Ch 12 Part 4 | Principles of Marketing | Marketing Channels: Delivering Customer Value | Kotler

Summary

The transcript discusses the concept of disintermediation in marketing channels, where producers bypass intermediaries to reach customers directly, as seen with Black & Decker's online sales. It explores the importance of analyzing customer needs, setting channel objectives, and evaluating alternatives. The script also covers types of distribution, such as intensive, exclusive, and selective, and the evaluation criteria including economic and adaptive factors. International channel design, logistics, supply chain management, and inventory management are also highlighted, with examples like just-in-time systems and RFID for efficient inventory tracking.

Takeaways

• 🛒 Intermediation is when producers bypass traditional intermediaries and sell directly to consumers or use new types of intermediaries.
• 🌐 Black & Decker is an example of a company that has moved from traditional distributors to online sales to reach customers directly.
• 📊 Designing channel strategies involves analyzing customer needs, setting channel objectives, identifying alternatives, and evaluating them.
• 🎯 Channel objectives often include maximizing customer reach, segmenting services, and minimizing cost of customer service.
• 🛍 Types of intermediaries, their number, and responsibilities are crucial decisions in channel strategy, including whether to use intensive, exclusive, or selective distribution.
• 🌟 Exclusive distribution limits a product to certain outlets, exclusive dealing restricts sellers from handling competitors' products, and exclusive territorial agreements confine sales to specific geographic areas.
• 🔄 Adaptive criteria for evaluating channel alternatives include economic viability, control over the brand, and the ability to adapt to market requirements.
• 🌍 International distribution channels must be adaptable to different country-specific structures and consumer behaviors.
• 📈 General management decisions in channel strategy involve selecting, managing, motivating, and evaluating channel members.
• 🚚 Marketing logistics involves the physical distribution of goods and services to meet consumer requirements at a profit.
• 🔄 Reverse logistics refers to the process of managing returns, damaged goods, or recyclable materials back to suppliers.

Q & A

What is intermediation in the context of product distribution?

Intermediation refers to the process where producers bypass traditional intermediaries and sell directly to the final buyer, or when new types of intermediaries emerge that replace traditional ones. It's a strategy where companies aim to reach customers directly without the need for agents, distributors, or wholesalers.

Why might a company like Black & Decker choose to sell directly to consumers online?

Black & Decker might choose to sell directly to consumers online to cut out intermediaries, reduce costs, and have more control over the customer experience, pricing, and branding.

What are the potential benefits and drawbacks of cutting out intermediaries?

Benefits include cost reduction, direct customer relationships, and better control over the product's journey. Drawbacks may involve losing the expertise and reach of intermediaries, increased logistical challenges, and the need for more significant investments in direct sales infrastructure.

How does a company decide on the best channel objectives?

A company decides on channel objectives by analyzing customer needs, setting specific goals, identifying major channel alternatives, and evaluating these alternatives against economic, control, and adaptive criteria.

What are the different types of distribution a company might consider?

A company might consider intensive distribution, exclusive distribution, or selective distribution. Intensive distribution is where products are widely available, like candy. Exclusive distribution is limited to a few outlets, like luxury cars. Selective distribution is somewhere in between, like TVs and home appliances available at selected retailers.

Why is it important for a company to evaluate its channel alternatives?

Evaluating channel alternatives is important to ensure that the chosen distribution strategy aligns with the company's economic goals, provides sufficient control over the brand, and is adaptable to market changes and company requirements.

How does designing international distribution channels differ from domestic ones?

International distribution channels must be adapted to the existing structures within each country, taking into account cultural, legal, and logistical differences. This requires a more nuanced approach to channel strategies that can vary significantly from one country to another.

What are some general management decisions involved in channel management?

General management decisions in channel management include selecting channel members, managing and motivating the seller channel members, and evaluating their performance.

Can you explain exclusive distribution and give an example?

Exclusive distribution is when a seller allows only certain outlets to carry its products. For example, a luxury brand might only sell its products in high-end department stores and not in mass-market retailers.

What is meant by supply chain management in the context of this script?

Supply chain management in this context refers to the process of overseeing the flow of goods from raw materials to end consumers, including procurement, production, distribution, and reverse logistics, ensuring efficient and cost-effective movement of products.

How does just-in-time inventory management benefit a company?

