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Chapter 15 - Managing Marketing Channels and Supply Chains
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B. Managing Channel Relationships: Conflict and Cooperation
• Because channels consist of independent individuals and firms, there is always
potential for disagreements concerning:
a. Who performs channel functions.
b. How profits are distributed.
1. Sources of Conflict in Marketing Channels.
a. Channel conflict arises when one channel member believes another channel
member is engaged in behavior that prevents it from achieving its goals.
b. There are two types of conflict that occurs in marketing channels:
• Vertical conflict.
– Occurs between different levels in a marketing channel, such as a
manufacturer and a retailer.
– Three sources of vertical conflict are:
* Disintermediation is channel conflict that arises when a channel
member bypasses another member and sells or buys products
direct.
• Horizontal conflict.
– Occurs between intermediaries at the same level in a marketing
channel such as between…
– Two or more retailers or two or more wholesalers who handle the
same manufacturer’s brands.
– Two sources of horizontal conflict are:
* When a manufacturer increases its distribution coverage in a
2. Securing Cooperation in Marketing Channels.
a. Conflict can have destructive effects on the workings of a marketing channel.
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b. It is necessary to secure cooperation among channel members.
c. One means is through a channel captain.
• Is a channel member (producer, wholesaler, or retailer) that coordinates,
directs, and supports other channel members.
• Is a channel captain because:
– It has a strong image in the marketplace and therefore…
• A firm (producer, wholesaler, or retailer) becomes a channel captain
because it is the channel member that can influence the behavior of other
members.
• Influence can take four forms:
– Economic. Arises from the firm’s ability to reward other members,
given its strong financial position or customer franchise.
– Expertise. Occurs with inventory management or order processing.
– Identification. The desire to be associated with a channel member
gives that firm influence over others.
– Legitimate right.
3. Legal Considerations.
a. Conflict in marketing channels:
• Is typically resolved through negotiation or the exercise of influence by
channel members.
• Sometimes produces legal action.
b. Suppliers can select whomever they want as channel intermediaries and may
refuse to deal with whomever they choose.
c. [Figure 15-7] Under the Sherman Act (1890) and the Clayton Act (1914),
the FTC and the Justice Department monitor channel practices that:
• Restrain competition.
Chapter 15 - Managing Marketing Channels and Supply Chains
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d. These channel practices have received the most attention:
• Dual distribution.
– Although not illegal, can be viewed as anticompetitive and violate
both the Sherman and Clayton Acts.
– Occurs when a manufacturer:
* Distributes through its own vertical channel in competition with
• Vertical integration.
– Is viewed in a similar light as dual distribution.
– Though not illegal, is sometimes subject to legal action under the
Clayton Act if it has the potential to lessen competition or foster
monopoly.
• Exclusive dealing.
– Exists when a supplier:
* Requires channel members to sell only its products.
• Tying arrangements.
– Occur when a supplier requires a distributor purchasing some products
to buy others from the supplier.
• Full-line forcing.
– Is a special kind of tying arrangement.
– Involves a supplier that requires a channel member to carry its full line
of products to sell a specific item in the supplier’s line.
• A refusal to deal.
– Refusing to deal with existing channel members may be illegal under
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• Resale restrictions.
– Is a supplier’s attempt to stipulate:
* To whom distributors may resell the supplier’s products and…
* In what specific geographical areas or territories they may be sold.
– Have been prosecuted under the Sherman Act.
– Today, the courts:
LEARNING REVIEW
15-6. What are the three questions marketing executives consider when choosing a
marketing channel and intermediaries?
15-7. What are the three degrees of distribution density?
Answer: Three degrees of distribution density exist: (1) Intensive distribution means
15-8. What is meant by exclusive dealing?
IV. LOGISTICS AND SUPPLY CHAIN MANAGEMENT [LO 15-4]
• Logistics involves those activities that focus on getting the right amount of the right
products to the right place at the right time at the lowest possible cost.
