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Physical distribution and distribution channels

Presented By: Lavina Garg, Mohd. Arfat, Priyesh Babbar

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

Distribution Channels

Role of Intermediaries
Greater efficiency in making goods available to target markets. Intermediaries provide
Contacts Experience Specialization Scale of operation

Match supply and demand.

Channel Functions
Information Promotion

Contact
Matching

Negotiation
Physical Distribution

Financing
Risk taking

Physical Distribution - Nature and Importance

- Physical distribution: Moving tangible products through distribution channels - Physical distribution (or logistics) consists of all activities involved in moving the right amount of the right products to the right place at the right time - In the past years, the surge of e-commerce has underscored the importance of physical distribution the challenge relates to fulfillment, which entails having the merchandise that is ordered by a customer in stock and then packing and shipping it in an efficient, timely manner

THE ROLE OF MARKETING CHANNELS IN MARKETING STRATEGY


Marketing channels are key because they are the means of making goods and services available to ultimate users. Four functions of marketing channels: Channels facilitate the exchange process by reducing the number of marketplace contacts necessary to make a sale. Distributors adjust for discrepancies in the markets assortment of goods and services via sorting, channeling products to meet the buyers and producers needs. Channel members tend to standardize payment terms, delivery schedules, prices, purchase lots, and other conditions. Channels facilitate searches by both buyers and sellers and bring them together to complete the exchange process.

TYPES OF MARKETING CHANNELS


Most channel options involve at least one marketing intermediary, an organization that operates between producers and consumers or business users. A retailer owned and operated by someone other than the manufacturer of the products it sells. A wholesaler who takes title to the goods it handles and then distributes these goods to retailers, other distributors, or sometimes end consumers. Service firms market primarily through short channels because they sell intangible products and need to maintain personal relationships within their channels.

DIRECT SELLING
Direct channelcarries goods directly from a producer to the business purchaser or ultimate user. Direct sellinga marketing strategy in which a producer establishes direct sales contact with its products final users. Internet and direct mail are also potentially important tools for direct selling.

CHANNELS USING MARKETING INTERMEDIARIES


For some products, using intermediaries may be more efficient, less expensive, and less time-consuming.

DUAL DISTRIBUTION Movement of products through more than one channel to reach the firms target market. Used to maximize the firms coverage in the marketplace or to increase the cost-effectiveness of the firms marketing effort. REVERSE CHANNELS Channels designed to return goods to their producers.

Growing importance because of rising prices for raw materials, increasing availability of recycling facilities, and passage of additional antipollution and conservation laws. Also used for recalls and repairs.

CHANNEL STRATEGY DECISIONS

SELECTION OF A MARKETING CHANNEL


Multiple factors affect selection of a marketing channel.
Market Factors Product Factors Organizational Factors

Competitive Factors

DETERMINING DISTRIBUTION INTENSITY Intensive distribution Distribution of a product through all available channels. Selective distribution Distribution of a product through a limited number of channels. Exclusive distribution Distribution of a product through a single wholesaler or retailer in a specific geographic region.

WHO SHOULD PERFORM CHANNEL FUNCTIONS?


Intermediary must provide better service at lower costs than manufacturers or retailers can provide for themselves.

Consolidation of channel functions can represent a strategic opportunity for a company.

CHANNEL MANAGEMENT AND LEADERSHIP


Marketers have relationships with intermediaries in distribution channels. Channel captain Dominant and controlling member of a marketing channel.

CHANNEL CONFLICT
Horizontal conflictdisagreements among channel members at the same level, such as two competing discount stores. Vertical conflict occurs among members at different levels of the channel.

The gray marketgoods produced for overseas markets that re-enter the market and compete against domestic versions.

ACHIEVING CHANNEL COOPERATION


Best achieved when all members of channel see themselves as equal components; channel captain should provide this leadership.

VERTICAL MARKETING SYSTEMS


Vertical marketing system (VMS) Planned channel system designed to improve distribution efficiency and cost-effectiveness by integrating various functions throughout the distribution channel.

CORPORATE AND ADMINISTERED SYSTEMS


Corporate marketing systemsingle owner runs organizations at each stage of the marketing channel. Administered marketing systemdominant channel member exercises power to achieve channel coordination.