Just-in-time inventory management benefits a company by reducing the amount of capital tied up in inventory, minimizing storage costs, and ensuring that products are fresh and in demand, thereby reducing waste and improving cash flow.

Outlines

00:00

🛒 Direct-to-Consumer and Channel Design

This paragraph discusses the concept of disintermediation, where producers sell directly to consumers, bypassing traditional intermediaries like distributors and wholesalers. It uses Black & Decker as an example, highlighting their shift from physical stores to online sales. The paragraph emphasizes the importance of analyzing customer needs, setting channel objectives, and evaluating different channel alternatives to determine the best strategy for reaching customers. It also touches on the need for economic, control, and adaptive criteria when evaluating these alternatives. The discussion extends to international distribution channels, noting the importance of adapting to different market structures and consumer behaviors.

05:01

📦 Logistics and Supply Chain Management

The second paragraph delves into general management decisions related to channel members, including selection, management, motivation, and evaluation. It introduces various types of distribution agreements such as exclusive distribution, exclusive dealing, exclusive territorial agreements, and tying agreements. The concept of marketing logistics is explained, which involves the physical distribution of goods and services to meet consumer requirements at a profit. The paragraph also covers supply chain management, emphasizing the flow of materials, goods, and information among suppliers, companies, and consumers. It discusses procurement management, the role of warehouses in inventory storage, and the importance of transportation in logistics. Additionally, it mentions reverse logistics for handling returns and recycling.

10:01

📈 Inventory Management and Technology

This paragraph focuses on inventory management, explaining the need for accounting systems and databases to track inventory levels. It introduces the concept of logistics information management and the importance of knowing the quantity and location of products in warehouses. The paragraph discusses different types of warehouses and distribution centers, and the concept of just-in-time inventory management, which aims to minimize inventory by ensuring it arrives exactly when needed. It also mentions RFID technology for tracking inventory and smart shelves that can automatically place orders, highlighting how these technologies help in managing inventory more efficiently.

15:02

🏨 Smart Inventory in Hospitality

The final paragraph provides an example of inventory management in a five-star hotel with 500 rooms, each equipped with a refrigerator stocked with various beverages and snacks. It describes how smart shelves in these refrigerators automatically record when a product is taken, triggering a replacement and an order. This system allows for precise inventory tracking and management, ensuring that rooms are always stocked without excess inventory. The paragraph illustrates how technology can streamline inventory management in a hospitality setting.

Keywords

💡Intermediation

Intermediation refers to the process where producers or service providers eliminate intermediaries and sell directly to the end consumers or establish new types of channels that bypass traditional intermediaries. In the video, this concept is discussed in the context of companies like Black & Decker opting to sell their products online, bypassing distributors and reaching customers directly. This strategy can be beneficial for cutting costs and controlling the customer experience but may also limit the company's market reach without the help of intermediaries.

💡Channel Objectives

Channel objectives are the goals a company sets for its distribution channels. These objectives can include meeting customer service levels, targeting specific market segments, and minimizing costs. The video emphasizes the importance of setting clear channel objectives to guide the design and management of distribution channels. For instance, the script mentions how companies need to decide which segments to serve best and the most effective channels to use while keeping costs low.

💡Channel Alternatives

Channel alternatives refer to the different options a company has for distributing its products or services. The video discusses evaluating these alternatives based on factors like economic viability, control, and adaptability. An example from the script is the decision of how many intermediaries to involve in the distribution of a six-month battery, ranging from exclusive distribution in only certain shops to intensive distribution in all shops.

💡Customer Service Levels

Customer service levels are the standards of service that a company aims to provide to its customers. The video script mentions that understanding and setting targeted levels of customer service is crucial for channel design. It involves determining which customer segments to serve and the best channels to use while minimizing the cost of meeting customer service requirements.

💡Intensive Distribution

Intensive distribution is a strategy where a product is made available through as many outlets as possible. The video uses the example of candy and toothpaste, which are typically found in every grocery shop, to illustrate intensive distribution. This approach aims to maximize convenience for consumers by ensuring widespread product availability.

💡Exclusive Distribution

Exclusive distribution is a strategy where a product is only sold through a select few retailers. The video explains that this approach is often used for luxury goods and prestigious brands, like luxury automobiles, where the brand wants to maintain a high level of exclusivity and control over its distribution channels.

