Transcript Place: Distribution Channeles

“P” For Place:
The Distribution Channels
Module: Advanced Marketing
Course: PGDBA
By Prof Sameer Kulkarni.
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Agenda
 Definitions: place & Distribution channel
 Types of Distribution channels
 Functions of the distribution channels
 Benefits of intermediaries
 Physical distribution in the service sector
 The System view of distribution channels
 Factors determining the selection of Distribution
channels
 Channel conflict
 Conclusions
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Definition:
 Place refers to
 how goods and services are made available to
customers in the marketplace:



Location
Physical distribution / logistics
Channels of Distribution:
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Definition:
 Distribution Channels
 A set of interdependent
organizations involved in
the process of making a
product available for use
or consumption by the
end user.
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The Role of Distribution Activities
in 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.
…continued
Distribution Channels create
Time
Place
Possession/ownership utility
 Delivered at the right time - time utility
 Delivered to the right place - place utility
 With appropriate legal requirements -
possession / ownership utility
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Types of Distribution Channels
 Indirect & Direct Channels of Distribution
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Indirect Channels
Direct Channel
Producer
Retailer
Channel
Wholesaler
Channel
Agent/Broker
Channel
Producer
Producer
Producer
Agents or
Brokers
Alternative
Channels of
Distribution
Retailers or
Industrial
Distributor
Consumers or
Industrial User
Consumers or
Industrial User
Wholesalers
Wholesalers
Retailers or
Industrial
Distributor
Retailers or
Industrial
Distributor
Consumers or
Industrial User
Consumers or
Industrial User
Figure 7-1
Product Classes - Place
 The different Product Classes have different
PLACE situations
 Place decisions can be aided by knowing
about the product classes
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Product Classes - Place
 Convenience Products - have to be in
convenient places - small stores, vending
machines
 Shopping Products - have to be where
shoppers go, malls, superstores etc.
 Specialty Products - have to available where
people want to buy them –
ie. Movie theatres have to be located where many people go,
and where you can park easily
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Benefits of Intermediaries
 Through their contacts, experience, specialization,
and scale of operation, intermediaries usually offer
the firm more than it can achieve on its own;
 Intermediaries provide economies by reducing the
number of transactions that must be conducted to
move products between producers and consumers.
 In a distribution channel, intermediaries buy the large
quantities of many producers and break them down
into the smaller quantities and broader assortments
wanted by consumers.
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Functions of the Distribution Channels
 Information: gathering and distributing marketing







research
Promotion: developing and communicating offers
Contact: communicating with prospective buyers
Matching: fitting the offer to the buyer's needs
Negotiation: reaching agreement on price and terms
Physical distribution: transporting and storing the
goods
Financing: getting and using funds to cover the costs
of channel work
Risk taking: assuming the risks the channel work.
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Physical Distribution in the Service
Sector
 The concept of distribution channels is not
limited to the distribution of physical goods.
 Producers of services and ideas also face
the problem of making their output available
to target populations:

In the public sector, service organizations and
agencies develop "educational distribution
systems" and "health delivery systems“.
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The System View of Distribution
Channels
 A Vertical Marketing System (VMS) is a
marketing channel that a single channel
member coordinates:
 The whole channel focusses on the same
target market at the end of the channel
 sometimes a large firm will buy up the smaller
companies in the channel to have more
control over the distribution
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The System View of Distribution
Channels

The channel member manages channel
activities to achieve efficient, low cost
distribution aimed at satisfying the target
market customers.
There are three types of Vertical Marketing
System:
 Corporate,
 Administered and
 Contractual.

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Corporate VMS
 More than one stage of the distribution channel under
one ownership, supermarket chains that own
processing plants and large retailers that purchase
wholesaling and production facilities.
 Examples:
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Administered VMS
 Channel members are independent with a high level
of inter-organisational management by informal
coordination;
 Agree to adopt uniform accounting policies etc., and
promotional activities.
 Examples:
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Wal Mart
Kellog
Pepsi
Coke
GE
P&G
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Contractual VMS
 Most popular VMS, inter-organisational
relationships formalized through contracts
that spell out each members rights and
obligations. IE McDonald's and KFC.
Franchise organizations 1/3 retail sales and
500,000 outlets.
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Factors Determining the Selection of
Distribution Channels
 Organizational objectives and resources
 Product attributes and PLC
 Market characteristics
 Buying behaviour
 Competition
 Cost
 Risk
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Market Coverage & Distribution
Channels
 Intensive Distribution – Using as many
outlets as possible to distribute a product.
 Selective Distribution – Using only some
available outlets in an area to distribute a
product.
 Exclusive Distribution – Using a limited
number of outlets to distribute the company’s
product in their territories.
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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.
Determining the Scope of
Physical Distribution
Transportation—which mode to use?
 Common carriers

Transportation intermediaries available for hire to the
general public.
 Contract

