The Distribution Function

‡ distribution is about getting the product or service to the customer as conveniently as possible; it deals with access and availability ‡ intermediaries perform many of the distribution functions on behalf of suppliers ‡ merchant intermediaries actually take title to physical products that they distribute ‡ agents do not ever own the products, but they arrange the transfer of title
Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 1

‡ Intermediaries often perform these activities for producer or consumer.Distribution Channels ‡ The role of distribution entails: ‡ Arranging for its sale and transfer of title ‡ Promoting the product ‡ Storing the product ‡ Assuming some risk during distribution.2 . Copyright © 2001 McGraw-Hill Ryerson Limited 15 .

Four decisions can be help a firm design a distribution channel: ‡ what role distribution is to play in achieving objectives ‡ what type of channel is needed? with or without intermediaries? ‡ what level of intensity of distribution? ‡ which specific intermediaries to use? which will be best suited to achieve objectives? Copyright © 2001 McGraw-Hill Ryerson Limited 15 .Designing the Channel Channel design is a strategic marketing tool.3 .

4 .The Well-Designed Distribution Strategy Specify the role of distribution within the marketing mix Select type of distribution channel Determine appropriate intensity of distribution Choose specific channel members Copyright © 2001 McGraw-Hill Ryerson Limited 15 .

others will use a number of intermediaries: ‡ producer consumer (direct) ‡ producer retailer consumer ‡ producer wholesaler retailer consumer ‡ producer agent retailer consumer ‡ producer agent wholesale retailer con sumer ‡ when would each of these be considered? Copyright © 2001 McGraw-Hill Ryerson Limited 15 .Selecting the Type of Channel ‡ some firms will distribute directly.5 .

6 . ‡ Some producers are not content to use only a single distribution channel and use multiple channels (dual distribution dual distribution) ‡ Multiple channels can aggravate middlemen and cause conflicts in the channels. Copyright © 2001 McGraw-Hill Ryerson Limited 15 . ‡ Business goods are normally distributed through four major types of channels.Major Distribution Channels ‡ For distribution of consumer goods. five different types of channels are widely used.

Consumer Channels PRODUCERS OF CONSUMER GOODS Agents Agents Merchant wholesalers Merchant wholesalers Retailers Retailers Retailers Retailers ULTIMATE CONSUMERS Copyright © 2001 McGraw-Hill Ryerson Limited 15 .7 .

8 .Business Channels PRODUCERS OF BUSINESS GOODS Agents Agents Merchant wholesalers (industrial distributors) Merchant wholesalers (industrial distributors) BUSINESS USERS Copyright © 2001 McGraw-Hill Ryerson Limited 15 .

to reach business and consumer markets. or to carry different groups of products ‡ or may be used to reach different segments of the seller·s market.Multiple Distribution Channels ‡ some firms will use several distribution channels to reach specific markets or segments ‡ dual distribution is used.9 . different sizes of buyers or different regions of the country ‡ some companies operate their own stores Copyright © 2001 McGraw-Hill Ryerson Limited 15 . for example.

Rolex.10 . Kraft General Foods.Goodyear. ‡ Corporate VMS: One firm owns other firms in channel or the entire channel-.. Copyright © 2001 McGraw-Hill Ryerson Limited 15 .Vertical Marketing Systems (VMS) ‡ a tightly coordinated distribution channel designed to improve operating efficiency and marketing effectiveness. ‡ Administered VMS: Relies on economic power of one channel member-. Roots. ‡ Contractual VMS: Independents work together for much greater effectiveness: IGA. IDA.

reasonable outlets in a market EXCLUSIVE Distribution through a single wholesaling middleman and/or retailer in a market Copyright © 2001 McGraw-Hill Ryerson Limited 15 . but not all.Intensity of Distribution INTENSIVE Distribution through every reasonable outlet in a market SELECTIVE Distribution through multiple.11 .

‡ Company Considerations: Desire for channel control. Copyright © 2001 McGraw-Hill Ryerson Limited 15 .12 . technical nature of product. potential customers. availability. order size. ‡ Intermediaries Considerations: Services offered. management. perishability. attitude. ‡ Product Considerations: Consider unit value. money and services seller can provide to support sales.Considerations in Channel Choice ‡ Market Considerations: Type of market. dominance. concentration.

drug store. ‡ Based on expertise.13 .Conflict and Control in Channels ‡ Channel conflict exists when channel members interfere with each others· objectives. ‡ Vertical conflict involves firms at different levels ‡ producer versus wholesaler ‡ producer versus retailer ‡ Channel Power is the ability to influence or determine behaviour of others in channel. Copyright © 2001 McGraw-Hill Ryerson Limited 15 . rewards and sanctions. ‡ Horizontal conflict involves firms on same level-grocery store vs.

Demands to give the stores exclusivity. ‡ Requiring suppliers to invest in elaborate computerized inventory systems. Pressure to cut prices.Producer/Retailer Conflict Small suppliers· complaints about large department stores: ‡ ‡ ‡ ‡ Onerous logistical demands. Forcing suppliers to contribute advertising and promotional dollars to the stores.14 . Copyright © 2001 McGraw-Hill Ryerson Limited 15 .

15 . ‡ Being asked to deal directly with the retailers· headquarters and to give to the retailer an amount equal to the commission that would have gone to manufacturers· agents. Copyright © 2001 McGraw-Hill Ryerson Limited 15 .More Complaints Small suppliers· complaints about discounters: ‡ Being asked to supply their goods on consignment. ‡ Become a retailer. ‡ Merge with another manufacturer. Responses from smaller suppliers: ‡ Quit doing business with big retailers whose demands are too strict and outlandish.

Copyright © 2001 McGraw-Hill Ryerson Limited 15 .16 . ‡ Exclusive Territories can create monopolies.Legal Considerations ‡ Dealer Selection: Refusing to sell to some Selection: firms. giving most business to one firm. Can be done carefully. ‡ Exclusive Dealing involves shutting out competitors. ‡ Tying Contracts involves providing one item on condition other lines be carried as well.

More Foreign Market Entry Channel Options ‡ Direct investment. in which the corporation. Copyright © 2001 McGraw-Hill Ryerson Limited . including: ‡ Joint venture or partnership with a foreign company. ‡ Wholly-owned subsidiaries. foreign and domestic operations are integrated and are not separately identified. Wholly‡ Multinational corporation. ‡ Strategic alliance alliance.