Marketing Channels & Distribution

The Importance of Marketing Channels

Intermediaries make distribution and selling processes more efficient.
Intermediaries offers supply chain partners more than they could achieve on their own.
Market Exposure Technical Knowledge/Information Sharing Operational Specialization Scale of operation

Channel Efficiency: How Intermediaries Reduce the Number of Channel Transactions

Other Key Channel Functions

Matching Needs with Products Physical distribution & Logistics Financing Risk taking

Consumer and Business Marketing Channels

Channel Cooperation & Conflict

Channels are most effective when:
Each member performs the tasks it does best. Channel members cooperate to attain overall channel goals.

Channel Conflict
Horizontal Conflict: conflict among firms at the same level of the channel (e.g., retailer to retailer).
Example: Two retailers compete to carry a suppliers exclusive product.

Vertical Conflict: conflict between different levels of the same channel (e.g., wholesaler to retailer).
Example: Manufacturer competes with retailer in selling product to target market.

Some conflict can be healthy competition.

Channel Conflict: Goodyear

Goodyears conflicts with its independent dealers have decimated the firms replacement tire sales.

Channel Conflict Example

Branded goods using the Wolfgang Puck, T.G. I. Fridays, Taco Bell, Emerils, and Starbucks names are now being sold in grocery stores. Look at the items at right. Which stands the greatest risk of causing channel conflict? Why?

Vertical Marketing System

When producers, wholesalers, and retailers act as a unified system. Can happen through
Outright ownership of channel member Contracts Channel power

Franchise Organizations
Powerful force in U.S. Retail (40%+ of all sales) Franchise Structures Compensation Arrangements Advantages
Brand Name Recognition Standardized Processes and Procedures Avoids startup hassles safer bet Quick access to capital and huge expansion potential

Disadvantages
Over-saturation and territorial issues Marketing fund disputes Quality (vs. Company-owned) Little room for entrepreneurial creativity

Channel Innovations
Horizontal Marketing System
Two or more companies at one channel level join together to achieve a marketing goal.
Joint Ventures Alliances and Partnerships Co-Marketing, Co-Distribution and Co-Branding

Multichannel Distribution System

Reaching customer segments through multiple marketing channels. (i.e. hybrid system)
Example: You can buy Starbucks coffee from Starbucks stores or from the Supermarket Problems with MDSs?

Disintermediation
Occurs when producers sidestep intermediaries and sell directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.

The Internet has made the disintermediation of many traditional retailers possible.

Disintermediation Example
Calyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, drastically reducing the time it takes flowers to reach consumers via conventional retail channels.

(Non-) Disintermediation Example

Black & Decker chose to avoid disintermediation by not using the Internet to sell their products. Instead B&D directs consumers to stores that carry its products.

Outsourcing Distribution
Company sales force vs. Manufacturers Rep
Company sales force
Employed directly by the firm in outside or inside sales capacity.

Manufacturers agency/representative
Independent firms whose sales people handle several companies products simultaneously

Primarily a question of size and life cycle stage.

Distribution Strategy Alternatives

How many intermediaries?
Intensive distribution Stock product in as many outlets as possible. Exclusive distribution Granting a limited number of outlets the exclusive right to sell product. Selective distribution Somewhere in between Intensive and Exclusive Distribution.
Does the company always get to choose?

Selective Distribution
Maytag uses selective distribution like many furniture and appliance manufacturers.
The Where to Buy page on their Web site assists buyers in finding stores that carry the Maytag brand.

International Channel Decisions

Every country has its own unique distribution system that has evolved over time. Examples
Japan:
complex, multi-layered distribution systems hard for Western firms to penetrate.

India and China:

inefficient distribution systems despite their enormous size. separate countries within a country Poorer but improving transportation infrastructures

Public Policy and Distribution

Exclusive distribution & dealing (upstream or downstream)
Exclusive territorial agreements (franchising) Tying agreements (illegal)
If Xerox required every business who bought or leased their copiers to also buy their brand of paper, it would be a tying agreement.

Marketing Logistics
Definition: The physical flow of goods, services, and related information from points of origin to points of consumption. Includes:
Inbound distribution Outbound distribution Reverse distribution

Inventory Management
Must strike a balance between
too much and too little inventory buffers and shortages carrying costs and ordering/setup costs

Just-in-time inventory systems RFID or Smart Tag technology

RFID technology promises to automate the entire distribution chain, resulting in significant cost savings.

RFID The Wave of the Future?

Key benefits fewer stock-outs reduced logistics labor costs more accurate inventory information more efficient flow of goods happier customers Retailers may soon mandate supplier use of RFID.

Transportation
Trucks Railroads Ships Pipelines Air Internet Intermodal transportation

Intermodal Transportation

Intermodal transportation combines two or more modes of transportation. Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water and rail; Airship = air and water.

Third-Party Logistics
Most small and medium size companies outsource transportation to UPS or other logistics providers.