DISTRIBUTION MANAGEMENT REVIEWER

Lesson 2: Introduction to Sales and Distribution Management

INTRODUCTION TO DISTRIBUTION MANAGEMENT

Distribution management refers to the process of overseeing the movement of goods

from supplier or manufacturer to point of sale. It is an overarching term that refers to
numerous activities and processes such as packaging, inventory, warehousing, supply
chain, and logistics.

According to small business site distribution management is the ability to deliver the
right products to the right customers at the right time is essential for retail businesses,
as well as for manufacturers, wholesalers, and distributors.
SALES MANAGEMENT is the process of developing a sales force, coordinating sales
operations, and implementing sales techniques that allow a business to consistently hit,
and even surpass its sales targets.

NATURE AND SCOPE OF DISTRIBUTION MANAGEMENT

Distribution management is an important part of the business cycle for distributors and
wholesalers. The profit margins of businesses depend on how quickly they can turn
over their goods. The more they sell, the more they earn, which means a better future
for the business. Having a successful distribution management system is also important
for businesses to remain competitive and to keep customers happy.

Modern distribution management encompasses more than just moving products from
point A to point B. It also involves gathering and sharing relevant information that can
be used to identify key opportunities for growth and competitiveness in the market. Most
progressive companies now use their distribution forces to obtain market intelligence
which is vital in assessing their competitive position.

IMPORTANCE OF DISTRIBUTION MANAGEMENT

 Distribution management manages the supply chain for a firm, from vendors and
suppliers to manufacturer to point of sale, including packaging, inventory,
warehousing, and logistics.

 Adopting a distribution management strategy is important for a company's

financial success and corporate longevity.

 Distribution management helps keep things organized and keeps customers

satisfied

DISTRIBUTION CHANNEL

The term “distribution channel” refers to the methods used by a company to deliver its
products or services to the end consumer. It often involves a network of intermediary
businesses such as manufacturers, wholesalers, and retailers. Selecting and monitoring
distribution channels is a key component of managing supply chains.

THE DIFFERENCE BETWEEN DIRECT AND INDIRECT DISTRIBUTION CHANNEL

Direct distribution channels are those that allow the manufacturer or service provider to
deal directly with its end customer. For example, a company that manufactures clothes
and sells them directly to its customers using an e- commerce platform would be
utilizing a direct distribution channel. By contrast, if that same company were to rely on
a network of wholesalers and retailers to sell its products, then it would be using an
indirect distribution channel.

THREE TYPES OF DISTRIBUTION CHANNELS

1. Wholesalers are intermediary businesses that purchase bulk quantities of

products from a manufacturer and then resell them to either retailer or the end
consumers themselves.

2. Retailers are generally the customers of the wholesalers and offer high- touch
customer service to the end customers.

3. Direct-to-consumer sales occur when the manufacturer sells directly to the end
customer, such as when the sale is made directly through an e- commerce
platform.

COMMERCIAL DISTRIBUTION is commonly known as sales distribution and physical

distribution (better known as logistics). Distribution involves diverse functions such as
customer service, shipping, warehousing, inventory control, private trucking-fleet
operations, packaging, receiving, materials handling, along with the plant, warehouse,
store location planning, and the integration of information.

ACTIVITIES INVOLVED IN DISTRIBUTION MANAGEMENT

The distribution channel’s role is to ensure the successful movement of goods from
manufacturers or suppliers to the point of sale. The activities involved in distribution
management include but are not limited to:

1. Warehouse storage
2. Inventory control
3. Logistics management
4. Packaging
5. Transportation
The distribution channel strategy depends on a multitude of factors, such as your
company's mission and goals, target market, area of service, types of products and
more.
EVOLUTION OF DISTRIBUTION MANAGEMENT

In the old vertically integrated business, the owner crafted the vision and articulated the
strategy to get the business units and internal functions in synch and pulling in the same
direction. But in a virtual business, which consists of many enterprises, the effort was
driven toward connectivity. Instead, it is governed by a series of relationships between
firms, with one party often wielding disproportionate power in the relationship. Each of
these peer-to-peer relationships is governed by executive-to-executive dialog, legal
contracts, service level agreements, informal understandings, and human interactions
at various levels. The disadvantage of this approach is that it does not necessarily lead
to alignment of strategies and activities across the supply chain.