💡Selective Distribution

Selective distribution is a middle-ground approach where a product is sold through a limited number of carefully chosen retailers. The script uses TVs and home appliances as examples, where brands like Sony or LG might only be available through certain specialized stores, balancing brand control with market reach.

💡Supply Chain Management

Supply chain management is the process of overseeing the flow of goods and information from suppliers to end consumers. The video script discusses how this involves managing upstream (raw materials) and downstream (final goods) processes to ensure efficient and cost-effective distribution. It's about coordinating the movement of materials, information, and finances between different channel members.

💡Inventory Management

Inventory management involves overseeing the storage of goods and the control of the ordering, storage, and delivery of those goods. The video mentions just-in-time inventory systems as a way to minimize costs by only keeping enough inventory to meet immediate needs. This approach reduces the amount of capital tied up in inventory and can improve cash flow.

💡Logistics

Logistics refers to the physical distribution of goods from the point of origin to the point of consumption. The video script explains logistics as a critical component of supply chain management, ensuring that products are available where and when they are needed. It includes transportation, warehousing, and sometimes outsourcing these functions to third-party logistics providers.

💡Reverse Logistics

Reverse logistics is the process of managing the return of goods from the customer back to the supplier for reasons such as returns, repairs, or recycling. The video script mentions reverse logistics as an important part of the supply chain, particularly for handling damaged goods or products that need to be restocked or recycled.

Highlights

Intermediation occurs when producers bypass intermediaries to sell directly to consumers or when new types of intermediaries emerge.

Black & Decker shifted from traditional distributors to online sales as an example of intermediation.

Companies may opt for direct sales to customers but sometimes still require the support of intermediaries.

Designing channel strategies involves analyzing customer needs, setting objectives, and evaluating alternatives.

Channel objectives often aim to minimize costs while meeting customer service requirements.

Identifying major channel alternatives includes deciding on the type and number of intermediaries.

The decision to distribute products through various channels, such as exclusive or intensive distribution, is crucial.

Evaluating channel alternatives requires considering economic, control, and adaptive criteria.

International distribution channels must adapt to the existing structures and strategies of each country.

General management decisions in distribution include selecting, managing, and evaluating channel members.

Exclusive distribution limits a product to certain outlets, while exclusive dealing restricts sellers to one brand.

Exclusive territorial agreements confine sales to specific geographical areas.

Tying agreements require dealers to sell an entire product line.

Marketing logistics involves the physical distribution of goods from origin to consumption.

Logistics management is about ensuring product availability and may involve outsourcing physical distribution.

Supply chain management encompasses the flow of materials, goods, and information between suppliers, companies, and consumers.

Procurement management focuses on purchasing and is a key logistics function.

Warehouses are essential for inventory storage and management.

Inventory management includes just-in-time systems to minimize inventory and reduce costs.

RFID technology helps in tracking and managing inventory by identifying the exact location of items.

Smart shelves can automatically place orders, streamlining inventory management in hotels and other establishments.

