Transcript Marketing Management, 8/e

Chapter Ten
Distribution Strategy
Key Words / Outline
Marketing intermediaries, Direct marketing, Indirect
channels , Intensive distribution, Selective distribution,
Exclusive distribution, Total distribution cost, Channel
flexibility, Relationship marketing , Administered system,
Contractual system, Corporate system, Mass merchandisers,
Catalogs and direct mails, Vending machines
McGraw-Hill/Irwin
Marketing Management, 8e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Channels of Distribution
• A channel of distribution is the combination of institutions
through which a seller markets products to the user or
ultimate consumer
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Marketing Intermediaries
• Middleman – independent link between producers and
consumers
• Merchant middleman – actually buys goods and takes
title/ownership
• Agent – business unit that negotiates purchases and sales but
does not take ownership
• Wholesaler – a merchant who primarily stores and handles
goods in large quantities
• Retailer – merchant middleman who sells to final consumers
• Broker – middleman who serves as a go-between for the buyer
and seller
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Marketing Intermediaries
• Manufacturer’s agent – an agent who operates by contract
serving a geographic territory
• Distributor – wholesale middleman in lines with selective or
exclusive distribution
• Jobber – a middleman who buys from manufacturers and sells
to retailers
• Facilitating agent – a firm that performs distribution tasks
other than buying, selling and transferring
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Channel Functions
• Transactional functions
- Buying: Purchasing products for resale or as an agent for supply
of a product
- Selling: Contacting potential customers, promoting orders and
soliciting orders
- Risk taking: Assuming business risks in the ownership of
inventory that can become obsolete or deteriorate
• Logistical functions
- Assorting: Creating product assortments from several sources to
serve customers
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Channel Functions
- Storing: Assembling and protecting products at a convenient
location to offer better customer service
- Sorting: Purchasing in large quantities and breaking into smaller
amounts desired by the customer
- Transporting: Physically moving products to customers
• Facilitating functions
- Financing: Extending credit to customers
- Grading: Inspecting, testing and judging products and assigning
them quality grades
- Marketing Information/Research: Providing information to
customers and suppliers, including competitive conditions and
trends
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Channel Distribution – Consumer
Goods
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Channel Distribution – Organizational Goods
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General Considerations – Channel
Planning
• Customer characteristics: Numbers, location, purchasing pattern
• Product characteristics: type, installation &maintenance
• Intermediary characteristics: availability, competitive product sold,
Financial conditions
• Competitor characteristics: number, Size &market share
• Company characteristics: Size & market share, finical conditions
• Environmental characteristics: economic conditions, technology
change culture differences ,legal regulation
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Distribution Alternatives
• Channel selection may depend upon the nature
of market coverage desired
- Intensive distribution: Using as many wholesalers and retailers
as possible
- Selective distribution: Using only the best available per
geographic area
- Exclusive distribution: Selected intermediaries are given
exclusive rights within a particular territory
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Distribution Alternatives
• Degree of control desired: The degree of control achieved by
the seller is proportionate to the directness of channel
• Total distribution costs: A channel of distribution should be
viewed as a total system composed of interdependent
subsystems and the objective of the system should be to
optimize total system performance
• Channel flexibility: Ability of the manufacturer to adapt to
changing conditions
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Relationship Marketing
• Popularly defined as “marketing with conscious
aim to develop and manage long term
and/or trusting relationships with customers
distributors, suppliers or other parties in the
marketing environment”
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Vertical Marketing System
• Vertical marketing systems: Are channels in which members
are more dependent on one another and develop long-term
relationships in order to improve efficiency and effectiveness
• Administered systems – highly dependent on close
relationships between channel members
• Contractual systems – relationships governed by contracts to
perform specific functions producer and distributor
• Corporate systems – single ownership of two or more levels
of a channel. when manufacturer purchase wholesaler or
retailer
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Vertical Marketing System
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Wholesalers
• Merchants primarily involved in buying, taking title to,
storing and physically handling goods
• The create value for suppliers and retailers by handling their
function efficiently and effectively
• They seek producers of major brands for which sales and
profits are greatest
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Benefits of Wholesalers to Channel
Members
• Benefits for manufacturers
- Reach out to diverse geographic markets cost effectively
- Information supply about retailers and various end users
- Reduction of costs through greater efficiency and effectiveness
in distribution functions
• Benefits for retailers
- Provide potentially profitable products otherwise unavailable
for resale in retail area
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Benefits of Wholesalers to Channel
Members
- Provide information about industries, manufacturers and other
retailers
- Reduce costs by providing an assortment of goods from
different manufacturers
• Benefits for end users
- Increase the product alternatives available in the local market
- Reduce retail prices by the efficiency and effectiveness
contributed to the channel
- Improve product selection by providing information to
retailers about the best products to offer to end users
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Store Retailing
• Mass merchandisers carry a broad assortment of goods and
compete based on selection and price
• Specialty stores handle deep assortments in a limited number
of product categories
• Convenience stores are retailers whose primary advantage is
location
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Non-store Retailing
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Catalogs and direct mail
Vending machines
Television home shopping
Direct sales
E-commerce
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Electronic Exchange - Advantages
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Cost effective
Good visual presentation and full description of products
Global presence of products
Products offered on 24/7 basis
One-on-one interaction with customers
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Electronic Exchange – Disadvantages
• Strong price competition
• Website advertising expensive for small e-marketers
• Limits the markets to customers who are willing to by the
products electronically
• Products not as good for selling touch and feel as opposed
to look and buy unless branded
• Often less effective and efficient in business to consumer
markets than in business to business markets
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