• Logistics management is the practice of organizing the cost-effective flow of raw
materials, in-process inventory, finished goods, and related information from point of
origin to point of consumption to satisfy customer requirements.
Chapter 15 - Managing Marketing Channels and Supply Chains
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a. Logistics deals with decisions to move a product from the source of raw materials
to consumption—the flow of the product.
• Collaboration, coordination, and information sharing among manufacturers, suppliers,
and distributors are needed to create a seamless flow of products and services to
customers.
A. Supply Chains versus Marketing Channels
• A supply chain consists of the various of firms that perform activities required to
create and deliver a product or service to ultimate consumers or industrial users.
a. It differs from a marketing channel in terms of membership.
• Supply chain management.
a. Is the integration and organization of information and logistic activities across
firms in a supply chain for the purpose of creating and delivering products and
services that provide value to ultimate consumers.
b. The application of information technology allows companies to share and
operate systems for:
• Order processing.
c. [Figure 15-8] shows the relationships among marketing channels, logistics
management, and supply chain management.
B. Sourcing, Assembling, and Delivering a New Car: The Automotive Supply
Chain
• A supply chain:
a. Is a series of linked suppliers and customers.
b. Every customer is, in turn, a supplier to another customer until a finished
product reaches the ultimate consumer.
• [Figure 15-9] A carmaker’s supplier network includes thousands of firms that
provide 2,000 functional components, 30,000 parts, and 10 million lines of
software code in a typical car.
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a. The supplier network provides items ranging from raw materials to
components to complex subassemblies and assemblies.
• A central link is the carmaker supply chain manager, who:
a. Is responsible for translating customer requirements into actual orders.
• Logistical aspects of a marketing channel are an integral part of the supply chain.
• Major logistic responsibilities include:
a. The selection and oversight of external transportation carriers.
b. The operation of distribution centers.
• Supply chain managers also play an important role in the marketing channel.
a. They ensure that the right products are delivered to different locations.
C. Supply Chain Management and Marketing Strategy
• A company’s supply chain and its marketing strategy are linked.
1. Aligning a Supply Chain with Marketing Strategy
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a. Understand the customer.
• Must identify the needs of the customer segment.
• Must define the relative importance of efficiency and responsiveness in
meeting customer requirements.
b. Understand the supply chain.
• A company must understand what a supply chain is designed to do well.
• Supply chains range from those that:
c. Harmonize the supply chain with the marketing strategy.
• A firm needs to ensure that what the supply chain is capable of doing well
is consistent with the targeted customer’s needs and its marketing strategy.
• If a mismatch exists, it will need to redesign the supply chain to support
the marketing strategy or change the marketing strategy.
[Video 15-2: IBM Video]
MARKETING MATTERS
Customer Value: IBM’s Watson Supply Chain—Delivering a Total Solution
for Its Customers
IBM is one of the world’s great business success stories because of its ability to
reinvent itself to satisfy shifting customer needs in a dynamic global marketplace. The
company’s transformation of its supply chain using artificial intelligence provided by
Watson, its path-breaking supercomputer, is a case in point. IBM has built a single integrated
supply chain that can handle raw material procurement, manufacturing, logistics, customer
support order entry, and customer fulfillment across all of IBM. Although the task wasn’t
easy, IBM revised its supply chain from raw material sourcing to postsales support. Today,
IBM is poised to configure and deliver a tailored mix of hardware, software, and service to
provide a total solution for its customers using Watson. Watson is IBM’s supercomputer that
combines artificial intelligence and sophisticated software that is now used to improve
performance of its supply chain. Not surprisingly, IBM’s supply chain is heralded as one of
the best in the world!
2. Dell: A Responsive Supply Chain
a. Dell’s marketing strategy targets customers who:
• Wait to have their customized computer system delivered in a few days,
rather than picking out a model at a retail store.
Chapter 15 - Managing Marketing Channels and Supply Chains
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b. Dell has opted for a responsive supply chain. Dell:
• Relies on more expensive express transportation to both receive
components from suppliers and deliver finished products to customers.
