Marketing Management - II

Distribution

Prof. Preeti Virdi 1

 Delivering Value

Represents the channel, or the route, through

Promotion Product which goods move from the source to the final
user

Place could be the intermediaries, distributors,

wholesalers and retailers
Place Price

Prof. Preeti Virdi 2

 Distribution Channels
▪ Sets of interdependent organizations participating in the process of making
a product or service available for use or consumption

▪ Intermediaries constitute a marketing channel (trade channel/distribution

channel)

▪ Merchants/wholesalers - buy, take title to, and resell the merchandise

▪ Agents - search for customers and may negotiate on the
producer’s behalf but do not take title to the goods
▪ Facilitators - assist in the distribution process but neither take title to
goods nor negotiate purchases or sales
- transportation companies, independent warehouses,
banks, advertising agencies

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 Functions of Distribution Channel
▪ Gather information about potential/ current customers, competitors and the marketing
environment

▪ Negotiate on price and other terms affecting the transfer of ownership or possession

▪ Place orders with manufacturers

▪ Acquire the funds to finance inventories at different levels in the marketing channel

▪ Assume risks connected with carrying out channel work

▪ Provide buyers with financing and facilitate payment

▪ Oversee the actual transfer of ownership of goods from one organization/person to

another Prof. Preeti Virdi 4
 Activity Flow
▪ Channel functions also involve bi-directional flows of goods and services

▪ Activity flow
▪ Forward flow - storage and movement, ownership, and communications

▪ Backward flow - ordering and payment

▪ Both forward and backward - information, negotiation, finance, and risk-taking

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 Is all activity necessary?
▪ All functions are important
▪ But who should perform them?
▪ Shifting some functions to intermediaries lowers the producer’s costs and prices
▪ However, an intermediary would charge to do that work

▪ If the intermediaries are more efficient than the manufacturer, prices to consumers
should be lower
▪ If consumers perform some functions themselves, they enjoy even lower prices

Changes in channel institutions happen considering efficient ways to combine/separate

the economic functions that provide goods to customers

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 Channel Levels

▪ Zero-level channel (direct marketing channel)

▪ Single-level channel

▪ Dual-level channel

▪ Reverse-flow channel

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 Channel Levels

▪ Zero-level channel (direct marketing channel)

▪ Single-level channel

▪ Dual-level channel

▪ Reverse-flow channel
 Multichannel Distribution
▪ Using two or more marketing channels to reach customer segments in one market area

▪ Each channel can target a different segment of buyers or different need states for
one buyer
▪ In order to deliver the right products in the right places in the right way at the
least cost

▪ Inefficient channel management –

▪ Channel conflict, excessive cost, insufficient demand

Research shows multichannel customers can be more valuable to marketers

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 Multichannel Distribution
▪ Using two or more marketing channels to reach customer segments in one market area
▪ Each channel can target a different segment of buyers or different need states for
one buyer

▪ Benefits
▪ Increased market coverage
▪ Lower channel cost (Online)
▪ Customized selling options
▪ Tradeoffs
▪ Potential for conflict and issues with
control and cooperation
▪ Organizations need to think about the
channel architecture and decide
which channels should perform which
functions

Research shows multichannel customers can be more valuable to marketers

Prof. Preeti Virdi 11

 Channel Management Decisions
▪ Establishing objectives and constraints
▪ Service output levels, associated cost and support levels
▪ Product characteristics and legal regulations affect channel objectives and channel design

▪ Exclusive distribution
▪ Limits the number of intermediaries
▪ More knowledgeable and dedicated efforts by the resellers, and strong partnership

▪ Selective distribution
▪ Some but not all of the intermediaries willing to carry a particular product

▪ Intensive distribution
▪ Places the goods or services in as many outlets as possible

▪ Evaluating channel members

▪ “What would the firm’s sales and profits look like with and without this intermediary?”
 Motivating Channel Members
▪ Channel Power
▪ The ability to alter channel members’ behaviour so they take actions they would not
have taken otherwise
▪ Use positive motivators - higher margins, special deals, premiums, cooperative
advertising allowances, display allowances, and sales contests
▪ Or negative sanctions - threatening to reduce margins, slow down delivery, or
terminate the relationship
▪ Walmart (over suppliers)
▪ Reward Power – Monetary incentives
▪ Coercive Power – Threatens delayed payment for delayed delivery
▪ Referent Power – Suppliers want to associate with Walmart
▪ Expertise Power – Experience of marketing products
▪ Information Power –
▪ Legitimate Power – Contractual agreement
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 Motivating Channel Members
▪ Channel partnerships
▪ Conventional Marketing channels

▪ Consist of an independent producer, wholesaler(s), and retailer(s)

▪ Each is a separate business attempting to maximize its own profits (even at the
cost of reduced profit for the system as a whole)

▪ No channel member has complete control over other members

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 Motivating Channel Members
▪ Channel partnerships
▪ Vertical Marketing systems

▪ Include the producer, wholesaler(s), and retailer(s) acting as a unified system.

▪ One channel member, the channel captain/channel steward, has the power they
all channels to cooperate
▪ Stewards persuade channel partners to cooperate and act in the best interest of
the whole system
▪ Stewardship expands value for its customers by enlarging the market or existing
customers’ purchases through the channel
▪ Also, it creates a tight yet adaptable channel; valuable members are rewarded,
and the less-valuable members are replaced/removed

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 Motivating Channel Members
▪ Channel partnerships
▪ Horizontal Marketing systems
▪ Two or more unrelated companies putting together resources or programs
to exploit an emerging marketing opportunity
▪ Each company lacks the capital, know-how, production, or marketing
resources to venture alone, or it is afraid of the risk
▪ The companies might work together on a temporary or permanent basis or
create a joint venture company
▪ By combining their financial, production, or marketing resources, these
companies can accomplish more than what one company could achieve
alone
▪ Companies might join competitors or noncompetitors
▪ They may work with each other temporarily or on a permanent basis or
create a separate company
▪ Horizontal channel arrangements can also work well at a global level
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