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
What is a Distribution Channel?

A set of interdependent organizations

(intermediaries) involved in the
process of making a product or
service available for use or
consumption by the consumer or
business user.

 Channel decisions are among the most
important decisions that
management faces and will directly
affect every other marketing
decision.
Why are Marketing Intermediaries
Used?

 Greater efficiency in making goods

available to target markets.
 Offer the firm more than it can
achieve on it’s own through the
intermediaries:
 Contacts
 Experience
 Specialization
 Scale of operation
 Match supply and demand.
Consumer Marketing Channels & Levels
Channel Level - A Layer of Intermediaries that Perform Some Work in
Bringing the Product and it’s Ownership Closer to the Buyer.

Channel 1
M
M CC
Direct
Direct
Channel 2
Indirect
Indirect
M
M RR → CC

Channel 3
M
M → W
W RR → CC

Channel 4
M
M → W
W → JJ → RR → CC
A Consumer marketing channels
Business Market channels
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


8
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.
9

Key Functions Performed by
Channel Members

 Information  Negotiation
 Promotion  Physical Distribution

 Contact  Financing

 Matching  Risk taking

 

10
Distribution Channel Functions
•All Use Up Scarce Resources
•All May Often Be Performed Better Through Specialization
•All Can Often Be Shifted Among Channel Members

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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.
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 + McDonald’s
 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
Consumer segment2
Business segment1
Business segment2
segment1
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Channel Management Decisions
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, manufacturer’s agency, industrial distributors
 Number of marketing intermediaries
 Intensive, selective, and exclusive distribution
 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)

17
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


18
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
Flexibleininrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for short-hauls of high value goods
for short-hauls of high value 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
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
Choosing Transportation
Modes

Checklist for Choosing

Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.
Factors governing the choice of
channel of distribution;-
 The factor governing the choice of a channel
or channel can be grouped into four group
segments as product, market, institutional
units and enviromental.
 The product factor are …

1.Physical nature.
2.Technical nature.
3.The length of product line.
4.The market position.

 The market factors are…
1.The existing market structure.
2.Availability of the channel.
3.Competitor’s channel.
 The institutional factors…

1.The financial ability of the channel.

2.The promotional ability of the channel
members.
3.The post service ability.
 The units factors ability…
1.The company’s financial position
2.The extent of market control desired.
3.The company reputation.
4.The company marketing policies.
 The environmental factors are…

1.Economic factors.
2.The legal restriction.
3.Fical policies.

Factors governing the choice of an
intermediary.


 The market served.

 The market reputation.

 Continued existence.

 The specialization in selling.

 The sales policies.

 The nature of sales organization.

 The financial position.

 The facilities available.


Retailer & Wholesaler
Definitions
 Retailing
 All activities involved in selling goods or services
directly to final consumers for their personal,
nonbusiness use.
 Retailer
 Business whose sales come primarily from retailing.

26
TYPES OF RETAILERS

 Specialty Stores
 Department Stores
 Supermarkets

 Discount Stores
 Convenience
Stores

27
Classifications of retailers
 Self-service retailers
 Amount of service  Customers are willing to self-
 Product lines serve to save money
 Discount stores
 Relative prices
 Limited-service retailers
 Organizational approach  Most department stores
  Full-service retailers
 Salespeople assist customers
 in every aspect of shopping
experience
 High-end department stores
 Specialty stores


28
Classifications of retailers
 Amount of service
 Product lines
 Relative prices
 Organizational approach
 
 Specialty stores
 Narrow product lines with deep
assortments
 Department stores
 Wide variety of product lines
 Supermarkets
 Convenience stores
 Limited line
Superstores
 Food, nonfood, and services
 Category killers
 Giant specialty stores

29
Classification
Classification By
By Product
Product Line
Line

Store Type Length and Breadth of Product

Assortment

Specialty
SpecialtyStores
Stores Narrow
NarrowProduct
ProductLine,
Line,Deep
DeepAssortment
Assortment

