Distribution Channels

Distribution ChannelsDistribution Channels

Distribution ChannelsDistribution Channels A set of interdependent organizations A set of interdependent organizations

(intermediaries) involved in the process of (intermediaries) involved in the process of making a product or service available for making a product or service available for use or consumption.use or consumption.

Channel decisionsChannel decisions affect other marketing decisionsaffect other marketing decisions involve long-term commitmentsinvolve long-term commitments

The Role of Distribution ActivitiesThe Role of Distribution Activitiesin Marketingin Marketing

DistributionDistribution Physically moving products and establishing Physically moving products and establishing

intermediary relationships to support such intermediary relationships to support such movement.movement.

Physical Distribution (Logistics)Physical Distribution (Logistics) The activities of distribution involved in the The activities of distribution involved in the

physical relocation of products.physical relocation of products. Channel of DistributionChannel of Distribution

The system of relationships established to The system of relationships established to guide the movement of a product.guide the movement of a product.

Distribution Channel Functions

Distribution Channel Functions

OrderingOrdering

PaymentsPayments

CommunicationCommunicationTransferTransfer

NegotiationNegotiation

FinancingFinancingRisk TakingRisk Taking

PhysicalDistribution

PhysicalDistribution

InformationInformation

Consumer Marketing ChannelsAdd another level -> Mail order (telephone, internet), this will be also 1-level

Consumer Marketing ChannelsAdd another level -> Mail order (telephone, internet), this will be also 1-level

WholesalerWholesaler JobberJobber RetailerRetailer ConsumerConsumer

ConsumerConsumer

RetailerRetailer ConsumerConsumer

ManufacturerManufacturer

0-level channel

WholesalerWholesaler RetailerRetailer ConsumerConsumer MfgMfg

2-level channel

MfgMfg

3-level channel

1-level channel

ManufacturerManufacturer

Industrialdistributors

Man

ufa

ctu

rer

Co

nsu

mer

Manufacturer’srepresentative

Manufacturer’ssales branch

Industrial Marketing ChannelsIndustrial Marketing ChannelsIndustrial Marketing ChannelsIndustrial Marketing Channels

Structuring a Distribution ChannelStructuring a Distribution Channel

Important Factors in Building a Distribution Important Factors in Building a Distribution ChannelChannel Costs associated with establishing a direct Costs associated with establishing a direct

channel distributionchannel distribution Coverage is increased through the use of Coverage is increased through the use of

indirect channels of distribution.indirect channels of distribution. Control is enhanced using a direct distribution Control is enhanced using a direct distribution

channel.channel.

Channel Behavior and ConflictChannel Behavior and Conflict The channel will be most effective when:The channel will be most effective when:

each member is assigned tasks it can do besteach member is assigned tasks it can do best.. all members cooperate to attain overall channel goals all members cooperate to attain overall channel goals

and satisfy the target market.and satisfy the target market.

Focus on individual goals leads to conflictFocus on individual goals leads to conflict Horizontal Conflict occurs among firms at the same Horizontal Conflict occurs among firms at the same

level of the channel.level of the channel. Vertical Conflict occurs between different levels of the Vertical Conflict occurs between different levels of the

same channel.same channel.

Vertical Marketing SystemVertical Marketing System

A distribution channel structure in which A distribution channel structure in which producers, wholesalers, and retailers act producers, wholesalers, and retailers act as a unified system.as a unified system.

One channel member owns the other, has One channel member owns the other, has contracts with them, or has so much contracts with them, or has so much power that they all cooperate.power that they all cooperate.

Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems

CorporateCommon Ownership at Different

Levels of the Channel

CorporateCommon Ownership at Different

Levels of the Channel

ContractualContractual Agreement Among

Channel Members

ContractualContractual Agreement Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

Conventional Distribution Channel vs. Conventional Distribution Channel vs. Vertical Marketing SystemsVertical Marketing Systems

VerticalVerticalmarketingmarketingchannelchannel

Manufacturer

Retailer

ConventionalConventionalmarketingmarketingchannelchannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wh

ole

sale

r

Innovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing Systems

Horizontal MarketingHorizontal MarketingSystemSystem

Horizontal MarketingHorizontal MarketingSystemSystem

Hybrid MarketingHybrid MarketingSystemSystem

Hybrid MarketingHybrid MarketingSystemSystem

Two or more companies at one channel level join together to increase coverage

Example:Banks in Grocery Stores

A single firm sets up two or more marketing channels to increase coverage

Example:Retailers, Catalogs, and Sales Force

Changing Channel OrganizationChanging Channel Organization

Disintermediation: Disintermediation: Occurs when product and service producers Occurs when product and service producers

cut out intermediaries and go directly to final cut out intermediaries and go directly to final buyers, or when radically new types of buyers, or when radically new types of channel intermediaries displace traditional channel intermediaries displace traditional ones.ones.