Transcripts

uh this intermediation

it occurs when products or services

producers cut out intermediaries and

they go directly to the final buyer

or when radically new types of channel

intermediaries

displays traditional ones so who did

anyone know us this black and decker

you know many people they go to the shop

that sell dragon decker

but now black and decker they don't like

distributors anymore

they can do it online and then people

they want to buy

an iron they want to buy a new you know

home appliance they can just what online

so this intermediation is companies they

started now

don't want to have any agents or

distributors

or wholesalers just want to reach

directly to the customer

okay it's good or bad

now sometimes it can be good

but many times you need to get the help

of these intermediaries

so how do we design our channels

we need to analyze our customer needs we

need to set

channel objectives we want to identify

major channel alternatives and then we

evaluate

okay it's not very easy to look into all

the decisions of channels let's look at

some of the comments here

targeted levels of customer service you

want to know what segments to serve

best channels to use and you want to

minimize the cost of meeting customer

service requirements

right so these are like your general

objectives

right uh you want to get customers you

have the service

you segment it well you reach them and

you have minimum cost

next you want to identify major

alternatives

what are the type of intermediaries you

want to use the number of marketing

intermediaries responsibilities of

channel members do you guys remember

when we talked about the

what is it the battery the six-month

battery

if you want to distribute it how many

intermediaries do you want to have

would you like to have it available in

only certain shops or in all the shops

do you see that's a decision you know

some people say all the shops and people

say some of the shops

so you need to identify what are the

options

and uh which type what level what

minimum

if all is it all all including this you

know from the small grocery shop

all the way or you want to have a

minimum

and what are the responsibilities is the

responsibility is

just storage do they have to keep a

minimum number of

inventory do you require them to sell

them

you know a minimum number per month to

keep an inventory

so those are important questions do you

want to do intensive

distribution like candy or toothpaste

or maybe you want to do exclusive so

that's you know like luxury

automobiles and prestigious clothing you

want to do it only in exclusive

or maybe you want to do it selective

just like tvs and home appliances

see if you think about tv

if you want sony only in the handy and

some selected shops

you know lg is only available through

places where they

sell home appliances but if you think

about candy

it's like in every grocery shop

basically

luxury automobiles also only available

in

exclusive distribution channels

and then you want to evaluate your major

alternatives

each alternative should be evaluated

against economic criteria control and

adaptive criteria

so if you have a lot of distributors you

want to check

is this uh you know distributor

are they economically doing good are

they

providing enough control over our brand

and

uh are they good uh do they adapt do

they

do they adapt to our requirements so we

tell them right they say okay

now left they go okay they you know

market

requires more attention they say okay

and then here talks about designing

international distribution channels it

says the channel system

can vary from a country to a country and

must be able to adapt channel strategies

to the existing structure within each

country

do you guys see what you see on the

picture here

you know sometimes in some markets you

know this is how they sell

personal care products okay some other

countries they sell personal care

products in a different way

so you need to adapt and see what is the

best strategy

to sell personal care products in those

markets for example

general management decisions you want to

select channel members

manage seller channel members of mark

motivate and evaluate

so uh let's see how we do that

uh what is exclusive distribution that's

when the seller allow only certain

outlets to carry its product products

so only you sell your products only in

those

places okay exclusive dealing is

when the seller requires that the seller

not to handle any competitor

products so if let's say sony they tell

that hey daddy

you cannot sell other than sony okay

exclusive territorial agreements where

the producer or seller

limit territory where they give you okay

alhaderi you can sell

only in this geographical location you

have license to sell but outside don't

sell

tying agreement where the arrangement

where the dealer must

uh make most or all of the line so

that when sony tell hey daddy hey look

you want to

sell sony if you say yes you have to

sell everything somebody

from the playstation to the cameras to

the tvs

all the way to the mobile phones and

laptops

and you have to make them all available

you see

so that's what we call a timing

agreement are you guys okay with these

territory within a location within a

country or within the region

marketing logistics is the marketing is

the physical

distribution and it involved planning

implementing and controlling the

physical flow of goods

services and related information from

point of origin

to points of consumption and that's to

meet consumer requirements at a profits

you guys are okay with this logistics

it's the idea of how you make sure your

products are available to everyone

you always want to have distribution uh

logistics some company maybe that

actually do the caring

sometimes you don't have the ability to

carry it yourself rather you just

you know outsources to a company that

will out will do the physical

distribution on your behalf

and then later we have here the idea of

supply chain management

do you guys know what we mean by

supplier

yeah yeah the people who provide you

with the rav material maybe

that's what you got in both logistics so

you need to get the

you know the stuff over here and then

inside your company

you process and then you generate

outbound logistics so that's when you

need to

you know send it to your retailer who

are going to send it to

their customers or sell to the customers