CONTRACTUAL SYSTEMS
Contractual marketing systemcoordinates distribution through formal agreements among channel members.
Include wholesaler-sponsored voluntary chains, retail cooperatives, and franchises.

Tasks in Physical Distribution Management

Physical distribution refers to the actual physical flow of products In contrast, physical distribution management is the development and operation of processes resulting in the effective and efficient physical flow of products

Effective physical distribution management requires careful attention to five interrelated activities:
1. Order processing

2. Inventory control
3. Inventory location and warehousing 4. Materials handling

5. Transportation

Tasks in Physical Distribution Management

1. Order Processing

- The starting point in a physical distribution system is order processing, which is a set of procedures for receiving, handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):

- Between customer and supplier orders, invoices, and other business functions are transmitted by computer
- Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet - EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices

Tasks in Physical Distribution Management

2. Inventory Control

- The goal of inventory control is to satisfy the orderfulfillment expectations of customers while minimizing both the investment and fluctuations in inventories
- Just-in-Time:

- JIT combines inventory control, purchasing, and production scheduling


- Applying JIT, a firm buys in small quantities that arrive just in time for production and then it produces in quantities just in time for sale

Tasks in Physical Distribution Management

2. Inventory Control (continued)


- Just-in-Time: - - Benefits of JIT are: - Dramatic cost savings - Shortened and more flexible and reliable production and delivery schedules - Quick responses to quality problems - Market-Response Systems: - The central promise is that those who intend to consume a product should activate a process to produce and deliver replacement items - In this way, a product is pulled through a channel on the basis of demand

Tasks in Physical Distribution Management

3. Inventory Location and Warehousing

- Management must make critical decisions about the size, location, and transportation of inventories - These areas are interrelated, often in complex ways - One key consideration in managing inventories is warehousing, which embraces a range of functions, such as assembling, dividing, and storing products and preparing them for reshipping

Tasks in Physical Distribution Management

4. Materials Handling

- Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management - Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft - Efficient equipment can reduce handling costs as well as time required for handling

Tasks in Physical Distribution Management

5. Transportation

- Management must decide on both the mode of transportation and the particular carriers - The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes - Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation

Channel Structure Dimensions


1. Number of levels in the channel 2. Intensity at the various levels

3. Types of intermediaries at each level

Number of Levels
Range from two to five or more Number of alternatives is limited to two or

three choices Limitations result from the following factors: Particular industry practices Nature & size of the market Availability of intermediaries

Intensity at the Various Levels


Relationship between the intensity of distribution dimension & number of retail intermediaries used in a given market area

Intensity Dimension
Intensive Selective Exclusive

Numbers of Intermediaries (retail level)


Many Few One

Types of Intermediaries
Numerous types Managers emphasis on types of distribution

tasks performed by these intermediaries.


Watch emerging types
Electronic online auction firms (eBay) Industrial products sold in B2B markets

(Chemdex, Converge.com)

Variables Affecting Channel Structure


Categories of Variables

1. 2. 3. 4. 5. 6.

Market Variables Product Variables Company Variables Intermediary Variables Environmental Variables Behavioral Variables

Market Variables
Market Geography Location, geographical size, & distance from producer Number of customers in a market Number of buying units (consumers or industrial firms) per unit of land area Who buys, & how, when, and where customers buy

Market Size

Market Density

Market Behavior

Product Variables

Bulk & Weight Perish ability Unit Value Degree of Standardization Technical versus Nontechnical Newness

Company Variables
Size The range of options is relative to a firms size The greater the capital, the lower the dependence on intermediaries Intermediaries are necessary when managerial experience is lacking Marketing & objectives may limit use of intermediaries

Financial Capacity

Managerial Expertise

Objectives & Strategies

Intermediary Variables
Availability Availability of intermediaries influences channel structure.

Cost

Cost is always a consideration in channel structure.

Services

Services that intermediaries offer are closely related to the selection of channel members.

Environmental Variables

Economic Sociocultural

Competitive

The impact of environmental forces is a common reason for making channel design decisions.

Technological

Legal

Behavioral Variables

Develop congruent roles for channel members.

Be aware of available power bases.

Attend to the influence of behavioral problems that can distort communications.