SUPPLY CHAIN ORCHESTRATOR

The Orchestrator function is the coordination of all key activities across the supply
chain.

SUPPLY CHAIN defined as the entire process of making and selling commercial
goods, including every stage from the supply of materials and the manufacture of the
goods through to their distribution and sale.

OTHER TERMS:

 5Ps - The traditional 4Ps of marketing: product, price, promotion, and place
(distribution), now with packaging added as a key marketing component.

 AGENTS - Sales representatives of manufacturers and wholesalers.

  BREAKING BULK – It refers to the process of breaking large shipments of
similar products into smaller, more usable lots.

 BROKERS - Go-betweens that bring buyers and sellers together.

 DISTRIBUTION (LOGISTICS) It is efficiently managing the acquisition of raw

materials by the factory and the movement of products from the producer to
industrial users and consumers.

 DISTRIBUTION CHANNEL It is the series of marketing entities through which

goods and services pass on their way from producers to end-users.

 INDUSTRIAL DISTRIBUTOR Independent wholesalers that buy related product

lines from many manufacturers and sell them to industrial users.

 MARKETING INTERMEDIARIES It is the organizations that assist in moving

goods and services from producers to end users.

 RETAILERS It refers to firms that sell goods to consumers and industrial users
for their own consumption.

 WHOLESALER Firms that sell finished goods to retailers, manufacturers, and

institutions.

GENERALIZATION

 Distribution is efficiently managing the acquisition of raw materials from the

factory and the movement of products from the producer or manufacturer to
business-to-business (B2B) users and consumers. It includes many facets, such
as location, hours, website presence, logistics, atmospherics, inventory
management, supply-chain management, and others. Logistics activities are
usually the responsibility of the marketing department and are part of the large
series of activities included in the supply chain.

Lesson 3: Marketing Channels

CHANNEL is composed of different institutions that facilitate the transaction and the
physical exchange.

Functions of a Channel
The primary purpose of any channel of distribution is to bridge the gap between the
producer of a product and the user of it, whether the parties are located in the same
community or in different countries thousands of miles apart. The channel of distribution
is defined as the most efficient and effective manner in which to place a product into the
hands of the customer. The channel is composed of different institutions that facilitate
the transaction and the physical exchange
It performs three important functions: transactional, logistical, and facilitating.

a. Transactional functions: buying, selling, and risk assumption

b. Logistical functions: assembly, storage, sorting, and transportation
c. Facilitating functions: post-purchase service and maintenance, financing,
information dissemination, and channel coordination or leadership

These functions are necessary for the effective flow of product and title to the
customer and payment back to the producer.
THREE CATEGORIES OF CHANNEL INSTITUTION
a. The producer of the product whether a craftsman, manufacturer, farmer, or other
extractive industry producers
b. The user of the product it refers to an individual, household, business buyer,
institution, or government
c. Certain middlemen at the wholesale and/or retail level

ROUTINIZATION means that the right products are found in places where the
consumer expects to find them (such as catalogs or stores), comparisons among
products are possible, prices are marked and methods payments are available.

It also refers to aids the producer as well as the consumer, because it tells the
producer what to make, when to make it, and how many units to make.

Channel Manager – It refers to anyone in a firm or organization who is involved in

marketing channel decision-making.

CHANNEL STRATEGY – It is one of the major strategic areas of marketing management, fits
under the distribution (Place) variable in the marketing mix.

MARKETING CHANNEL
It refers to the external contractual organization that management operates to achieve
its distribution objectives.
 External – means the marketing channel exists outside the firm
 Contractual organization – refers to those firms or parties who are involved in
negotiatory functions as a product or service moves from the producer to its
ultimate user. The activities involved in negotiatory functions are buying, selling,
and transferring title to products or services.
 Operates – It suggests involvement by management in the affairs of the channel.
 Distribution objectives – It means that management has certain distribution goals
in mind.