Transportation intermediaries that
contract with individual shippers.
 Private

carriers
carriers
Lines of transport
owned by shippers.
Determining the Scope of
Physical Distribution
Storage
 Lack of storage space is a common problem.
Materials Handling
 Protecting the firm’s output during warehousing .
Specifying Responsibility for Delivery Terms
 Paying freight costs.
 Selecting the carriers.
 Bearing the risk of damage .
 Selecting the modes of transport.
Channel Conflict
 Channel members may disagree on the best
methods to attain goals;
 Inevitable when individual short run goals are not
compatible;
 Can occur between firms at the same level, or
between firms at different levels. (Want to maximize
profits and autonomy);
 Channel members belong to different channel
systems, creating potential conflicts. Producers may
try to circumvent intermediaries.
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Channel Conflict
When it decided to sell its familiar containers at retail through Target stores,
Tupperware avoided conflicts with its army of in-home sales consultants by inviting
them into the stores to demonstrate the products.
Reverse Channels
Reverse Channels
 The paths goods follow from consumer to
manufacturer or to marketing intermediaries.
 Common in the recycling industries.
 Eg.
 - Empty glass bottles
 - used batteries
 - used tires
 - used printer cartridges - Canon
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Reverse Channels
Reverse Channels
 - used cartridges – Canon
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Reverse Channels
 Also used for product recalls or for broken
products that need to be fixed under Warranty especially cars, tires and some expensive
electronic consumer items.
Important to maintain consumer
satisfaction and confidence.
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 Sometimes Middlemen have a clear picture
of what the customer wants, and who the
producers are, so they arrange for producers
to be in contact with the retailers, so more
product can flow in the channel.
 The Middlemen makes more money by
making more commission on stuff sold.
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 A person, or company, that helps direct the
activities of a whole channel, and tries to
avoid, or solve conflicts…”
 Can be,,,
•
A strong wholesaler
•
a market oriented producer
•
a large retailer
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Recent Issues in Distribution
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Partnerships
Virtual warehouses (e.g., bar codes and
infrared scanning devices direct forklift
movements )
Online auctions – yet any problems?
Sharing pricing, blueprints online
Viability of online consumer purchasing
(e.g., Web van)
VIMS, manufacturer reps vs. own sales force
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Distribution Channels versus
Marketing Channels
 Distribution channel: all firms that take title or
assist in transferring title to a good or service
as it moves from producer to final consumer.


Includes producer and final consumer
Does not include suppliers to mfg., facilitators
(e.g., banks), not marketing firms e.g., mktg.
research cos.)
 Marketing channel: the distribution channel
and suppliers, facilitators, and marketing
firms.
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How a Marketing Intermediary Reduces
the Number of Channel Transactions
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Marketing Channel Functions or
Tasks
Risk Taking
Financing
Physical
Distribution
Negotiation
Information
Promotion
Contact
Contracts/Title
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Direct Distribution
 What are the advantages and disadvantages
of direct distribution?
 Advantages: reducing overall costs (margins),
closer to customers, control, availability of
good lists
 Disadvantages: higher advertising/contact
costs, assumes inelasticity to some service
reductions, shipping times, item availability
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Conventional Marketing Channel vs. a Vertically
Integrated Marketing System (VIMS)
Channel
Manufacturer
Wholesaler
Vertically Integrated
Marketing System
Manufacturer
Wholesaler
Conventional Marketing
Retailer
Retailer
Consumer
Consumer
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A Vertically Integrated Marketing System (VIMS)
Vertically Integrated
Marketing
Systems (VIMS)
Contractual
VMS
Wholesaler Sponsored
Voluntary Chain
ManufacturerSponsored Retailer
Franchise System
Retailer
Cooperatives
Franchise
Organizations
ManufacturerSponsored Wholesaler
Franchise System
Service-FirmSponsored
Franchise System
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Franchising
Franchise Distribution
•
Independent business
managers are given the right
to sell products or services in
exchange for a fee or
agreements on buying and
merchandising policies.
Any problems?
Advantages: opportunity for
parent to expand, offers
dealers centralized
purchasing, promotion skills,
and ownership
• Disadvantages: parent gives
up control (operating
procedures, pricing,
promotion standards)
Dalrymple & Parsons/Marketing
Management 7th edition: Chapter 10
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Innovations in Marketing Systems
Horizontal Marketing
System
Hybrid Marketing
System
Two or More Companies
at One Channel Level
Join Together to
Follow a New
Marketing
Opportunity.
A Single Firm Sets Up
Two or More
Marketing Channels to
Reach One or More
Customer Segments.
Example:
Retailers, Catalogs,
and Sales Force
Banks in Grocery Stores
Example:
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Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Intensive
Distribution
Selective
Distribution
Exclusive
Distribution
Evaluating the Major Alternatives
Designing International Distribution Channels
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Logistics: Tradeoffs & Issues
 Logistics: the design of activities necessary to make
supplies and materials available for manufacturing (physical
supply) and, in turn, to make finished products available to
customers (physical distribution).
 Three cost tradeoffs in logistics:
 (1) cost versus revenue from improved service,
 (2) transportation costs versus inventory costs from more
warehouses, and
 (3) inventory carrying costs versus order processing costs as
average order quantity increases.
 Other logistics issues: consistency of order cycle time, two-
tiered systems, public warehouses.
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Major Logistics Functions
Costs
Order Processing
Minimize Costs of
Attaining Logistics
Objectives
Received
Processed
Shipped
Logistics
Transportation
Rail, Truck, Water,
Pipeline, Air,
Intermodal
Functions
Warehousing
Storage
Distribution
Automated
Inventory
When to order
How much to order
Just-in-time
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Conclusions
 A distribution channel moves goods from
producers to consumers;
 It overcomes the major time, place, and
possession gaps that separate goods and
services from those who would use them;
 Distribution decisions depend on many
variables:


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Corporate & Marketing objectives
Product nature & PLC
Competitors, etc.
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