Transcript Distribution management

Formulating Strategic
Marketing Programs
Distribution Management
Why A Distribution Strategy?
Functional Efficiency
Routinize transactions so that the cost of
distribution can be minimized.
 Standardizing products and services.
 Standardizing issues such as lot size,
delivery frequency, payment, and
communication,
 Automating activities.

Scale Efficiency

Support economies of scope by adjusting
the discrepancy of assortments.
 Producers
supply large quantities of a
relatively small assortment of products and
services.
 Customers require relatively small quantities
of a large assortment of products and
services.
 Channel members solve this discrepancy by
aggregating stocks from several different
suppliers.
Transactional Efficiency

Facilitate the searching processes of both
producers and customers by structuring
the information essential to both parties.

Distribution channels make it easy for
customers to find what they’re looking for
and to be able to choose from a large
assortment of goods.
What Is A Distribution Channel?
Alternative Distribution Systems
Direct Channel System
 Indirect Channel System
 Mixed Channel System
 Vertical Marketing System
 Horizontal Marketing System

Direct Channel Systems
Manufacturers
Direct
Sales
ECommerce
Direct
Marketing
Customer Markets
Telemarketing
Reps/
Agents
Direct Channel Systems

The manufacturer retains ownership (title) of the
products.

The manufacturer is responsible for delivery to
customers.

The manufacturer is responsible to provide
value-added functions desired by customers.
Direct Channel Systems

Preferred when:
 High
purchase quantity
 High need for product information and
customization
 High need for product quality
 Low need for large product assortment
 Low need for availability and after-sale
service
 Complex logistics
Indirect Channel Systems
Manufacturers
Reps/
Agents
Wholesalers
Retailers
Customer Markets
Indirect Channel Systems

Involve at least one intermediary who
takes over both ownership of the product
and the majority of the control in both
sales and distribution.

VARs and OEMs are unique indirect
channel systems--they buy products, add
value to them, and then resell them.
Indirect Channel Systems

Preferred when:
 Low
purchase quantity
 Low need for product information and
customization
 Low need for product quality
 High need for large assortment
 High need for availability and after-sale
service
 Simple logistics.
Mixed Channel Systems

A combination of direct and indirect
channel systems to meet the needs of
different target markets.

Three benefits:
 Increase
market coverage
 Reduced delivery costs for existing customers
 More customized selling
Vertical Marketing Systems
(VMS)
The manufacturer, wholesaler, and retailer
act as a unified system.
 One channel member either owns the
other channel members, franchises them,
or has so much power that all channel
members cooperate.
 Arose in an effort to control channel
conflict.

Types of VMS
Corporate VMS
Combines successive stages of production
and distribution under single ownership.
Highest level of control.
Types of VMS
Administered VMS
Coordinates successive stages of
production and distribution through the
size and power of one of its members.
Generally, manufacturers of a dominant
brand are able to secure strong trade
cooperation and support from retailers.
Types of VMS
Contractual VMS
Independent firms at different levels of
production and distribution integrating their
programs on a contractual basis to obtain
more economies or sales impact than they
could achieve alone.
Contractual VMS: Three Types

Wholesaler-sponsored voluntary chains
 Wholesalers
organize groups of independent
retailers to better compete with large chain
organizations.

Retailer cooperatives
 Retailers
organize to carry on wholesaling
and possibly some production.

Franchise organizations
Horizontal Marketing Systems

Two or more unrelated companies put
together resources or programs to exploit
an emerging marketing opportunity.

Temporary or permanent basis.

May form a joint venture company.
Channel Design Issues
Analyze Customers’ Desired
Service Output Levels
Five Service Outputs
1. Lot size:
 The
number of units the channel permits a
typical customer to purchase on one occasion.
2. Waiting time:
 The
average time customers wait for receipt of
the goods.
3. Spatial convenience:
 The
degree to which the marketing channel
makes it easy for the customers to purchase
the product.
Service Outputs (continued)
4. Product variety:
 The
assortment breadth provided by the
channel.
5. Service backup:
 The
add-on services (credit, delivery,
installation, repairs) provided by the channel.
Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Establishing Objectives &
Constraints
Under competitive conditions, arrange
functional tasks to minimize total
channel costs with respect to desired
levels of service outputs.
 Constraints:

 Selling
effort of intermediaries
 Competitors’ channels
 Marketing environment
 Legal regulations and restrictions
Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Identifying Major
Channel Alternatives
Identifying Major Channel
Alternatives

The types of available intermediaries.

The number of intermediaries needed.

The terms and responsibilities of each
channel member.
Types of Intermediaries

Merchants
 Wholesalers

and retailers
Agents
 Brokers,
manufacturers’ reps, and sales
agents

Facilitators
 Transportation
companies, independent
warehouses, banks, and advertising agencies
Number of Intermediaries
Usually one of three strategies:
 Exclusive distribution
 Selective distribution
 Intensive distribution

Terms & Responsibilities of
Channel Members
Price policy
 Conditions of sale
 Territorial rights
 Mutual services and responsibilities

Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Identifying Major
Channel Alternatives
Evaluating the
Major Alternatives
Evaluating the Major
Alternatives

Economic criteria

Control criteria

Adaptive criteria

Brand image
Channel Management Issues

Channel power
 Manufacturer

vs. wholesaler vs. retailer
Channel conflict
 Goal
incompatibility
 Unclear roles and rights
 Differences in perception
 Intermediary dependence
Channel Management Issues

Impact of Technology
 Death
of Distance
 Homogenization of Time
 Irrelevance of Location
Channel Management Issues

Channel control
 Pull
strategy
 Push strategy


Trade incentives
Legal & ethical issues
 Exclusive
dealing
 Exclusive territories
 Tying agreements
 Dealers’ rights