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.