The Channel Selection DecisionFundamental Questions • Who are potential customers ? • Where do they buy ? • When do they buy ? • How do they buy ? • What do they buy ?
Producer Brokers or Agents Distributors or Wholesalers Retailers or Dealers Ultimate Buyers Marketing Channel Alternatives
Direct versus Indirect Distribution Direct- using firm’s own distribution, usually used when: • intermediaries are not available or are not capable of satisfying target market needs • target markets are easily identifiable • personal selling is an important communication tool for the company • the company has a wide variety of offerings for the target market • organizational resources are available
Direct versus Indirect Distribution Indirect- using intermediaries • type, location, density and number of channels must be determined • can sometimes perform distribution activities more efficiently and less expensively
Electronic Marketing Channels ...use the Internet to make goods and services available to consumers Disintermediation-- elimination of traditional intermediaries and direct distribution through electronic marketing channels
Travelocity.com Dell.com Amazon.com Book Publisher Airline Dell Computer Book Wholesaler Amazon.com (Virtual Retailer) Travelocity (Virtual Agent) Representative Electronic Marketing Channels Ultimate Buyers
Channel Selection at the Retail Level • Type and place decisions depend on the buying requirements of the target market and the potential profitability of the outlets • Number of intermediaries carrying the firm’s offering in a geographic area or density also needs to be determined
Extent of Distribution Coverage Intensive Exclusive Selective Lexus Rolex Wrigley’s Coke Levi’s Sony
Dual Distribution • occurs when an organization distributes its offering through 2 or more different marketing channels that may or may not compete for similar buyers • the main consideration is whether it will provide incremental sales revenue or cannibalize existing sales
Intermediary Requirements Intermediaries • are concerned with the adequacy of the offering • require marketing support • seek a degree of exclusivity • expect a profit margin consistent with the functions they are expected to perform
Trade Relations • Channel Conflict • Sources of Channel Conflict: • when one channel member bypasses another • over how profit margins are distributed • when manufacturers believe that retailers or wholesalers are not giving their products enough attention • dual distribution
Channel-Modification Decisions Reasons: • shifts in geographical concentration of buyers • inability of existing intermediaries to meet the needs of buyers • costs of distribution
Factors in Modification Decisions • Will the change improve the effective coverage of the sought target markets? • Will the change improve customer satisfaction? • Which marketing functions must be absorbed? • Does the organization have the resources to perform the new functions? • What will be the effect on other channel members? • What will be the effect on long-term organizational objectives?