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Channel and Distribution Strategy

15. Channel and Distribution Strategy. 15. Channel and Distribution Strategy. Objectives. 1. Discuss channel strategy as one of the elements of the marketing mix. 2. Relate channel strategy to the concept of total customer satisfaction.

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Channel and Distribution Strategy

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  1. 15 Channel and Distribution Strategy

  2. 15 Channel and Distribution Strategy Objectives 1. Discuss channel strategy as one of the elements of the marketing mix. 2. Relate channel strategy to the concept of total customer satisfaction. 3. Explain the role of distribution channels in marketing strategy. 4. Describe the various types of channels in distribution. 5. Outline the major strategy alternatives in using marketing channels. 6. Identify the conditions under which a manufacturer is likely to assume wholesaling functions rather than use independents. 7. Distinguish among merchant wholesalers, agents, and brokers. 8. Identify the major types of merchant wholesalers and instances in which each type might be used. 9. Provide an overview of the many types of wholesaling intermediaries and their functions. 10. Describe conflict and cooperation in the distribution channel. 11. Explain the issues involved in changing from the use of one channel intermediary type to a different type. 15-1

  3. 15 Channel and Distribution Strategy Figure 15.1 Achieving Transaction Economy with Wholesaling Intermediaries (1 of 2) Manufacturer Manufacturer Manufacturer Manufacturer 16 Transactions Customer Customer Customer Customer 15-2a

  4. 15 Channel and Distribution Strategy Figure 15.1 Achieving Transaction Economy with Wholesaling Intermediaries (2 of 2) Manufacturer Manufacturer Manufacturer Manufacturer 8 Transactions Manufacturer Customer Customer Customer Customer 15-2b

  5. 15 Channel and Distribution Strategy Distribution Channels • The paths that are goods -- and title to these goods -- follow from producer to consumer. 15-3

  6. 15 Channel and Distribution Strategy Marketing Intermediary • A business firm operating between the producer and the consumer or business purchaser. 15-4

  7. 15 Channel and Distribution Strategy Wholesaling • The activities of intermediaries who sell to retailers, other wholesalers, and business users but not in significant amounts to ultimate consumers. 15-5

  8. 15 Channel and Distribution Strategy Retailer • A store that sells products purchased by individuals for their own use and not for resale. 15-6

  9. 15 Channel and Distribution Strategy Distribution Channels Perform Important Functions • Facilitating the exchange process • Sorting to alleviate imbalances between outputs and consumer needs • Standardizing transactions • Holding inventories • Assisting the search process • Transporting materials and products 15-7

  10. 15 Channel and Distribution Strategy Sorting • The process that alleviates discrepancies in assortment by reallocating the outputs of various producers into assortments desired by individual purchasers. 15-8

  11. 15 Channel and Distribution Strategy Figure 15.3 Alternative Distribution Channels (1 of 3) Consumer Goods Producer Consumer Direct channel Producer Retailer Consumer One-step channel Producer Wholesaler Retailer Consumer Two-step channel Producer Agent/broker Wholesaler Retailer Consumer Multistep channel 15-9a

  12. 15 Channel and Distribution Strategy Figure 15.3 Alternative Distribution Channels (2 of 3) Business Goods Producer Business user Direct channel Producer Wholesaler Business user One-step (wholesaler) channel Producer Agent/broker Business user Two-step (agent) channel Producer Agent/broker Wholesaler Business user Multistep channel 15-9b

  13. 15 Channel and Distribution Strategy Figure 15.3 Alternative Distribution Channels (3 of 3) Services Service provider Consumer or Business user Direct channel Service provider Agent/broker Consumer or Business user One-step channel 15-9c

  14. 15 Channel and Distribution Strategy Agent • A wholesaling intermediary that differs from the typical wholesaler in that the agent does not take title to the goods. 15-10

  15. 15 Channel and Distribution Strategy Merchant Wholesaler • A wholesaler who takes title to the products carried. 15-11

  16. 15 Channel and Distribution Strategy Industrial Distributor • A wholesaler that operates in the business goods market and typically handles small accessory equipment and operating supplies. 15-12

  17. 15 Channel and Distribution Strategy Reverse Channels • The paths follow from consumer to manufacturer or to marketing intermediaries. 15-13