CHANNEL STRUCTURE

TYPES OF MARKETING CHANNEL

a. Direct Selling - is the marketing and selling of products directly to consumers

away from a fixed retail location.
b. Selling through intermediaries - is a third party that offers intermediation
services between two trading parties.
c. Dual Distribution - describes a wide variety of marketing arrangements by
 which the manufacturer or wholesalers use more than one channel
simultaneously to reach the end-user.
d. Reverse Channel - may go from consumer to intermediary to beneficiary.

CHANNEL STRUCTURE is the group of channel members to which a set of

distribution tasks has been allocated.

DISTRIBUTION MANAGEMENT AS A MARKETING FUNCTION

The fundamental idea of distribution management as a marketing function is that the

management of distribution happens in an ecosystem that also involves the
consideration of the following:

 Product – It is not always a tangible object, product can also refer to an idea,
music, or information.

 Price - This refers to the value of a good or service for both the seller and the
buyer, which can involve both tangible and intangible factors, such as list price,
discounts, financing, and likely response of customers and competitors.

 Promotion - This is any communication used by a seller to inform, persuade,

and/or remind buyers and potential buyers about the seller’s goods, services,
image, ideas, and the impact it has on society.

 Placement - This refers to the process that ensures the availability, accessibility,
and visibility of products to ultimate consumers or business users in the target
channels or customers where they prefer to buy.

Effective distribution management involves selling your product while assuring

sufficient stocks in channels and managing promotions in those channels and varying
requirements. It also involves that the supply chain is efficient enough that the
distribution costs are low enough to allow a product to be sold at the right price, and
supporting your marketing strategy, and maximizing profit.

Marketing channels represent the relationship between a producer and the user,
usually in the form of a strategic alliance such as a retailer.
 FLOWS IN MARKETING CHANNEL

When a marketing channel has been developed, a series of flows emerges. The most
important of these flows are:

a. Product flow – refers to the actual physical movement of the product from the
manufacturer.

b. Negotiation flow – represents the interplay of the buying and selling functions
associated with the transfer of title (right of ownership).

c. Ownership flow – shows the movement of the title to the product as it is passed
along from the manufacturer to final consumers.

d. Information flow – It refers to all parties participate in the exchange of

information, and the flow can be either up or down.

e. Promotion flow – refers to the flow of persuasive communication in the form of

advertising, personal selling, sales promo and publicity.

Marketing Mix Strategic Variable with Distribution Variable

MARKETIN
G
MIX

PRODUC PRICING PROMOTIO DISTRIBUTIO

T STRATEG N N
STRATEG Y STRATEGY STRATEGY
Y
CHANNEL LOGISTICS
STRATEGY MANAGEMEN
COMPONEN T
T COMPONENT

OTHER KEYTERMS

 DISINTERMEDIATION – It means to “eliminate the middleman”.

  CONTRACTUAL EFFICIENCY – is the level of organization effort between
sellers and buyers relative to achieving a distribution objective.

 CHANNEL STRUCTURE – The group of channel members to which a set of

distribution tasks has been allocated.

 MULTI CHANNEL STRATEGY – naturally results in a multi-channel structure

because distribution tasks have been allocated among more than one channel
structure.

 ANCILLARY STRUCTURE – It is the group of institutions (facilitating agencies)

that assist channel members in performing distribution tasks.

GENERALIZATION

The links that tie channel members and other agencies together in the distribution of
goods and services are referred to as channel flows. The most important of these flows
are (1) product flow (2) negotiation flow (3) ownership flow (4) information flow and (5)
promotion flow. The channel manager must effectively manage and coordinate all of
these flows to achieve the firm distribution objectives. In this context, the member of the
marketing channel performs the negotiation functions such as buying, selling, and
transferring title.

