Distribution Channels

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 Activitiesin Marketing Distribution Physically moving products and establishing intermediary relationships to support such movement. 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 Information Transfer Communication Payments Negotiation Physical Distribution Ordering Risk Taking Financing

Manufacturer Consumer 0-level channel Manufacturer Retailer Consumer 1-level channel  Mfg Wholesaler Retailer Consumer 2-level channel   Mfg Wholesaler Jobber Retailer Consumer 3-level channel     Consumer Marketing Channels Add another level -> Mail order (telephone, internet), this will be also 1-level

Industrial Marketing Channels Industrial distributors Consumer Manufacturer Manufacturer’s representative Manufacturer’s sales branch

Structuring a Distribution Channel Important Factors in Building a Distribution Channel 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.

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.

Corporate Common Ownership at Different Levels of the Channel Types of Vertical Marketing Systems Administered Leadership is Assumed by One or a Few Dominant Members Contractual Contractual Agreement Among Channel Members

Wholesaler Retailer Consumer Consumer Conventional Distribution Channel vs. Vertical Marketing Systems Vertical marketing channel Conventional marketing channel Manufacturer Manufacturer Wholesaler Retailer

Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System • A single firm sets up two or more marketing channels to increase coverage • Example:Retailers, Catalogs, and Sales Force • Two or more companies at one channel level join together to increase coverage • Example:Banks in Grocery Stores

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 ones.

Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Channel Design Decisions Evaluating the Major Alternatives Exclusive Distribution Selective Distribution Intensive Distribution

Analyzing Consumer Needs Answering key 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 Alternatives 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 Decisions Selecting channel members Managing and motivating channel members 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 customers 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

Warehousing 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

Transportation 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 system. Involves: Cross-functional teamwork inside the company Building logistics partnerships Third-party logistics

Distribution Channels