  18. 15 Channel and Distribution Strategy Facilitating Agency • An agency that provides specialized assistance for regular channel members (such as producers, wholesalers and retailers) in moving products from producer to consumer. 15-14

  19. 15 Channel and Distribution Strategy Figure 15.5 Wholesale Customers Distribution 15-15

  20. 15 Channel and Distribution Strategy Wholesalers • Wholesaling intermediaries who take title to the products they handle. 15-16

  21. 15 Channel and Distribution Strategy Wholesaling Intermediaries • Intermediaries who assume title, as well as agents and brokers who perform important wholesaling activities without taking title to the products. 15-17

  22. 15 Channel and Distribution Strategy Figure 15.6 Possible Wholesaling Functions for Customers and Producers-Suppliers (1 of 2) Buying Acts as purchasing agent for customers, anticipates customer demands, possesses knowledge of alternative supply sources. Selling Maintains a sales force to call on customers, thus providing a low-cost method of serving smaller retailers and business buyers. Transporting Customers receive prompt delivery in response to their demands, reducing their inventory investments. By "breaking bulk," (purchasing in carload or truckload lots, then reselling in smaller quantities), wholesalers reduce overall transportation costs. Risk Taking Aids producers by evaluating credit risks of numerous distant retail customers and smaller business users. Extending credit to these customers is another form of risk taking. Risk of possible spoilage, theft, or obsolescence is assumed when the wholesaler is responsible for transporting and stocking goods in inventory. 15-18a

  23. 15 Channel and Distribution Strategy Figure 15.6 Possible Wholesaling Functions for Customers and Producers-Suppliers (2 of 2) Storing Performs a warehousing function, reduces risk and cost of maintaining inventory for producers, and provides customers with prompt delivery service. Providing Marketing Information Serves as key marketing research input for producers through regular contact with retail and business buyers. Provides customers with information about new products, technical information about product lines, information on competitive activities and industry trends, and advisory information concerning changes in such areas as pricing and legal rulings. Financing Aids customers by granting credit that might not be available if they purchased directly from distant manufacturers. Provides financing assistance to producers by purchasing goods in advance of sale and through promptly paying bills. 15-18b

  24. 15 Channel and Distribution Strategy Table 15.2 Manufacturer-Owned Facilities(1 of 2) Manufacturer- Owned Facilities Description Sales branch Manufacturer-owned facility that carries inventory and processes orders to customers from available stock. Public warehouses Independently owned storage facilities. Manufacturer rents space to store inventory for shipment by the warehouse to customers in the area. Warehouse will break bulk (divide a carload, package inventory, and fill orders. 15-19a

  25. 15 Channel and Distribution Strategy Table 15.2 Manufacturer-Owned Facilities(2 of 2) Manufacturer- Owned Facilities Description Trade fairs Manufacturers in a particular industry display their wares at some temporary venue for visiting retail and wholesale buyers, e.g. Montreal Toy Show. Merchandise mart Permanent exhibition at which manufacturers rent showcases for product offerings, e.g. Taipei. 15-19b

  26. 15 Channel and Distribution Strategy Sales Branches and Offices • Sales Branch Manufacturer-owned facility that carries inventory and processes orders to customers from available stock. • Sales Office Manufacturer-owned facility that does not carry stock but serves as a regional office for the firm’s sales personnel. • Public Warehouse Independently-owned storage facility. 15-20

  27. 15 Channel and Distribution Strategy Trade Fairs • Periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers. 15-21

  28. 15 Channel and Distribution Strategy Merchandise Mart • Permanent exhibition at which manufacturers rent showcases for their product offerings. 15-22

  29. 15 Channel and Distribution Strategy Figure 15.7 Classification of Independent Wholesaling Intermediaries Independent wholesaling intermediaries Agents and brokers Merchant wholesalers • Brokers • Selling agents • Manufacturers’ agents • Commission Merchants • Auction houses Full- function Limited function 15-23

  30. 15 Channel and Distribution Strategy Table 15.3 Merchant Wholesalers (1 of 2) 15-24a

  31. 15 Channel and Distribution Strategy Table 15.3 Agents and Brokers (2 of 2) 15-24b

  32. 15 Channel and Distribution Strategy Vertical Marketing System • A network of channel intermediaries organized and centrally managed to produce the maximum competitive impact. 15-25

