advertising: Directly comparing two or more brands (maturity stage).

Common Advertising Execution Methods

• Slice of life.

• Humor.

• Mood affect.

Consumer Sales Promotion Options

• Product sampling.

• Coupons.

• Rebates.

• Contests.

• Sweepstakes.

• Premiums.

• Multiple purchase offers.

• Point of purchases.

• Product placements (BMW in James Bond movies).

• Loyalty programs.

Sales Promotions Targeting Channel Members

• Trade Show: Company-sponsored event for information about offerings to channel members.

• Cooperative Advertising and Promotion: Manufacturer providing incentive money to channel members for specific performances.

• Allowances: Money made available to channel members for selling products or making large orders.

Public Relations and Event Sponsorships

• PR: Systematic approach to influencing attitudes, opinions, and behaviors (non-paid promotion).

• Event Sponsorships: Sponsoring an event and highlighting products.

Personal Selling

• Advantages: Immediate feedback, tailor the message, enhance personal relationship.

Major Selling Activities

• Communicating about the product.

• Selling the product.

• Managing information about the product and the company.

• Building customer relationships.

Four Major Types of Sales Positions

• Trade services.

• Missionary sellers.

• Technical selling.

• Key account salespeople.