Distribution Channels

Distribution Channels
 A set of interdependent organizations

(intermediaries) involved in the process of making a product or service available for use or consumption.

 Channel decisions
 

affect other marketing decisions involve long-term commitments

The Role of Distribution Activities in Marketing
 Distribution

Physically moving products and establishing intermediary relationships to support such movement. The activities of distribution involved in the physical relocation of products. The system of relationships established to guide the movement of a product.

 Physical Distribution (Logistics)

 Channel of Distribution

Distribution Channel Distribution Channel Functions Functions
Information Information Transfer Transfer Payments Payments Physical Physical Distribution Distribution Risk Taking Risk Taking Communication Communication Negotiation Negotiation Ordering Ordering Financing Financing

Consumer Marketing Channels Consumer Marketing Channels
Add another level -> Mail order (telephone, internet), this will be also 1-level Add another level -> Mail order (telephone, internet), this will be also 1-level

0-level channel Manufacturer Manufacturer 1-level channel Manufacturer Manufacturer 2-level channel Mfg Mfg Retailer Retailer Consumer Consumer

→ Consumer Consumer → Consumer Consumer → Consumer Consumer

→ Wholesaler Wholesaler → Wholesaler→ Wholesaler
Jobber Jobber

Retailer Retailer

3-level channel Mfg Mfg

Retailer Retailer

Industrial Marketing Channels

Manufacturer

Manufacturer’s representative Manufacturer’s sales branch

Consumer

Industrial distributors

Structuring a Distribution Channel
 Important Factors in Building a Distribution

Channel

Costs associated with establishing a direct channel distribution Coverage is increased through the use of indirect channels of distribution. Control is enhanced using a direct distribution channel.

Channel Behavior and Conflict

The channel will be most effective when:  each member is assigned tasks it can do best.  all members cooperate to attain overall channel goals and satisfy the target market. Focus on individual goals leads to conflict  Horizontal Conflict occurs among firms at the same level of the channel.  Vertical Conflict occurs between different levels of the same channel.

Vertical Marketing System
 A distribution channel structure in which

producers, wholesalers, and retailers act as a unified system.
 One channel member owns the other, has

contracts with them, or has so much power that they all cooperate.

Types of Vertical Marketing Systems Types of Vertical Marketing Systems
Common Ownership at Different Common Ownership at Different Levels of the Channel Levels of the Channel

Corporate Corporate

Leadership is Assumed by One or Leadership is Assumed by One or a Few Dominant Members a Few Dominant Members

Administered Administered

Contractual Agreement Among Contractual Agreement Among Channel Members Channel Members

Contractual Contractual

Conventional Distribution Channel vs. Vertical Marketing Systems
Conventional marketing channel Manufacturer Vertical marketing channel Manufacturer

Wholesaler Retailer Consumer

Retailer

Consumer

Wholesaler

Innovations in Marketing Systems Innovations in Marketing Systems
Horizontal Marketing Horizontal Marketing System System Two or more companies at one channel level join together to increase coverage Example:Banks in Grocery Stores Hybrid Marketing Hybrid Marketing System System A single firm sets up two or more marketing channels to increase coverage Example:Retailers, Catalogs, and Sales Force

Changing Channel Organization
 Disintermediation:

Occurs when product and service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.

Channel Design Decisions Channel Design Decisions
Analyzing Consumer Service Needs Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints Identifying Major Alternatives Identifying Major Alternatives
Intensive Intensive Distribution Distribution Selective Selective Distribution Distribution Exclusive Exclusive Distribution Distribution

Evaluating the Major Alternatives

Analyzing Consumer Needs
 Answering key questions helps to determine

customer needs:

Do consumers want to buy from nearby locations or are they willing to travel? Do they value breadth of assortment or do they prefer specialization? Do consumers want many add-on services?

 Firm must balance needs against costs and

consumer price preferences.

Setting Channel Objectives
 State objectives in terms of targeted levels of

customer service.  Channel objectives are influenced by:
     

Cost Nature of the company The firm’s products Marketing intermediaries Competitors Environment

Identifying Major Alternatives
 Types of Intermediaries
  

Company sales force Manufacturer’s agency Industrial distributors Intensive distribution Exclusive distribution Selective distribution

 Number of intermediaries
  

 Responsibilities of intermediaries

Evaluating the Major Alternatives
 Economic Criteria:

A company compares the likely sales, costs, and profitability of different channel alternatives. How and to whom should control be given? Consider long-term commitment vs. flexibility.

 Control Issues:

 Adaptive Criteria:

Channel Management Decisions
 Selecting channel members  Managing and motivating channel

members

Partner relationship management

 Evaluating channel members

Marketing Logistics
 Planning, implementing, and controlling the

physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Market logistics planning

Market logistics planning has four steps:
 

Deciding on the company’s value proposition to its customers Deciding on the best channel design and network strategy for reaching the customer Developing operational excellence in sales forecasting, warehouse management, transportation management and materials management. Implementing the solution with the best information systems, equipment, policies and procedures.

Goals of the Logistics System & Major Logistics Functions
 Goals of the Logistics System:

Deliver a targeted level of customer service at the least cost.

 Major Logistics Functions:
   

Warehousing Inventory management Transportation Logistics information management

Warehousing
 How many, what types, and where?  Storage warehouses  Distribution centers  Automated warehouses

Inventory Management
 Must balance between too much and too

little inventory.  Just-in-time logistics systems  RFID or Smart Tag technology

Transportation
 Trucks  Railroads  Water carriers  Pipelines  Air  Internet

Integrated Logistics Management
 The logistics concept that emphasizes

teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.  Involves:
  

Cross-functional teamwork inside the company Building logistics partnerships Third-party logistics