Department Wide
WideVariety
Varietyof
ofProduct
ProductLines
Linesi.e.
i.e.Clothing,
DepartmentStores
Stores Home
Home Furnishings, & HouseholdItems
Furnishings, & Household
Clothing,
Items
Wide
WideVariety
Varietyof
ofFood,
Food,Laundry,
Laundry,&&Household
Household
Supermarkets
Supermarkets Products
Products
Convenience Limited
LimitedLine
Lineof
ofHigh-Turnover
High-TurnoverConvenience
Convenience
ConvenienceStores
Stores Goods
Goods
Superstores Large
LargeAssortment
Assortmentof ofRoutinely
RoutinelyPurchased
Purchased
Superstores Food
Food & Nonfood Products, PlusServices
& Nonfood Products, Plus Services
Category Giant
GiantSpecialty
SpecialtyStore
Storethat
thatCarries
CarriesaaVery
VeryDeep
Deep
CategoryKillers
Killers Assortment of a Particular Line
Assortment of a Particular Line
Hypermarkets
Hypermarkets Huge
HugeSuperstores
Superstores
Classifications of retailers
 Discount stores
 Amount of service  Low margins are offset by
high volume
 Product lines
 Off-price retailers
 Relative prices
 Factory outlets
 Organizational approach  Levi Strauss, Reebok

  Warehouse clubs
 Mega Mart for Allensolley
seconds

31
Classifications of retailers
 Amount of service
 Product lines
 Relative prices
 Organizational approach
 
 Corporate chain stores (Spaces
by Welspun)
 Commonly owned / controlled
 Voluntary chains (Food Bazzar)
 Wholesaler-sponsored groups
of independent retailers
Retailer cooperatives (Operation
flood for milk )
 Groups of independent
retailers who buy in bulk
 Franchise organizations
(MacDonald Chain for burgers)
 Based on something unique
32
Retailer Marketing Decisions

 Target marketing and positioning

 Product assortment, service mix, store’s atmosphere
 Price
 Promotion
 Place (location)
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and May Account for 33% of All Sales by 2000.
Nonstore Retailing Accounts for More Than 14% of All Consumer Purchases,
Types of NonStore Retailing
Click
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to add
Retailer’s
Retailer’s add title
Price, Promotion,
Promotion, and
title
Price, and
Place
Place Decisions
Decisions

Price
Price Decisions
Decisions
Target
Target Market
Market
Product
Product &
& Services
Services Assortment
Assortment
Competition
Competition

Promotion
Promotion Decisions
Decisions
Using
Using Advertising,
Advertising, Personal
Personal Selling,
Selling,
Sales
Sales Promotion
Promotion and
and Public
Public
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Relations to
to Reach
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Place
Place Decisions
Decisions
Shopping
Shopping Centers,
Centers, Central
Central Business
Business
Districts,
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Centers, or
or Outlet
Outlet
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Malls. Location!
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Future of
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The Retailing
of Retailing
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.

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or More of the Following Channel Functions:
Wholesalers are Often Better at Performing One
Why are Wholesalers Used?
Types of Wholesalers
 Merchant Wholesalers
 Brokers and Agents
 Manufacturers’ and
retailers’ branches and
offices

 Full-service wholesalers
 Wholesale merchants
 Industrial distributors
 Limited-service wholesalers
 Cash-and-carry wholesalers
 Truck wholesalers (jobbers)
 Mail-order wholesalers
(handle only mail order
jobs - Fedex)

40
Types of Wholesalers

 Merchant Wholesalers
 Brokers
 Bring buyers and sellers
 Brokers and Agents together and assist in
 Manufacturers’ and negotiation

retailers’ branches and  Agents

offices  Manufacturers’ agents
 Selling agents


 Purchasing agents
 Commission merchants

41
Types of Wholesalers
 Sales branches and offices
 Merchant Wholesalers  Branches carry inventory:
 Brokers and Agents lumber, auto equipment,
parts
 Manufacturers’ and  Offices do not carry inventory:
retailers’ branches and dry goods

offices  Purchasing officers

 Perform roles similar to

brokers and agents,
however these individuals
are employees of the
organization

42
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
44