Distribution

What is a Distribution Channel?

A set of interdependent organizations
(intermediaries) involved in the process of
making a product or service available for use
or consumption by the consumer or business
user.
Channel decisions are among the most
important decisions that management faces
and will directly affect every other marketing
decision.
Types of middlemen
Merchant middlemen
Agents
Facilitators
Why are Marketing Intermediaries
Used?
Greater efficiency in making goods available
to target markets.
Offer the firm more than it can achieve on it’s
own through the intermediaries:
•Contacts
•Experience
•Specialization
•Scale of operation
Match supply and demand.
Distribution Channel Functions
Risk
Information
Communication
Physical distribution
Promotion
Matching
Financing
 Factors Influencing Channel Design

Customer characteristics
Culture
Competition
Company objectives
Product characteristics
Capital
Factors Influencing Channel Design
contd.
Cost
Coverage
Control
Continuity
Communication
Coordination
Channel levels

Zero –level channel or direct marketing

One-level channel
Two-level channel
Three level channel
Channels can be

Forward
Backward
Service sector channels
Schools
Hospitals
Banking
Insurance
Travel
Channel Alternatives

Types of available business intermediaries

No. of intermediaries needed
Terms and responsibilities of each channel
member
Types of intermediaries

Distributors
Wholesalers
Retailers
Department stores
What kind of distribution?

Exclusive
Selective
Intensive
Channel –design decision
Analyzing customer needs
Establishing channel objectives
Identifying major channel alternatives
Intensive Distribution
Selective Distribution
Exclusive Distribution

Evaluating major channel alternatives

Channel Behavior & 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.
When this doesn’t happen, conflict occurs:
Horizontal Conflict occurs among firms at the same
level of the channel.
Vertical Conflict occurs between different levels of the
same channel.
For the channel to perform well, conflict must be
managed.
Terms and Responsibilities

Rights and responsibilities are drawn up

Distributors territorial rights are fixed
Pricing policies and conditions of sales are
fixed
Condition of sale (cash discounts)
Channel management-decision
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
 Feedback
Managing channel members
Following types of power to elicit cooperation:
•Coercive power
•Reward power
•Legitimate power
•Expert power
•Referent power
 Channel modification
With time channels need to change along with product
as it get older in the PLC
Introduction – specialist channels (boutiques,company
showrooms)
Growth – higher volume channel appears (chain
stores, departmental stores)
Maturity – Mass merchandisers (low cost channels)
Decline – ‘sales stores’, discount stores
Adding channels
Advantages
Increased market coverage
Lower channel costs
More customized selling
Disadvantages
Increases selling costs
Increases channel control
Breeds channel conflict
Types of Vertical Marketing Systems
Corporate
Corporate
Greater Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Degree Contractual
Contractual
Degree
of
of Contractual
Contractual Agreement
Agreement Among
Among
Direct
Direct
Control Channel
Channel Members
Members
Control

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
Lesser aa Few
Few Dominant
Dominant Members
Members
Vertical Marketing Systems

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
Wholesaler Franchise
Retailer
Retailer Franchise
Sponsored
Sponsored Organizations
Cooperatives
Cooperatives Organizations
Voluntary
VoluntaryChain
Chain

Manufacturer- Manufacturer-
Manufacturer- Service-Firm-
Manufacturer- Service-Firm-
Sponsored Sponsored
Sponsored Sponsored
Sponsored Sponsored
Retailer Wholesaler
Wholesaler Franchise
Retailer FranchiseSystem
System
Franchise Franchise
FranchiseSystem
System
FranchiseSystem
System