DISTRIBUTION CHANNELS

MARKETING CHANNEL
A

set of interdependent organizations that help make a product or service available for use or consumption by consumer or business user.

Dell revolutionized its industry by selling its PC directly to consumers. Amazon.com pioneered the sales of books and wide range of other goods via the internet

NATURE & IMPORTANCE OF MARKETING CHANNELS

Channel choices affect other decisions in the

marketing mix

Pricing, Marketing communications

A strong distribution system can be a competitive

advantage Channel decisions involve long-term commitments

to other firms

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NATURE & IMPORTANCE OF MARKETING CHANNELS

How Channel Members Add Value

Intermediaries require fewer contacts to move the product to the final purchaser. Intermediaries help match product assortment demand with supply.

Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

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NUMBER OF CHANNEL LEVELS

Channel Level- A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Channel Levels Direct marketing channel Indirect marketing channel

A CONSUMER MARKETING CHANNELS

Producer

Producer

Producer

Wholesaler

Retailer

Retailer

Consumer

Consumer

Consumer

BUSINESS MARKET CHANNELS

Producer

Producer

Producer

Manufacturers representatives or sales branch

Business Distributer

Business Distributer

Business Customer

Business Customer

Business Customer

KEY FUNCTIONS PERFORMED BY CHANNEL MEMBERS

Information Promotion Contact Matching

Negotiation Physical Distribution Financing Risk taking

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CHANNEL DESIGN DECISIONS

Step 1: Analyzing Consumer Needs

Cost and feasibility of meeting needs must be considered

Step 2: Setting Channel Objectives

Set channel objectives in terms of targeted level of customer service Many factors influence channel objectives

Step 3: Identifying Major Alternatives

Types of intermediaries

Company sales force, manufacturers agency, industrial distributors Intensive, selective, and exclusive distribution

Number of marketing intermediaries

Responsibilities of channel members

Step 4: Evaluating Major Alternatives

Economic criteria (Is the channel cheap) Control issues (how much can the firm control him) Adaptive criteria (can he change)

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CHANNEL MANAGEMENT DECISIONS

Selecting Channel Members

Identify characteristics that distinguish the best channel members

Managing and Motivating Channel Members

Partner relationship management (PRM) is key

Evaluating Channel Members

Performance should be checked against standards Channel members should be rewarded or replaced as dictated by performance

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VERTICAL MARKETING SYSTEM

A distribution channel structure in which producers , wholesaler, retailer act as a unified system. One channel member owns the others, has contracts with them, or has so much power that hey all cooperate.

HORIZONTAL MARKETING SYSTEM

A

channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity
Wal-Mart + McDonalds Coca cola + Nestle

MULTICHANNEL DISTRIBUTION

Also called hybrid marketing channels Occurs when a firm uses two or more marketing channels Changing Channel Organization (changing and chopping channel members) Disintermediation ( removing some layers altogether)

Producer

Distributor Retailer Dealer

Consumer segment1

Consumer segment2

Business segment1

Business segment2

CHANNEL CONFLICT
Channel conflict is a situation in which channel partners have to compete against one another or the vendor's internal sales department. Channel conflict can cost a company and its partners money as partners try to undercut one another. It can also lower morale within the channel and cause some partners to consider other vendors.

TYPE OF CHANNEL CONFLICTS

Vertical channel conflicts, Horizontal channel conflicts, Multilevel channel conflicts

CAUSES OF CONFLICT
Goal Incompatibility Unclear Roles and Rights Difference in Perception Degree of Dependence

RETAILER & WHOLESALER

DEFINITIONS

Retailing

All activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Business whose sales come primarily from retailing.

Retailer

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TYPES OF RETAILERS
Specialty Stores Department Stores Supermarkets

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Discount Stores Convenience Stores

CLASSIFICATIONS OF RETAILERS

Amount of service
Product lines Relative prices

Self-service retailers

Customers are willing to selfserve to save money Discount stores

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Limited-service retailers

Organizational approach

Most department stores

Salespeople assist customers in every aspect of shopping experience

Full-service retailers

High-end department stores

Specialty stores

CLASSIFICATIONS OF RETAILERS

Specialty stores

Narrow product lines with deep assortments

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Amount of service Product lines Relative prices Organizational approach

Department stores

Wide variety of product lines

Supermarkets Convenience stores

Limited line

Superstores

Food, nonfood, and services

Category killers

Giant specialty stores

CLASSIFICATIONS OF RETAILERS

Discount stores

Amount of service
Product lines Relative prices

Low margins are offset by high

volume

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Off-price retailers

Factory outlets

Organizational approach

Levi Strauss, Reebok

Warehouse clubs

Mega Mart for Allensolley seconds

CLASSIFICATIONS OF RETAILERS

Amount of service Product lines Relative prices Organizational approach

Corporate chain stores (Spaces by Welspun)

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Commonly owned / controlled Wholesaler-sponsored groups of independent retailers

Voluntary chains (Food Bazzar)

Retailer cooperatives (Operation flood for milk )

Groups of independent retailers who buy in bulk

Franchise organizations (MacDonald Chain for burgers)

Based on something unique

RETAILER MARKETING DECISIONS

Target marketing and positioning Product assortment, service mix, stores atmosphere Price Promotion Place (location)

WHOLESALING
All

activities involved in selling goods and services to those buying for resale or business use.
Wholesaler- A firm engaged primarily in wholesaling activity.

FUNCTIONS OF WHOLESALER
Selling and promoting Buying and assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and advices

TYPES OF WHOLESALERS

Merchant Wholesalers Brokers and Agents Manufacturers and retailers branches and offices

Full-service wholesalers

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Wholesale merchants Industrial distributors

Limited-service wholesalers

Cash-and-carry wholesalers Truck wholesalers (jobbers) Mail-order wholesalers (handle only mail order jobs - Fedex)

TYPES OF WHOLESALERS
Merchant Wholesalers Brokers and Agents Manufacturers and

Brokers

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Bring buyers and sellers together and assist in negotiation

retailers branches and

offices

Agents

Manufacturers agents Selling agents Purchasing agents

Commission merchants

TYPES OF WHOLESALERS

Sales branches and offices

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Merchant Wholesalers Brokers and Agents Manufacturers and retailers branches and offices

Branches carry inventory: lumber, auto equipment, parts Offices do not carry inventory: dry goods

Purchasing officers

Perform roles similar to brokers and agents, however these individuals are employees of the organization

WHOLESALING

Wholesaler Marketing Decisions

Target market and positioning

Targeting may be made on the basis of size of customer, type of retailer, need for service.

Marketing mix decisions

Product and service assortment: inventory, line Pricing: usual markup on COG is 20% Promotion: largely disorganized and unplanned Place: location, facilities

TRENDS IN WHOLESALING

Price competition is still intense

Successful wholesalers must add value by increasing efficiency and effectiveness

The distinction between large retailers and wholesalers continues to blur

More services will be provided to retailers

Many wholesalers are going global
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