Lesson 4: The Environment of Marketing Channel

The environment consists of myriad external, uncontrollable factors within which

marketing channels exist. Below are the category of marketing environment:

Economic Environment – Economic factors are a critical determinant of channel

member behavior and performance. The channel manager must therefore be aware of
the influence of economic variables on the participants in the channel distribution. Major
economic factors are the following:

Recession - In economics, a recession is a business cycle contraction when there is a

general decline in economic activity. It usually occurs when there is a widespread drop
in spending.

Inflation – the decline of purchasing power of a given currency over time.

Deflation – is the overall decrease in the cost of an economy’s goods and services.

Competitive Environment – Competition is always a critical factor to consider for all

members of the marketing channel. This is especially the case in recent years as
competition has become global in scope. Types of competition are as follows:

Horizontal competition – a competition between firms of the same type:

Intertype competition – is a competition between different types of firms at the same

channel level, such as the off-price store versus the department store or the merchant
store versus agents and brokers.

Vertical competition – refers to competition between channel members at different

levels in the channel, such as retailer versus wholesaler vs manufacture vs retailer.

Channel system competition – refers to complete channels competing with other

complete channels

Sociocultural Environment – Marketing channels are therefore also influenced by the

socio-cultural environment within which they exist. Ex: Japanese penchant for
developing close business relationships among cooperative firms. This system is known
as Keiretsu. Other Sociocultural forces are:

Globalization – this term is commonly used to describe the interconnectedness and

interdependencies of countries around the world. In a business rather than political
context, globalization typically focuses on the vast and complex trade flows among
countries and the international supply chains that make huge flows of products and
services across national boundaries possible.

Consumer mobility and connectedness – This ability to constantly be on move

simply while still being able to stay in constant contact has not been lost to consumers.
Indeed, buying products and services while running around has become a common
expectation for consumers armed with laptops and smartphones all over the world. This
phenomenon which in recent years has generally been referred to as mobile commerce
or m-commerce.
Social Networking – This term refers to interaction in networks comprised of
individuals or organizations that are linked together based on some type of common
interest, beliefs, friends, hobbies, professions, and others.

Green movement – This is a term that has often been used to refer to a focus on
preserving the environment and human health.

Technological Environment – Technology is the most continuously and rapidly

changing aspect of the environment. The channel manager has to sort out those
developments that are relevant to the firm as well as the participants in the marketing
channel and determine how these changes affect the channel participants.

a. EDI or Electronic Data Interchange refers to the linking together of channel

member information systems to provide real-time responses to communication between
channel members.

b. Scanners, Computerized Inventory Management and Handheld computers –

Electronic scanning and computerized inventory management, enhanced portable
computers, cellular phone technology, and the internet have created a new world in
retailing and wholesaling.

c. Digital Revolutions and smartphones – The digital revolution is the term

commonly used to describe the huge transformation that has taken place over the past
three decades from analog and mechanical technology to digital technology.

RFID – refers to Radio frequency identification. This is a relatively new technology

that uses a device called an RFID tag attached to a person or object, such as a product,
that enables that person or product to be identified and tracked using radio waves. By
implanting RFID chips or tags in on a product, detailed information, including price,
basic characteristics, date of manufacture, origin, and current location can be recorded.

Cloud Computing – is an internet-based technology that enables both large and small
businesses and organizations to utilize highly sophisticated computer applications
without having to have their hardware, software, office computing space, and staff. It is
also referred to as the on-demand availability of computer system resources, especially
data storage and computing power, without direct active management by the user.

Legal environment – refers to the set of laws that impact marketing channels. The
legal structure resulting from these laws is not a static code. It is a continually evolving
structure affected by changing values, norms, politics, and precedents established
through court cases.
LEGISLATION AFFECTING MARKETING CHANNELS IN PHILIPPINE SETTING

Consumer Act of the Philippines or RA 7394 is a legal basis for consumer protection
in the country. The law embodies the state policy on the protection of consumers and
establishes standards of conduct for the business industry in the country.

Price Act (RA7581) An act protecting consumers by stabilizing the prices of necessities
and prime commodities and by prescribing measures against undue price increase
during an emergency and like occasion.

