9/17/2019

Distribution Management

Mr. Noel M. Teves

Instructor
Management and Marketing Dept.
College of Business Administration
First Semester, 2019-2020

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References

• Sales and Distribution Management by Havaldar,

K. & Cavale, V. 2012. p. 231
• Louis W. Stern, Adel I. El-Ansary. Marketing
Channels. 4th Edition, Prentice Hall Books, 1992.
ISBN, 0135616069, 9780135616062.
• Kotler, Philip, Principles of Marketing, Global,
14th ed. Boston: Pearson, 2012.
• International Business. McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill
Companies, Inc. All rights reserved. 7th Ed.

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Distribution Management

Chapter 5
Channel-Design Decisions

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Learning Objectives

1. Describe Channel Design Decision

2. Explain channel alternatives.
3. Explain Trade Relations-Mix
4. Designing International Distribution
Channel

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Channel-Design Decisions

• Analyze customer needs

• Establish channel objectives
• Identify major channel alternatives
• Evaluate major channel alternatives

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Channel-Design Decisions

• Customer Needs and Wants

– Consumers may choose the channels they prefer
based on price, product assortment, and
convenience, as well as their own shopping goals
(economic, social, or experiential)
– As with products, segmentation exists, and
marketers must be aware that different consumers
have different needs during the purchase process.

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Channel-Design Decisions

• Customer Needs and

Lot size
Wants
– Channels produce five
service outputs: Waiting and delivery time

Spatial convenience

Product variety

Service backup

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Channel-Design Decisions

• Channels produce five

service outputs: Lot size
– . Lot size is the
number of units the
channel permits a
typical customer to Waiting and delivery time
purchase on one
occasion. In buying
cars for its fleet, Hertz Spatial convenience
prefers a channel
from which it can buy
a large lot size; a
household wants a Product variety
channel that permits a
lot size of one.
Service backup

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Channel-Design Decisions

• Channels produce five

Lot size
service outputs:
– Waiting and delivery time
is the average time Waiting and delivery time
customers wait for
receipt of goods. Spatial convenience
Customers increasingly
prefer faster delivery
channels. Product variety

Service backup

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Channel-Design Decisions

• Channels produce five

Lot size
service outputs:
– Spatial convenience is
the degree to which the Waiting and delivery time
marketing channel
makes it easy for Spatial convenience
customers to purchase
the product.
Product variety

Service backup

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Channel-Design Decisions

• Channels produce five

service outputs: Lot size
– Product variety is the
assortment provided by the
marketing channel. Waiting and delivery time
Normally, customers prefer
a greater assortment
because more choices
Spatial convenience
increase the chance of
finding what they need, Product variety
although too many choices
can sometimes create a
negative effect. Service backup

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Channel-Design Decisions

• Channels produce five

Lot size
service outputs:
– Service backup is the
add-on services (credit, Waiting and delivery time
delivery, installation,
repairs) provided by the Spatial convenience
channel. The greater the
service backup, the
greater the work Product variety
provided by the channel.
Service backup

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Channel-Design Decisions

• Customer Needs and

Lot size
Wants
– Channels produce five
service outputs: Waiting and delivery time

Spatial convenience

Product variety

Service backup

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Channel-Design Decisions

• Identifying Channel
Alternatives
– Channel alternatives differ in
three ways:
• the types of intermediaries,
• the number needed, and the
• terms and responsibilities of each.

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Channel-Design Decisions

• The types of intermediaries

– Consider the channel alternatives identified by a consumer
electronics company that produces satellite radios.
– It could sell its players directly to automobile
manufacturers to be installed as original equipment, auto
dealers, rental car companies, or satellite radio specialist
dealers through a direct sales force or through distributors.
– It could also sell its players through company stores,
online retailers, mail-order catalogs, or mass
merchandisers such as Best Buy. It will need to decide on
the number of intermediaries (discussed further on the
next slide) and on what each channel member will be
responsible for (also discussed further).

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Channel-Design Decisions

• Number of Intermediaries
– Three strategies based on the number of
intermediaries are
• exclusive distribution (severely limiting the
number of intermediaries)
• selective distribution (relies on only some of
the intermediaries willing to carry a particular
product)
• intensive distribution (places the goods or
services in as many outlets as possible)

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Channel-Design Decisions

• Terms and Responsibilities of Channel Members

– Each channel member must be treated respectfully
and given the opportunity to be profitable.
– The main elements in the “trade-relations
mix” are:
• Price policy
• Condition of sale
• Distributors’ territorial rights
• Mutual services and responsibilities

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Channel-Design Decisions

• The main elements in the

“trade-relations mix”
– Price policy calls for the
producer to establish a price list
and schedule of discounts and
allowances that intermediaries
see as equitable and sufficient.

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Channel-Design Decisions

• The main elements in the “trade-

relations mix”
– Conditions of sale refers to payment
terms and producer guarantees. Most
producers grant cash discounts to
distributors for early payment. They
might also offer a guarantee against
defective merchandise or price declines,
creating an incentive to buy larger
quantities.

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Channel-Design Decisions

• The main elements in the “trade-

relations mix”
– Distributors’ territorial rights
define the distributors’ territories and
the terms under which the producer
will enfranchise other distributors.
Distributors normally expect to
receive full credit for all sales in their
territory, whether or not they did the
selling.
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Channel-Design Decisions

• The main elements in the

“trade-relations mix”
– Mutual services and
responsibilities must be
carefully spelled out, especially
in franchised and exclusive-
agency channels.

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Designing International Distribution Channel

• When entering new markets,

international marketers can either:
– Establish a new channel of
distribution
• High risk strategy
• Need to develop new relationships
with suppliers
– Work within an existing channel of
distribution

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Designing International Distribution Channel

• Total Cost Concept

– all costs must be taken into
consideration when designing a channel
of distribution
• Added shipping costs
• Transportation time must also be
considered
• Insurance
• Storage
• Inventory Losses

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Designing International Distribution Channel

• Total Cost Concept

– Coca-Cola could produce its product
in America and ship it overseas but
because it is mainly made up of
water; it is much cheaper to
manufacture in foreign markets.
– What happens to the cost of a
product when distribution costs are
high?

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Finding International Partners

• There are a number of ways for

international marketers to find partners.
– government sources from commerce
departments
– trade show contacts
– Internet
– Current distribution members (Distributors,
Sales Employees, Customers)

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Finding International Partners

• Export management companies

(EMCs)
– specialize in helping businesses
distribute products
– Agent
• brings together buyers and sellers, but
does not take ownership of product.
• Agents typically don’t own the product
but make commission off the sale of it

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DO
YOU HAVE A

QUESTION?
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The End

Thank You.

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