Marketing Channels and Distribution

chapter 10
Harcourt, Inc.

Objectives
Recognize

the importance of marketing channels and distribution Understand marketing channels in terms of creating time, place, and possession utilities Discuss the three dimensions of channel structure
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Objectives
Identify

determinants of channel structure Describe the five major flows in marketing channels Identify the six major areas of channel management Discern the difference between logistics and marketing channels
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What is a Marketing Channel?

Marketing

channel (a.k.a. distribution channel) - network of organizations that create time, place, and possession utilities for consumers
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What is a Marketing Channel?

Blackstar Beer

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Hal Riney and Partners

Channel Structure
Three Dimensions

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Channel Structure
Length of marketing channel
1 level 2 level 3 level 4 level
Manufacturer Manufacturer Manufacturer Manufacturer

Agent
Wholesaler Retailer Consumer Retailer Wholesaler Retailer Consumer

Dr. Rosenbloom Consumer Consumer

Channel Structure
Intensity at various levels
Exclusive Distribution

Selective Distribution
Intensive Distribution
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Channel Structure
Intensity at various levels
Exclusive Distribution

Practiced when a manufacturer restricts product distribution to a single retailer in a particular market or just a relatively few retailers Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are the most likely candidates for exclusive distribution
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Channel Structure
Intensity at various levels
Selective Distribution

Selectively distributed bands are available in multiple retail outlets in a particular market Shopping products, or those that consumers seek out, are sold through selective distribution

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Channel Structure
Intensity at various levels
Intensive Distribution

Used when convenience products are sold through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettes

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Channel Structure
Types of intermediaries

Merchant Middlemen
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Functional Middlemen

Channel Structure
Types of intermediaries
Do not take title to products; they simply facilitate the exchange process by performing buying and/or selling functions.

Functional Middlemen
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Channel Structure
Types of intermediaries
Take title to products and resell them.

Merchant Middlemen
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Channel Structure
Determinants

of channel structure include:

Distribution tasks Economics of distribution tasks Management's desire for distribution control
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Channel Structure
Distribution

tasks

Familial Relationshipstyle
Concentration Equalization Dispersion

Selection process-style
Accumulating Selecting Sorting
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Channel Structure
Distribution

tasks

Resolve discrepancies between consumers and producers

Quantity - buffer mass produced goods Assortment - allow producers to focus while providing customers selection Time - hold goods until ready Place - connect producers and consumers
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Channel Structure

Economics

of distribution tasks

Specialization or division of labor

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Channel Structure
Economics

of distribution tasks
Mfg. A Mfg. B Mfg. C

Transaction efficiency

Without intermediaries

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Channel Structure
Economics

of distribution tasks
Mfg. A Mfg. B Mfg. C

Transaction efficiency

With intermediaries

Intermediary

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Channel Structure
Managements

desire for

control

The shorter the channel structure the higher the control Needed when a manufacturer must protect product image, etc.

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Marketing Channel Flows

Product

Flow

The movement of the product from manufacturer through all parties who take physical possession

Negotiation

Flow

Interplay of buying/selling tasks associated with title transfer

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Marketing Channel Flows

Ownership

Flow Flow

Movement of title of the product

Information to and from the manufacturer

Information

Promotion

Flow

Flow of persuasive communication (advertising, personal selling, etc.) Dr. Rosenbloom

Marketing Channel Flows

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Social Aspects of Marketing Channels

Marketing

channel power

The influence one channel member has over other members behaviors

Marketing

channel conflict

Goal impeding behavior by one or more channel members Territorial encroachment

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Determinants of Power

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Ability to offer an award (e.g. granting of exclusive distribution)

Determinants of Power

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Threat of punishment (e.g. a manufacturer might threaten a retailer with loss of exclusive distribution)

Determinants of Power

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power from contract agreement or organizational relationships

Determinants of Power

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power resulting from technological expertise or proprietary reasons

Determinants of Power

Reward Power Coercive Power Legitimate Power Expert Power Referent Power
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Power resulting from ability to influence further action