Lemon Law (RA10642) - Lemon Law Philippines or RA 10642 (An Act Strengthening
Consumer protection in the Purchase of Brand New Motor Vehicles), to protect buyers
from lemons cars and assure its replacement from the dealership it originated from. In a
general word, "lemon car" is defined as the all brand-new vehicle that is purchased from
an authorized dealership in the Philippines.

Republic Act No. 9512 An act to promote environmental awareness through

environmental education and for other purposes also known as the National
Environmental Awareness and Education Act of 2008.

LEGAL ISSUES IN CHANNEL MANAGEMENT

Dual Distribution – This term refers to the practice whereby a producer or

manufacturer uses two or more different channel structures for distributing the same
product to his target market.

Exclusive Dealing – refers to when a supplier requires its channel members to sell
only its products or to refrain from selling products or to refrain from selling products
from directly competitive suppliers.
Full-Line Forcing – it refers to when the supplier requires channel members to carry a
broad group of products (full line) to sell any particular products in the supplier’s line.

Price Discrimination – refers to the practice whereby a supplier, either directly or

indirectly sells at different prices to the same class of channel members to the extent
that such price differentials tend to lessen competition.

Price maintenance or fair trade – It is where suppliers attempt to control the prices
charged by its channel members for the supplier product.

Refusal to deal – a supplier may select whomever they want as a channel member
and refuse to deal with whomever they want.

Resale Restriction – It is when a manufacturer attempts to stipulate to whom channel

members may resell the manufacturer’s products and in what specific geographical
market areas they may be sold.
Tying Agreements – It is an agreement whereby a supplier sells a product to a
channel member on the condition that the channel member purchases another product
as well, or at least agrees not to purchase that product from any other supplier.

Vertical Integration – It refers to firms that own and operates organization at other
levels of the distribution channel. Ex: A manufacturer owning and operating its own
wholesale and retail stores

OTHER KEY TERMS

 INTERMEDIARIES also known as middlemen

 WHOLESALER consist of business that is engaged in selling goods for resale or

business use to retail, industrial, commercial, institutional, professional, or
agricultural firms as well as the other wholesalers.

 MERCHANT WHOLESALER is firms engaged primarily in buying, taking title to

usually storing and physically handling products in relatively large quantities.

 AGENTS, BROKERS, AND COMMISSION MERCHANT are also independent

middlemen who do not, for all most of their business, take title to the goods in
which they deal.

 MANUFACTURER SALES BRANCHES AND OFFICES are owned and

operated by manufacturers but are physically separated from manufacturing plants.

GENERALIZATION

Marketing channels develop and operate in a complex environment that is continually

changing. Channel managers must be sensitive to the environmental changes to plan
effective marketing channel strategies that they need to adapt to these changes
successfully. The five category taxonomy in this module is (1) Economic environment
(2) Competitive Environment (3) Sociocultural Environment (4) Technological
Environment (5) Legal Environment. Moreover, four major types of competition need to
be addressed: (1) Horizontal Competition,
(2) Intertype Competition, (3) Vertical Competition, and (4) Channel System
Competition. Also, the students should understand those channel managers cannot
ignore the legal issues, they need to know the legal changing environment affecting
channel management, general knowledge and awareness of some of the basic laws
and legal issues are needed.

Lesson 5 and 6: Behavioral Process in Marketing Channels

The Marketing Channel as a Social System

Social System: The system generated by any process of interaction on the Socio-
cultural level between two or more actors. The actor is either a concrete human
individual (a person) or a collectivity. When these individuals or collectivities (firms or
agencies) interact as a member of the marketing channel, an inter-organizational social
system exists.

The Social system is defined as the system generated by any process of interaction on
the socio-cultural level between two or more actors. The actor is either a concrete
human individual (a person) or a collectivity.

Conflict in the Marketing Channel

Conflict exists when a member of the marketing channel perceives that another
member’s actions impeded the attainment of his or her goals.
A) Conflict versus Competition
Conflict in the marketing channel should not be confused with competition. Competition
is behavior that is object-centered, indirect, and personal conflict, on the other-hand, is
direct, personal, and opponent-centered.

