Transcript What is a Distribution Channel?

Chapter 12 & 13
Distribution and Marketing
Channel
Distribution
Consists of distribution channels and physical
distribution.
Physical distribution or market logistics
involves planning the infrastructure to meet
demand, then implementing and controlling
the physical flows of materials and final
goods from point of origin to point of use, to
meet customer requirements at a profit.
What is a Distribution Channel?
A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service
available for use or consumption by the
consumer or business user.
Marketing Channel decisions are
among the most important decisions
that management faces and will directly
affect every other marketing decision.
Why are Marketing
Intermediaries Used?
The use of intermediaries results from their
greater efficiency in making goods available to
target markets.
Offer the firm more than it can achieve on it’s
own through the intermediaries:
 Contacts,
 Experience,
 Specialization,
 Scale of operation.
Purpose: match supply from producers to
demand from consumers.
How a Marketing Intermediary
Reduces the Number of Channel
Transactions
Distribution Channel Functions
These Functions Should be Assigned to the Channel Member
Who Can Perform Them Most Efficiently and Effectively to
Provide Satisfactory Assortments of Goods and Services to
Target Customers.
Risk Taking
Information
Financing
Promotion
Physical
Distribution
Contact
Negotiation
Matching
Number of Channel Levels
(Fig. 12.2)
Channel Level - Each Layer of Marketing Intermediaries that
Perform Some Work in Bringing the Product and its Ownership
Closer to the Final Buyer.
Channel 1
Direct Channel
M
Channel 2
Indirect Channel
M
C
R
C
R
C
R
C
Channel 3
M
W
Channel 4
M
W
J
Channel Behavior & Conflict
The channel will be most effective when:
 each member is assigned tasks it can do best.
 all members cooperate to attain overall channel
goals and satisfy the target market.
When this doesn’t happen, conflict occurs:
 Horizontal Conflict occurs among firms at the same
level of the channel, i.e retailer to retailer.
 Vertical Conflict occurs between different levels of
the same channel, i.e. wholesaler to retailer.
For the channel to perform well, each channel
member’s role must be specified and conflict must be
managed.
Wholesaling
Wholesaling includes all activities
involved in selling goods and services to
those buying for resale or business use.
Wholesaler is a firm engaged primarily
in wholesaling activity.
Types of wholesalers
Merchant wholesaler is independently owned
business that takes title to the merchandise it handles.
Broker is a wholesaler who does not take title to
goods and whose function is to bring buyers and sellers
together and assist in negotiation.
Agent is a wholesaler who represents buyers or sellers
on a relatively permanent basis, perform only a few
function, and does not take title to goods.
Types of wholesalers
Manufacturers’ branches and sales offices are
wholesaling by sellers themselves rather than through
independent wholesalers.
Retailing
Retailing includes all activities involved
in selling goods and services directly to
final consumers for their personal, non
business use.
Retailer is a business whose sales
come primarily from retailing.
Types of retailers –
amount of services
Self-service retailers serve customers who are
willing to perform their own “locate-compare-select”
process to save money - e.g. supermarkets.
Limited-service retailers provide more assistance
because they carry more shopping goods about which
customers need information – e.g. Sears.
Full-service retailers provide assistance in every
phase of the shopping process – e.g. specialty stores
and first-class department stores.
Types of retailers –
product line
Convenience store is a retail store that carries a
narrow product line with a deep assortment within that
line.
Department store is a retail organization that carries
a wide variety of product lines; each line is operated as
a separate department manage by specialist buyers or
merchandisers.
Supermarket is a large, low cost, low margin, highvolume, self service store that carries a wide variety of
food, laundry, and household products.
Types of retailers –
product line
Specialty store is a small store, located near a
residential areas, that is open long hours 7 days a week
and carries a limited line of high-turnover convenience
goods.
Superstore is a store much larger that a regular
supermarket that carries a large assortment of routinely
purchased food products, nonfood items, and services.
Category killer is a giant specialty store that carries a
very deep assortment of a particular item and is staffed
by knowledgeable employees.
Types of retailers –
product line
Hypermarket is a huge superstore, perhaps as large
as six football fields.
Service retailers such as hotels, motels, banks,
airlines, colleges, restaurants, etc.
Types of retailers –
organizational approach
Chain stores are two or more outlets that are owned and
controlled in common, have central buying and
merchandising, and sell similar lines of merchandise – e.g.
corporate chain stores, voluntary chains, and retailer
cooperatives.
Franchise organization is a contractual association
between a manufacturer, wholesaler, or service organization
(a franchiser) and independent businesspeople (franchisees)
who buy the right to own and operate one or more units in
the franchise system.
Merchandising conglomerate is corporation that combine
several different retailing forms under central ownership.
Conventional Marketing Channel
Vs. a Vertical Marketing System
(Fig. 12.3)
Manufacturer
Wholesaler
Retailer
Consumer
Vertical
Marketing System
Manufacturer
Wholesaler
Conventional
Marketing Channel
Retailer
Consumer
Types of Vertical Marketing
Systems
Corporate
Common Ownership at Different
Levels of the Channel i.e. Sears
Degree
of Direct
Control
Contractual
Contractual Agreements Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members i.e. Kraft
Innovations in Marketing
Systems
Horizontal Marketing
System
Two or More Companies
at One Channel Level
Join Together to Follow
a New Marketing
Opportunity.
Hybrid Marketing System
A Single Firm Sets Up
Two or More Marketing
Channels to Reach
One or More Customer
Segments.
Example:
Example:
Banks in Grocery Stores
Retailers, Catalogs,
and Sales Force
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 Distribution Channels