  33. 15 Channel and Distribution Strategy Table 15.4 Three Types of Vertical Marketing Systems (1 of 2) TYPE OF SYSTEM DESCRIPTION EXAMPLES Corporate Channel owned and Bata Shoes operated by a single Firestone organization Sherwin-Williams Singer McDonald's (partial) Administered Channel dominated by one Kodak powerful member that acts General Electric as channel captain Corning Glass 15-26a

  34. 15 Channel and Distribution Strategy Table 15.4 Three Types of Vertical Marketing Systems (2 of 2) TYPE OF SYSTEM DESCRIPTION EXAMPLES Contractual Channel coordinated through Wholesaler-Sponsored contractual agreements among Voluntary Chain channel members IGA Canadian Tire Independent Druggists Alliance (IDA) Allied Hardware Retail Cooperative Associated Grocers Franchise Systems McDonald's (partial) Century 21 Real Estate AAMCO Transmissions Coca-Cola bottlers Ford dealers 15-26b

  35. 15 Channel and Distribution Strategy Franchise • An agreement whereby one firm (franchisee) agrees to meet the operating requirements of a successful business (franchisor) in return for the right to carry the name and products of the franchisor. 15-27

  36. 15 Channel and Distribution Strategy Figure 15.9 Channel Selection and Implementation Process Select the appropriate type of channel based on • market factors • product factors • competitive factors Determine distribution intensity • intensive distribution • selective distribution • exclusive distribution Negotiate arrangements with channels Support channels 15-28

  37. 15 Channel and Distribution Strategy Table 15.5 Factors Affecting Choice of Distribution Channels (1 of 2) FACTOR Market Factors Consumer market or business market Geographic location of target market Customer service needs Order size Product Factors Perishability Technical complexity of product Unit value CHANNELS TEND TO BE SHORTER WHEN Users are in business market Customers are geographically concentrated Specialized knowledge, technical know-how, and regular service needs are present Customer places relatively small number of large orders Products are perishable, either because of fashion changes or physical perishability Products are highly technical Products have high unit value 15-29a

  38. 15 Channel and Distribution Strategy Table 15.5 Factors Affecting Choice of Distribution Channels (2 of 2) FACTOR Producer Factors Producer resources -- financial, managerial, and marketing Product line Need for control over the channel Competitive Factors Need for promotion to channel members intermediaries CHANNELS TEND TO BE SHORTER WHEN Manufacturer possesses adequate resources to perform channel functions Manufacturer has broad product line to spread distribution costs Manufacturer wishes to control the channel Manufacturer feels that independent intermediaries are inadequately promoting products 15-29b

  39. 15 Channel and Distribution Strategy Determine Distribution Intensity • Intensive • Selective • Exclusive 15-30

  40. 15 Channel and Distribution Strategy Intensive Distribution • A form of distribution that attempts to provide saturation coverage of the potential market. 15-31

  41. 15 Channel and Distribution Strategy Selective Distribution • The selection of a small number of retailers to handle the firm’s product line. 15-32

  42. 15 Channel and Distribution Strategy Exclusive Distribution • The granting of exclusive rights by manufacturers to a wholesaler or retailer to sell in a geographic region. 15-33

  43. 15 Channel and Distribution Strategy Legal Problems of Exclusive Distribution • Exclusive dealing • Tied selling • Market restriction 15-34

  44. 15 Channel and Distribution Strategy Exclusive Dealing • An arrangement whereby a supplier prohibits a marketing intermediary (either a wholesaler or, more typically, a retailer) from handling competing products. 15-35

  45. 15 Channel and Distribution Strategy Tied Selling • An arrangement whereby a supplier forces a dealer who wishes to handle a product to also carry other products from the supplier or to refrain from using or distributing someone else’s product. 15-36

  46. 15 Channel and Distribution Strategy Market Restriction • An arrangement whereby suppliers restrict the geographic territories for each of their distributors. 15-37

  47. 15 Channel and Distribution Strategy Channel Captain • The most dominant member of the distribution channel. 15-38

  48. 15 Channel and Distribution Strategy Channel Conflict • Rivalry and conflict between channel members because of sometimes different objectives and needs. 15-39

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