Channel Design Decisions Channel Design Decisions

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Analyzing Consumer NeedsAnalyzing Consumer Needs

Answering key questions helps to Answering key questions helps to determine customer needs:determine customer needs: Do consumers want to buy from nearby Do consumers want to buy from nearby

locations or are they willing to travel?locations or are they willing to travel? Do they value breadth of assortment or do they Do they value breadth of assortment or do they

prefer specialization?prefer specialization? Do consumers want many add-on services?Do consumers want many add-on services?

Firm must balance needs against costs and Firm must balance needs against costs and consumer price preferences.consumer price preferences.

Setting Channel ObjectivesSetting Channel Objectives

State objectives in terms of targeted levels State objectives in terms of targeted levels of customer service.of customer service.

Channel objectives are influenced by:Channel objectives are influenced by: CostCost Nature of the companyNature of the company The firm’s productsThe firm’s products Marketing intermediariesMarketing intermediaries CompetitorsCompetitors EnvironmentEnvironment

Identifying Major AlternativesIdentifying Major Alternatives

Types of IntermediariesTypes of Intermediaries Company sales forceCompany sales force Manufacturer’s agencyManufacturer’s agency Industrial distributorsIndustrial distributors

Number of intermediariesNumber of intermediaries Intensive distributionIntensive distribution Exclusive distributionExclusive distribution Selective distributionSelective distribution

Responsibilities of intermediaries Responsibilities of intermediaries

Evaluating the Major Evaluating the Major AlternativesAlternatives

Economic Criteria:Economic Criteria: A company compares the likely sales, costs, and A company compares the likely sales, costs, and

profitability of different channel alternatives.profitability of different channel alternatives. Control Issues:Control Issues:

How and to whom should control be given?How and to whom should control be given? Adaptive Criteria:Adaptive Criteria:

Consider long-term commitment vs. flexibility.Consider long-term commitment vs. flexibility.

Channel Management Channel Management DecisionsDecisions

Selecting channel membersSelecting channel members Managing and motivating channel Managing and motivating channel

membersmembers Partner relationship managementPartner relationship management

Evaluating channel membersEvaluating channel members

Marketing LogisticsMarketing Logistics

Planning, implementing, and controlling the Planning, implementing, and controlling the physical flow of goods, services, and physical flow of goods, services, and related information from points of origin to related information from points of origin to points of consumption to meet customer points of consumption to meet customer requirements at a profit.requirements at a profit.

Market logistics planningMarket logistics planning

Market logistics planning has four steps:Market logistics planning has four steps: Deciding on the company’s value proposition to its Deciding on the company’s value proposition to its

customerscustomers Deciding on the best channel design and network Deciding on the best channel design and network

strategy for reaching the customerstrategy for reaching the customer Developing operational excellence in sales Developing operational excellence in sales

forecasting, warehouse management, transportation forecasting, warehouse management, transportation management and materials management.management and materials management.

Implementing the solution with the best information Implementing the solution with the best information systems, equipment, policies and procedures.systems, equipment, policies and procedures.

Goals of the Logistics System Goals of the Logistics System & Major Logistics Functions& Major Logistics Functions

Goals of the Logistics System:Goals of the Logistics System: Deliver a targeted level of customer service at the Deliver a targeted level of customer service at the

least cost.least cost.

Major Logistics Functions:Major Logistics Functions: WarehousingWarehousing Inventory management Inventory management TransportationTransportation Logistics information managementLogistics information management

WarehousingWarehousing

How many, what types, and where?How many, what types, and where? Storage warehousesStorage warehouses Distribution centersDistribution centers Automated warehousesAutomated warehouses

Inventory ManagementInventory Management

Must balance between too much and too Must balance between too much and too little inventory.little inventory.

Just-in-time logistics systemsJust-in-time logistics systems RFID or Smart Tag technologyRFID or Smart Tag technology

TransportationTransportation

TrucksTrucks RailroadsRailroads Water carriersWater carriers PipelinesPipelines AirAir InternetInternet

Integrated Logistics ManagementIntegrated Logistics Management The logistics concept that emphasizes The logistics concept that emphasizes

teamwork, both inside the company and teamwork, both inside the company and among all the marketing channel among all the marketing channel organizations, to maximize the performance organizations, to maximize the performance of the entire distribution system.of the entire distribution system.

Involves:Involves: Cross-functional teamwork inside the companyCross-functional teamwork inside the company Building logistics partnershipsBuilding logistics partnerships Third-party logisticsThird-party logistics