Causes of Channel Conflict

Analysis and research have pointed to many possible causes of channel conflict. These
are:
a. Misunderstood communications
b. Divergent functional specializations and goals of channel members
c. Failings in joint decision-making
d. Differing economic objectives
e. Ideological differences of channel members
f. Inappropriate channel structure

CAUSES OF CONFLICT
 1. Goal incompatibility: Different partners in the channel of distribution have
different goals that may or may not coincide with each other and thus result
in conflict.
E.g. The manufacturer wants to achieve the larger market share by adopting the
market penetration strategy i.e. offering a product at low price and making the
profits in the long run, whereas the dealer wants to sell the product at a high
cost i.e. market skimming strategy and earn huge profits in the short run.

2. Ambiguous Roles: The channel partners may not have a clear picture of
their role i.e. what they are supposed to do, which market to cater, what
pricing strategy is to be adopted, etc.
E.g. The manufacturer may sell its products through its direct sales force in the
same area where the authorized dealer is supposed to sell; this may result in the
conflict.

3. Different Perceptions: The channel partners may have different perceptions

about the market conditions that hampers the business as a whole thereby
leading to the conflict.
E.g. The manufacturer is optimistic about the change in the price of the product
whereas the dealer feels the negative impact of price change on the customers.

4. Manufacturer dominating the Intermediaries: The intermediaries such as

the wholesaler, distributor, retailer, etc. carry the process of distribution of
goods and services for the manufacturer. And if the manufacturer makes any
change in the price, product, marketing activity the same has to be
implemented with an immediate effect thereby reflecting the huge
dependence of intermediaries on the manufacturer.
E.g. If the manufacturer changes the promotional scheme of a product with the
intention to cut the cost, the retailer may find it difficult to sell the product without
any promotional scheme and hence the conflict arises.

5. Lack of Communication: This is one of the major reasons that lead to the
conflict among the channel partners. If any partner is not communicated
about any changes on time will hamper the distribution process and will
result in disparity.
E.g. If retailer urgently requires the stock and the wholesaler didn’t inform him
about the availability of time may lead to the conflict between the two.

EFFECT OF CHANNEL CONFLICT

Channel Efficiency is the degree to which the total investment in the various inputs
necessary to achieve a given distribution objective can be optimized in terms of outputs.
According to study, The greater the degree of input optimization carrying out a
distribution objective, the higher the efficiency, and vice versa.
a. Negative Effect – Reduced Efficiency It shows a negative relationship
indicating that, as the level of conflict increases, channel efficiency declines.
b. No Effect – Efficiency Remains Constant – In this relationship, the existence
of conflict has caused no change in channel efficiency. Hence, the effect of
conflict on input levels necessary to achieve distribution objectives is
insignificant.
c. Positive Effect – Efficiency Increased – It shows a third possible effect of
conflict on channel efficiency.

TYPES OF CHANNEL CONFLICT

1. Vertical Channel Conflict: This type of conflict arises between the different
levels in the same channel.
E.g. The conflict between the manufacturer and the wholesaler regarding price,
quantity, marketing activities, etc.

2. Horizontal Channel Conflict: This type of conflict arises between the same
level in the same channel.
E.g. The conflict between two retailers of the same manufacturer faces disparity in
terms of sales target, area coverage, promotional schemes, etc.

3. Multichannel Conflict: This type of conflict arises between the different market
channels participating in the common sale for the same brand.
E.g. If a manufacturer uses two market channels, the first is the official website
through which the products and services are sold. The second channel is the
traditional channel i.e. through wholesalers and retailers. If the product is available at
a much lower price on a website than is available with the retailer, the multichannel
conflict arises.

MANAGING CHANNEL CONFLICT

Discussion on conflict in the marketing channel points to the following four generalizations:
1. Conflict is an inherent behavioral dimension in the marketing channel.
2. Given the numerous causes from which conflict may stem, it is a
pervasive phenomenon in the marketing channel.
3. Channel can affect channel efficiency.
4. Various levels of conflict may have both negative and positive effects on
channel efficiency or possibly no effect.