3. Walmart: An Efficient Supply Chain
a. An efficient supply chain:
• Uses inexpensive, but slower, modes of transportation.
b. Walmart’s marketing strategy is to be a reliable, lower-price retailer for a
wide variety of mass consumption consumer goods.
c. Walmart has opted for an efficient supply chain.
• Walmart uses cross-docking to keep inventory levels low, which involves:
– Unloading products from suppliers.
– Sorting products for individual stores.
• Walmart runs its own fleet of trucks to service its stores.
– This increases costs and investment.
– But the benefits in responsiveness justify the cost.
• Walmart has invested in information technology to operate its supply
chain.
d. Dell and Walmart provide three lessons that can be learned:
• There is no one best supply chain for every company.
• The best supply chain:
– Is the one consistent with the needs of the customer segment.
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– Complements the company’s marketing strategy.
V. TWO CONCEPTS OF LOGISTICS MANAGEMENT
IN A SUPPLY CHAIN
[Figure 15-10] The objective of logistics management in a supply chain is to balance five
total logistics cost factors against four customer service factors.
A. Total Logistics Cost Concept
• Total logistics cost includes expenses associated with transportation, materials
handling and warehousing, inventory, stockouts (being out of inventory), order
processing, and return products handling.
• It is important to study the impact of all logistics decisions when considering a
change since these costs are interrelated.
B. Customer Service Concept
• If a supply chain is a flow, the end of it—output—is the service delivered to
customers, which can be expensive.
• Within a supply chain context, customer service is the ability of logistics
management to satisfy users in terms of time, dependability, communication, and
convenience.
• [Figure 15-10] A supply chain manager’s key task is to balance these four
customer service factors against five total logistics cost factors.
1. Time.
a. Time refers to order cycle or replenishment time for an item.
• Means that it is the time between the ordering of an item and when it is
received and ready for use or sale.
• The elements that make up the order cycle include:
– Order recognition. – Documentation.
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b. Quick response or efficient consumer response involves inventory
management systems that make the process of reordering and receiving
products as simple as possible.
2. Dependability.
a. Is the consistency of replenishment.
b. Can be broken into three elements:
• Consistent lead time. • Complete delivery.
c. Consistent service allows planning whereas inconsistencies create surprises.
d. Intermediaries may be willing to accept longer lead times if they know about
them in advance and can thus make plans.
3. Communication.
a. Is a two-way link between buyer and seller that helps in monitoring service
and anticipating future needs.
b. Status reports on orders are a communication between buyer and seller.
4. Convenience.
a. Means that there should be a minimum of effort on the part of the buyer in
doing business with the seller, who must remove unnecessary barriers.
b. Vendor-managed inventory (VMI) is an inventory-management system
whereby the supplier:
• Determines the product amount and assortment a customer needs and…
VI. CLOSING THE LOOP: REVERSE LOGISTICS
• The flow of goods in a supply chain does not end with the ultimate consumer or
industrial user. It can work in reverse.
• Reverse logistics is a process of reclaiming recyclable and reusable materials,
returns, and reworks from the point of consumption or use for repair,
remanufacturing, redistribution, or disposal.
• Reverse logistics has:
a. Ecological benefits (reduced waste and environmental impact in landfills).
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b. Economic benefits (lower operating costs for companies).
MAKING RESPONSIBLE DECISIONS
Sustainability: Reverse Logistics and Green Marketing Go Together
at Hewlett-Packard: Recycling e-Waste
About 50 megatons (1 megaton = 1 million tons) of electronics and electronic
equipment find their way to landfills around the world annually. In 2018, Americans alone
discarded 400 million analog TV sets and computer monitors and Japanese consumers
trashed more than 610 million cell phones. The result? Landfills are seeping lead,
chromium, mercury, and other toxins into the environment.
