12-1

12-1

PRINCIPLES OF MARKETING

Chapter
Chapter 12
12

Distribution Channels
and
Logistics Management
 12-2
12-2

Distribution
Distribution Channels
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
 12-3
12-3

Role
Role of
of Intermediaries
Intermediaries
• Greater efficiency in making goods
available to target markets.
• Intermediaries provide
– Contacts
– Experience
– Specialization
– Scale of operation
• Match supply and demand.
 12-4
12-4

Channel
Channel Functions
Functions
•Information
•Promotion
•Contact
•Matching
•Negotiation
•Physical Distribution
•Financing
•Risk taking
 12-5
12-5

Channel
Channel Levels
Levels

•Manufacturer
•Wholesaler
•Retailer
•Consumer
 12-6
12-6

Channel
Channel Behavior
Behavior and
and Conflict
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.
 12-7
12-7

Vertical
Vertical Marketing
Marketing Systems
Systems

• Corporate
– common ownership at different channel levels
• Contractual
– contractual agreement among channel members
• Administered
– leadership assumed by dominant members
 12-8
12-8

Innovations
Innovations in
in Marketing
Marketing Systems
Systems

Horizontal
Horizontal Marketing
Marketing Hybrid
HybridMarketing
Marketing
System
System System
System

Two or more A single firm sets up

companies at one two or more
channel level join marketing channels
together to increase to increase coverage
coverage
Example:Retailers,
Example:Banks in Catalogs, and Sales
Grocery Stores Force
 12-9
12-9
Channel
Channel Design
Design Decisions
Decisions

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
 12-10
Channel
Channel Management
Management Decisions
Decisions
12-10

Selecting
Selecting

FEEDBACK
Motivating
Motivating

Evaluating
Evaluating
 12-11
12-11

Logistics
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
Goals of
of Logistics
Logistics system
system
12-12
12-12

• 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
 12-13
12-13

Logistics
Logistics Functions
Functions

• Order Processing
• Warehousing
• Inventory Management
• Transportation

• Design system to minimize costs of attaining

objectives
 12-14
12-14
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsofofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcestotomarkets
markets

Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
Integrated
Integrated Logistics
Logistics Management
Management
12-15
12-15

Concept Recognizes that Providing Better Customer

Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside
the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics