Chapter 14

Channels of
Distribution

14-1 Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 Middlemen

Middlemen
Middlemen A
A business
business firm
firm that
that
renders
renders services
services directly
directly
related
related to
to the
the sale/purchase
sale/purchase
of
of aa product
product as
as it
it flows
flows through
through
from
from producer
producer to to consumer
consumer

You
You can
can eliminate
eliminate middlemen,
middlemen, but
but not
not the
the
essential
essential distribution
distribution activities
activities they
they
perform
perform
14-2
 Distribution Channels
DISTRIBUTION
DISTRIBUTION CHANNELS
CHANNELS

People
People and
and firms
firms involved
involved
in
in the
the transfer
transfer of
of title
title to
to a
a product
product
as
as the
the product
product moves
moves from
from producer
producer to
to
ultimate
ultimate consumer
consumer oror business
business user
user

Final
Consumer
Producers Middlemen Or
Business
User
14-3
 Middleman Activities

14-4
 Middleman Activities

14-5
 Major Channels of Distribution

14-6
 Vertical Marketing Systems

14-7
 Choice of Channels: Market

Type Number of
of potential
Market customers

Geographic Order
concentration size

14-8
 Choice of Channels: Product

Perishability
Unit
Value

Technical
Nature

14-9
 Choice of Channels: Middleman

Services
Services provided
provided by
by
middlemen
middlemen

Availability
Availability of
of desired
desired
middlemen
middlemen

Producer’s
Producer’s and
and
middlemen’s
middlemen’s policies
policies
14-10
 Choice of Channels: Company
Desire
for channel control

Services provided
by seller

Ability
of management

Financial resources

14-11
 Intensity of Distribution

14-12
 Conflict in Channels
Horizontal
Horizontal

Different
Different types
types
Middlemen
Middlemen of
of middlemen
middlemen
of the same type
of the same type on the same level
on the same level

Retailer Retailer Retailer Retailer

14-13
 Conflict in Channels

Vertical
Vertical

Producer
vs.
Wholesaler

Producer
vs.
Retailers

14-14
 Who Controls the Channels?

Expertise

Rewards

Sanctions

14-15
 Channel as Partnership

Cooperation Collaboration

Relationship
Coordination
Marketing

14-16
 Legal Considerations

Exclusive Tying
dealing contracts

Refusal Exclusive
to deal territory

14-17
 Key Terms and Concepts
 Middlemen
 Merchant middlemen
 Agent middlemen
 Disintermediation
 Distribution channel
 Gray marketing
 Direct distribution
 Indirect distribution
 Multiple distribution channels
 Vertical marketing system
 Corporate vertical marketing
system
14-18
 Contractual vertical marketing
system
 Administered vertical marketing
system
 Intensity of distribution
 Intensive distribution
 Selective distribution
 Exclusive distribution
 Channel conflict
 Chargeback
 Horizontal conflict
 Scrambled merchandising
 Key Terms and Concepts
 Vertical conflict
 Slotting fee
 Channel control
 Channel power
 Exclusive dealing
 Tying contract
 Refusal to deal
 Exclusive-territory policy

14-19