Hewlett-Packard has taken it upon itself to act responsibly and address this issue
through its highly regarded reverse logistics program. HP has recycled computer and printer
hardware since 1987 and is an industry leader in this practice. The company’s recycling
service is available today in more than 73 countries, regions, and territories.
[Video 15-3: UPS Video]
• Some firms have:
a. Implemented reverse logistics programs themselves.
b. Enlisted third-party logistics providers to handle this process along with other
supply chain functions.
LEARNING REVIEW
15-9. What is the principal difference between a marketing channel and a supply chain?
Answer: A marketing channel consists of individuals and firms involved in the process
of making a product or service available for use or consumption by ultimate consumers
15-10. The choice of a supply chain involves what three steps?
Chapter 15 - Managing Marketing Channels and Supply Chains
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LEARNING REVIEW CONTINUED
15-11. A manager’s key task is to balance which four customer service factors against
which fsix logistics cost factors?
Answer: The four supply chain customer service factors designed to satisfy users are:
Chapter 15 - Managing Marketing Channels and Supply Chains
APPLYING MARKETING KNOWLEDGE
1. A distributor for Celanese Chemical Company stores large quantities of chemicals,
blends these chemicals to satisfy requests of customers, and delivers the blends to a
customer’s warehouse within 24 hours of receiving an order. What utilities does this
distributor provide?
2. Suppose the president of a carpet manufacturing firm has asked you to look into the
possibility of bypassing the firm’s wholesalers (who sell to carpet, department, and
furniture stores) and selling directly to these stores. What caution would you voice on
this matter, and what type of information would you gather before making this
decision?
Answer: Before making a decision to bypass the firm’s distributors, a firm should consider
3. What type of channel conflict is likely to be caused by dual distribution, and what
type of conflict can be reduced by direct distribution? Why?
4. How does the channel captain idea differ among corporate, administered, and
contractual vertical marketing systems with particular reference to the use of the
different forms of influence available to firms?
15-34
5. List the customer service factors that would be vital to buyers in the following types of
companies: (a) manufacturing, (b) retailing, (c) hospitals, and (d) construction.
Answers:
Chapter 15 - Managing Marketing Channels and Supply Chains
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BUILDING YOUR MARKETING PLAN
Does your marketing plan involve selecting channels and intermediaries? If the
answer is “no,” read no further and do not include this element in your plan. If the answer
is “yes,”
1. Identify which channel and intermediaries will provide the best coverage of the target
market for your product or service.
2. Specify which channel and intermediaries will best satisfy the important buying
requirements of the target market.
3. Determine which channel and intermediaries will be the most profitable.
4. Select your channel(s) and intermediary(ies).
5. If inventory is involved, (a) identify the three or four major kinds of inventory
needed for your organization (retail stock, finished products, raw materials, supplies,
and so on), and (b) suggest ways to reduce their costs.
6. (a) Rank the four customer service factors (time, dependability, communication, and
convenience) from most important to least important from your customers’ point of
view, and (b) identify actions for the one or two factors that are the most important in
regard to your product or service.
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TEACHING NOTE FOR VIDEO CASE VC-15
Amazon: Delivering the Earth’s Biggest Selection!
Synopsis
Show Slide 15-39. Amazon’s CEO, Jeff Bezos, predicts a new age of power for
customers who are enabled to search for and purchase a growing variety of products online.
A pioneer of fast, convenient, low-cost virtual shopping, Amazon is now a household name.
The company’s success, however, is also related to its complex supply chain and logistics
management system. Utilizing advanced software systems, Amazon integrated its multiple
computer systems so that it can exchange customer information in near real-time, enabling it to
process nearly 38 million holiday orders with over 99 percent shipped and delivered on time.
Teaching Suggestions
Ask students to identify three relatively successful examples of e-commerce other than
Amazon. Then have them match these companies with competitors whose distribution does not
rely primarily upon the Internet. Finally, ask the students to compare the relative strengths and
weaknesses of each competitive pair.
Answers to Questions
1. How do Amazon.com’s logistics and supply chain management activities help the
company create value for its customers?
Answers:
