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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
 Physical Distribution (Logistics)
 The activities of distribution involved in the
physical relocation of products.
 Channel of Distribution
 The system of relationships established to
guide the movement of a product.
Distribution Channel Functions




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

0-level channel
Manufacturer Consumer

1-level channel
Manufacturer Retailer  Consumer

2-level channel
Mfg  Wholesaler Retailer  Consumer

3-level channel
Mfg  Wholesaler Jobber  Retailer  Consumer
Manufacturer Industrial Marketing Channels



sales branch
Structuring a Distribution Channel
 Important Factors in Building a Distribution
 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 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
Common Ownership at Different
Levels of the Channel

Leadership is Assumed by One or
a Few Dominant Members

Contractual Agreement Among
Channel Members
Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel

Manufacturer Manufacturer



Innovations in Marketing Systems

Horizontal Marketing Hybrid Marketing

System System

Two or more A single firm sets up

companies at one two or more
channel level join marketing channels
together to increase to increase coverage
Example:Banks in Catalogs, and Sales
Grocery Stores 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
Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Identifying Major Alternatives

Intensive Selective Exclusive

Distribution Distribution Distribution

Evaluating the Major Alternatives

Analyzing Consumer Needs

 Answeringkey 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
 Number of intermediaries
 Intensive distribution
 Exclusive distribution
 Selective distribution
 Responsibilities of intermediaries
Evaluating the Major
 Economic Criteria:
 A company compares the likely sales, costs, and
profitability of different channel alternatives.
 Control Issues:
 How and to whom should control be given?
 Adaptive Criteria:
 Consider long-term commitment vs. flexibility.
Channel Management
 Selecting
channel members
 Managing and motivating channel
 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
 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

 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

 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
 Involves:
 Cross-functional teamwork inside the
 Building logistics partnerships
 Third-party logistics