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Distribution Channels and Logistics Management

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Distribution Channels
A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption. Channel decisions
affect other marketing decisions involve long-term commitments

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Role of Intermediaries
Greater efficiency in making goods available to target markets. Intermediaries provide
Contacts Experience Specialization Scale of operation

Match supply and demand.

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Channel Functions
Information: Gathering & distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange
Promotion: Developing and spreading persuasive communication about an offer Contact: Finding and communicating with prospective buyers Matching: Shaping & fitting the offer to the buyers needs, including activities such as manufacturing, grading, assembling & packaging

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Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Physical Distribution: Transporting and storing goods. Financing: Acquiring and using funds to cover the costs of the channel work. Risk taking: Assuming the risks of carrying out the channel work.

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Basic Channels of Distribution

Manufacturers/products

Agents/brokers Wholesalers/distributors

Retailers

Retailers

Consumers and organizational end users

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Channel Levels
Manufacturer Wholesaler

Retailer
Consumer

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Channel Behavior and 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.

Focus on individual goals leads to conflict

Horizontal Conflict occurs among firms at the same level of the channel. Vertical Conflict occurs between different levels of the same channel.

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Vertical Marketing Systems

Corporate
common ownership at different channel levels

Contractual
contractual agreement among channel members

Administered
leadership assumed by dominant members

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Innovations in Marketing Systems

Horizontal Marketing System Two or more companies at one channel level join together to increase coverage Example:Banks in Grocery Stores Hybrid Marketing System A single firm sets up two or more marketing channels to increase coverage Example:Retailers, Catalogs, and Sales Force

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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

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Distribution-Scope Strategies
Exclusive Distribution Limiting the distribution to only one intermediary in the territory Intensive distribution Distribute from as many outlets as possible to provide location convenience Selective distribution Appoint several but not all retailers

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Exclusive Distribution: Advantages

Maximize control over service level/output Enhance products image & allow higher markups Promotes dealers loyalty, better forecasting, better inventory and merchandising control Restricts resellers from carrying competing brands

Ex: luxury cars & watches

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Exclusive Distribution: Disadvantages

Betting on one dealer in each market Only suitable for high price, high margin, and low volume products

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Intensive Distribution
Advantages: Increased sales, wider customer recognition, and impulse buying Disadvantages: Characteristically low price and lowmargin products that require a fast turnover Difficult to control large number of retailers
E.g. Newspapers Most fast moving consumer goods

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Selective Distribution
Better market coverage than exclusive distribution More control and less cost than intensive distribution Concentrate effort on few productive outlets Selected firms capable of carrying full product line and provide the required service

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Selective Distribution (contd

Disadvantages: May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals

Channel Management Decisions

Selecting
FEEDBACK

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Motivating

Evaluating

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Logistics
Involves entire supply chain Increasing importance of logistics
effective logistics is becoming a key to winning and keeping customers. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. information technology has created opportunities for major gains in distribution efficiency.

Goals of Logistics system

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Provide a Targeted Level of Customer Service at the Least Cost.

Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels

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Logistics Functions

Order Processing Warehousing Inventory Management Transportation

Design system to minimize costs of attaining objectives

Transportation Modes
Nations largest carrier, cost-effective for shipping bulk products, piggyback

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Rail

Truck
Flexible in routing & time schedules, efficient for short-hauls of high value goods

Water
Low cost for shipping bulky, low-value goods, slowest form

Pipeline
Ship petroleum, natural gas, and chemicals from sources to markets

Air
High cost, ideal when speed is needed or to ship high-value, low-bulk items

Integrated Logistics Management

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Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations. Cross-Functional Teamwork inside the Company Building Channel Partnerships Third-Party Logistics