Distribution of Channels
Transcript of Distribution of Channels
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Channels of Distribution:
Conflict, Cooperation, andManagement
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Chapter Goals
To gain an understanding of: The nature and importance of intermediaries What a distribution channel is and does The decisions involved in designing a channel of
distribution Major channels used to distribute consumer goods,
business goods, and services Vertical marketing systems
Intensity of distribution Choice of intermediaries and conflict management Legal considerations and channel arrangements
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The Distribution Function
distribution is about getting the product orservice to the customer as conveniently aspossible; it deals with access andavailability
intermediaries perform many of thedistribution functions on behalf of suppliers
merchant intermediariesactually take title
to physical products that they distribute agentsdo not ever own the products, but
they arrange the transfer of title
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Distribution Channels
The role of distribution entails: Arranging for its sale and transfer of title
Promoting the product
Storing the product Assuming some risk during distribution.
Intermediaries often perform theseactivities for producer or consumer.
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Provides marketinformation
Interprets consumerswants
Promotes producersproducts
Creates assortments Stores products Negotiates with
customers Provides financing Owns products Shares risks
Anticipates wants Subdivides largequantities of a product
Stores products
Transports products Creates assortments Provides financing Makes productsreadily available
Guarantees products Shares risks
SALES SPECIALISTFOR PRODUCERS
PURCHASING AGENTFOR BUYERS
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NTERM
EDIARY
The Distribution Functions
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Designing the Channel
Channel design is a strategic marketingtool. Four decisions can be help a firmdesign a distribution channel:
what roledistribution is to play in achieving
objectives what type of channelis needed? with or
without intermediaries?
what level of intensityof distribution? which specific intermediaries to use? which
will be best suited to achieve objectives?
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Specifythe role ofdistribution
within themarketingmix
Selecttype of
distribu-tionchannel
Determineappropriate
intensityof distri-bution
Choosespecific
channelmembers
The Well-DesignedDistribution Strategy
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Selecting the Type of Channel
some firms will distribute directly; otherswill use a number of intermediaries:
Producer consumer (direct)
producer retailer consumer producer wholesaler retailer consumer
producer agent retailer consumer
producer agent wholesale retailerconsumer
when would each of these be considered?
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Major DistributionChannels For distribution of consumer goods, five
different types of channels are widely used. Business goods are normally distributed
through four major types of channels.
There are only two common channels ofdistribution for services. Some producers are not content to use only
a single distribution channel and usemultiple channels (a.k.a dualdistribution)
Multiple channels can aggravate middlemenand cause conflicts in the channels.
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ULTIMATE CONSUMERS
PRODUCERS OF CONSUMER GOODS
Retailers Retailers Retailers Retailers
Merchantwholesalers
Merchantwholesalers
Agents Agents
Consumer Channels
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BUSINESS USERS
PRODUCERS OF BUSINESS GOODS
Merchant wholesalers(industrial distributors)
Agents Agents
Merchant wholesalers(industrial distributors)
Business Channels
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ULTIMATE CONSUMERS OR BUSINESS USERS
PRODUCERS OF SERVICES
Agents
Service Channels
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Multiple Distribution Channels
some firms will use several distributionchannels to reach specific markets orsegments
dual distribution is used, for example, toreach business and consumer markets, orto carry different groups of products
or may be used to reach different segments
of the sellers market; different sizes ofbuyers or different regions of the country
some companies operate their own stores
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Vertical Marketing
Systems (VMS)
a tightly coordinated distribution channeldesigned to improve operating efficiency andmarketing effectiveness.
Corporate VMS: One firm owns other firms inchannel or the entire channel-- Goodyear, Roots.
Contractual VMS: Independents work together formuch greater effectiveness: IGA, IDA.
Administered VMS: Relies on economic power ofone channel member-- Rolex, Kraft General
Foods..
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INTENSIVE SELECTIVE EXCLUSIVE
Distributionthrough every
reasonableoutlet in a
market
Distributionthrough multiple,
but not all,reasonableoutlets in a
market
Distributionthrough a single
wholesalingmiddleman
and/or retailerin a market
Intensity of Distribution
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Considerations in
Channel Choice
Market Considerations: Type of market,concentration, potential customers, ordersize.
Product Considerations: Consider unitvalue, perishability, technical nature ofproduct.
Intermediaries Considerations: Servicesoffered, availability, attitude, dominance.
Company Considerations: Desire forchannel control, management, money andservices seller can provide to support sales.
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Conflict and Controlin Channels
Channel conflict exists when channel membersinterfere with each others objectives.
Horizontal conflict involves firms on same level--grocery store vs. drug store.
Vertical conflict involves firms at different levels
producer versus wholesaler
producer versus retailer
Channel Power is the ability to influence ordetermine behaviour of others in channel.
Based on expertise, rewards and sanctions.
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Producer/Retailer Conflict
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Small suppliers complaints about largedepartment stores:
Onerous logistical demands.
Pressure to cut prices. Demands to give the stores exclusivity.
Forcing suppliers to contribute advertisingand promotional dollars to the stores.
Requiring suppliers to invest in elaboratecomputerized inventory systems.
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More Complaints
Small suppliers complaints about discounters: Being asked to supply their goods on
consignment.
Being asked to deal directly with the retailers
headquarters and to give to the retailer an amountequal to the commission that would have gone tomanufacturers agents.
Responses from smaller suppliers:
Quit doing business with big retailers whosedemands are too strict and outlandish.
Become a retailer.
Merge with another manufacturer.
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Legal Considerations
Dealer Selection: Refusing to sell to somefirms. Can be done carefully.
Exclusive Dealing involves shutting outcompetitors, giving most business to one
firm. Tying Contracts involves providing one item
on condition other lines be carried as well.
Exclusive Territories can createmonopolies.
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Channels for EnteringForeign Markets
Exporting, through: An export merchant in the manufacturer's country
that buys goods and exports them. An export agent located in either the manufacturer'
or the destination country. A companys sales branches.
Contracting, via: Licensing: Right to use production process, patents
trademarks, or other assets. Franchising. Contract manufacturing: having a foreign-based
manufacturer produce the product
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More Foreign Market Entry ChannelOptions
Direct investment, including:
Joint venture or partnership with aforeign company.
Strategic alliance. Wholly-owned subsidiaries.
Multinational corporation, in which the
foreign and domestic operations areintegrated and are not separatelyidentified.
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The Changing Faceof Distribution
Internet (click and mortar vs. brickand mortar) a major factor-- where is itheading?
Direct Response TV sales are growingin popularity, especially for time-starvedshoppers
The worlds largest bookstore is on theInternet! (Amazon.com)
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