Marketing Channel Management

Formulating Realize channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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only the place P provides protection from imitation Distribution strategies can provide sustainable competitive advantage

Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance Set distribution objectives Specify tasks to be performed by the channel Consider alternative structures Choose optimal structure
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Marketing Channel Management

Formulating channel strategy

Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance

Optimal structure identified by considering:

Market variables Product variables Company variables Intermediary variables Behavioral variables External environment variables
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Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
Management Ability

Develop selection criteria

Size Attitude Credit and Financial Condition Sales Strength

Prospectiv e channel member

Product Lines

Management succession Sales Performance

Reputation Market Coverage

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Marketing Channel Management

Formulating channel strategy

Find prospective channel members Design channel structure Evaluate prospective channel members Select channel members Convert prospectives into Motivate channel actual channel members
members Coordinate with marketing mix Evaluate member performance
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Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members

Learn about the needs and problems of channel members

Advisory committees

Offer support

Motivate channel members Provide ongoing leadership Coordinate with Continuing focus marketing mix Evaluate member performance
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Informal support Strategic alliances, partnerships

Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members

Product and Channel

Retailers (a channel member) play an important role in product positioning Display fixtures Personal selling

Coordinate with marketing mix Evaluate member performance

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Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance
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Pricing and Channel

Relevant to channel members:

Profit margins available to channel members Pricing policies Incentives

Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members

Promotion and Channel

Promotions interface with channel members Point-of-purchase displays Inventory levels Sales person training

Coordinate with marketing mix Evaluate member performance

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Marketing Channel Management

Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate Dr. Rosenbloom member performance

Assessment of success of channel members in implementing strategies

Requires good information flows between members Point-of-sale systems, EDI

Marketing Channel Logistics

Logistics

make products available to customers

Also called physical distribution (PD) Supply chain management (SCM) are logistical systems that facilitate close cooperation among firms in a channel
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Marketing Channel Logistics

Total
Systems Concept
Management views logistics as a system of interrelated components

Cost Approach and Systems Concept

Transportation Materials Handling Order Processing Inventory Control
Management tries to reduce cost of using the components as a whole

Warehousing
Packaging
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Total Cost Approach

Marketing Channel Logistics

Almost all products must be moved Generally one of the highest percentage costs

Transportation Materials Handling Order Processing Inventory Control

Warehousing
Packaging
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Use in-house transport or common carriers? What rates are available? What are competitors doing?

Marketing Channel Logistics

Growing use of crossdocking

Transportation Materials Handling Order Processing Inventory Control

Warehousing
Packaging
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How to minimize distances What equipment should be used? How to use labor efficiently

Marketing Channel Logistics

Order cycle time (time between order and delivery)

Transportation Materials Handling Order Processing Inventory Control

Warehousing
Packaging
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How to reduce errors in order processing How to develop standards for different product types

Marketing Channel Logistics

Economic order quantity (EOQ) is the lowest total cost (inventory carry cost + ordering costs)

Transportation Materials Handling Order Processing Inventory Control

How to balance inventory levels with order sizes

Warehousing
Packaging
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Marketing Channel Logistics

Growth of single item shipments

Transportation Materials Handling Order Processing Inventory Control

Warehousing
Packaging
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Where to locate a warehouse Number of warehousing units and size of units Ownership question

Marketing Channel Logistics

Effective packaging can help control inventory carry costs and help logistics efficiency

Transportation Materials Handling Order Processing Inventory Control

What type of package is required (sturdiness, etc.)

Warehousing
Packaging
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Marketing Channel Logistics

Customer

service is the output of logistics systems

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Vertical Marketing Systems

Administered VMS

Corporate Systems

Contractual Systems

Conventional channel with one channel member (a manufacturer, wholesaler, or retailer) informally acting as the channel leader.
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Vertical Marketing Systems

Administered VMS

Corporate Systems

Contractual Systems

Combines all levels of the marketing channel under one companys ownership

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Vertical Marketing Systems

Administered VMS

Corporate Systems

Contractual Systems

Are integrated via contractual agreement Franchising is the major form of contractual VMS. Others include voluntary chains and cooperatives

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