and then we have the idea of reverse

logistics if there is any return

if there is any uh you know material

damage need to be

fixed or anything that is going to be

recycled

to go back to the suppliers so that's

what we call reverse logistics

and you guys are okay with this

okay

supply chain management is of the

process of management managing upstream

and downstream value

added flow of material final goods

related information among suppliers the

company the sellers and the funnel

consumers

so what is supply chain management how

we make sure all of this

from raw material to information to

money flow

between the different channel members

between the producers

to the marketers to the retailers to the

sellers to the resellers

to the customers

yeah as a procurement management is

you know they're interested in the

supply chain right

they do the actual purchasing right

uh these are like logistics functions

here

uh we've got warehouses do you guys know

what's a warehouse

what is the biggest warehouse you have

ever seen here in summer

wfp they have a huge warehouse any other

warehouse huge

uh this

economic military yeah the eco

you have an economic corporation they

have a huge warehouse

so warehouses are important because

anyone have seen let's say

you know those warehouses where you keep

the inventory

you see and then once you have a

warehouse you need to have very good

transportation companies to fill the

transportation

to the warehouse from the warehouse to

the retailers from the

you need to have good inventory

management you know what's an inventory

management

idea of how you manage your inventory

you need to have accounting system you

know how many you have in the inventory

you see you need to have a database so

you can know from this item i have this

number from this

item i have this number from this item i

have that number

and you may have logistics information

management

how can you manage these databases

sometimes you

your information will be linked by the

suppliers by vendors

by clients maybe if someone wants to

look up your

inventory can they look it up from other

way from other places from other

countries from other companies

so how many you have in your warehouse

what type of

products where to locate the warehouse

uh

warehouses itself the warehouse itself

the building the

you know what's in it what's not in it

and the distribution centers

sometimes you may have a distribution

center where it's

only for redistribution they don't do

any

uh yes

for anyone okay remember if i'm pepsi

i need to do warehouses for my pepsi you

see

if i'm in mri i need to have warehouses

for my mri

now it goes through distribution channel

maybe i will use a warehouse for

some sort of a let's say a supermarket

warehouse

or let's say a distributor warehouse you

know the idea of warehousing in general

yeah if you go to toyota maybe you uh

you know you go here in sana'a you see

the warehouse they have a lot of

where they keep their inventory right

and then you go to their showrooms and

inside the showroom you will see maybe

three or four

you see but you have a warehouse where

you keep your uh

you know the new ones the new arrivals

inventory management is when you uh look

into uh just in time management

system anyone have heard of just-in-time

systems

see maybe to utah now they don't want to

keep a big

inventory they want to have an inventory

that is enough

you see they call this the just in time

where

you know you always keep let's say if

you will make a party tomorrow

then you will buy the stuff you need for

the party tomorrow

today so tomorrow you use it

and it arrived today just in time or

maybe tomorrow morning

just in time okay some people say no

if you have a party every day then buy

for the whole month

now some people say no buy for the whole

two months now

now if i buy for the three months now

that's not just in time

because the inventory arrive and wait

for three months until it's used

but a just-in-time inventory it will

means you bring in

every day just enough for that day

or maybe for one week you try to make it

in a very short

the shorter the better you see the idea

of just-in-time

systems is that you want to keep your

inventory very low

because inventory if you keep a high

inventory that's a lot of money

stuck into the inventory right if i buy

my inventory for the next three months

then i had to have a lot of money to buy

the stuff today

so that it stay for three months

rfid do you anyone have notices the rfid

radio frequency identification

knowing exactly proud location the fid

is

some sort of a small piece in your

clothes maybe

anyone have butter clothes and then

there's a small piece of paper

you know on inside your jacket or and

then if you don't pay for it

by the time you leave it will drink tea

tea

tea

yeah sometimes you pay for it you go to

another store that uses the same rfid

you know and then they might also ring

there again and then you need to tell

them hey look

so that's another way to keep your

inventory because they have this machine

now they walk inside your inventory room

and it will count how many items you

have of each item

do you see so it will give you a report

this is the inventory you have

inside the store

do you see or let's say that there's a

piece missing

now this looks like a gun and then you

know you point it

you know it's in that direction the

piece that you're looking for

uh and also smart shelves and you want

to have heard of the small shelves

place orders automatically

uh remember if you go to this uh

you go to this special uh hotel

five-star hotel

they have 500 rooms every room have a

refrigerator

every refrigerator they have two pepsis

three seven ups

two cookies two chocolate candies three

drinks

two i don't know what how do they keep

an inventory of all of this

it's a huge inventory it's like 500

rooms every room has a small

you see and every day they have to check

what customer ordered

so they have those refrigerators which

has a smart shelf

basically uh there is a you know you

have to flip it

to get the coke and once you flip it the

order is

sent and once you return it back another

coke will

slide in and then you turn it again

you take it two slide it back

another one come in but as soon as it

clicks

it will immediately you know record

so that's smart shelf they make the

order automatically

do you see

so that's inventory management all right