Managing channel conflict approach are as follows:

a. Detecting channel conflict
b. Appraising the effect of Conflict
c. Resolving Conflict – Below are the following suggestion to solve conflict such as
channel-wide committee, Joint goal-setting, distribution executive. Another
approach for resolving channel to use the five advantages of arbitration in
resolving conflicts:
c.1 Arbitration is fast
c.2 Arbitration preserves secrecy
c.3 Arbitration is less expensive than litigation
c.4 Arbitration confronts problems in their incipient stage when they are
easier to resolve.
c.5 Arbitration often takes place before industry experts.

REWARD POWER This source of power refers to the capacity of one channel member
to reward another if the latter conform to the influence of the former. This power base is
present in virtually all channel systems. Channel members – whether at the producer,
wholesale, or retail levels – will in the long run remain viable members only if they can
realize financial benefits from their channel membership.

The manufacturer provides several additional benefits to the intermediaries, with

intention to motivate them to perform certain activities as required. This power is very
useful since it brings in the maximum efforts from each channel partner, but this may
sometimes be negative as the channel partners may always seek the benefits in case,
they are required to do some other activity.

COERCIVE POWER is essentially the opposite of reward power. In this case, a channel
member’s power over another is based on the expectation that the former will be able to
punish the latter upon failure to conform to the former’s influence attempts. The firms
can use it are either large or in a very advantageous position – one resulting from a
near-monopoly or formal contractual status.
The manufacturer threatens to terminate the relationship with other channel partners or
withdraw the resources deployed with them. With this power, the manufacturer can
dominate the others and keep them under his control. But the negative side is, the
channel partners may lose their faith in the manufacturer and may enter into inter-
conflicts.

LEGITIMATE POWER This power base stems from internalized norms in one channel
member which dictate that another channel member has a legitimate right to influence
the first and that an obligation exists to accept that influence.

Given that many channels are comprised of independent business firms, there is no
definite superior-subordinate relationship, and there are no clear-cut lines of authority or
chains of command. It is only in contractually linked channels that anything approaching
an organizational structure based on legitimate power exists. In general, then, the
channel manager operating a loosely aligned channel cannot rely on a legitimate power
base to influence channel members.

The manufacturer reminds the channel partner to carry out their activities following the
contract they have entered into at the time they became the channel partners. The
manufacturer may find it convenient to keep a check on the channel partners in terms of
their signed agreement, but the partners may feel humiliated for the continuous reminder
of their code of conduct.

REFERENT POWER When one channel member perceives his or her goals to be
closely allied to, or congruent with, those of another member, a referent power base is
likely to exist. Hence, when this situation prevails, an attempt by one of the channel
members to influence the behavior of the other is more likely to be seen by the latter as
beneficial to the achievement of their own goals.

The manufacturer should develop its image in such a way, that the intermediaries must
feel proud to be associated with it. The manufacturer with the influential image can get
varied options concerning the channel partners. But if the manufacturer is weak then
intermediaries may not like to get associated with it because that might spoil their market
image.

EXPERT POWER This base of power is derived from the knowledge (or perception) that
one channel member attributes to another in some given area. In other words, one
channel member’s attempt to influence the other’s behavior is based upon superior
expertise. Expert power is quite common in the marketing channel. In franchised
channels, expertise is a crucial power base for the franchisor to influence franchisees.

The manufacturer has the expertise that they can transfer to the channel partners, and
once they acquire it, the power of expertise reduces. Thus, the manufacturer should
focus on creating the new expertise, thereby keeping the channel partners updated with
the day-to-day operations. The manufacturer uses this power to retain the interest
among the channel partners to work, but the intermediaries may not feel to learn any
new things apart from what they have learned.

ROLE IN MARKETING CHANNEL

The Role is a set of prescriptions defining what the behavior of a positioning member
should be. Roles in the marketing channel do not necessarily stay the same.
From the channel manager’s standpoint, the key value of the role concept is that it
helps to describe and compare the expected behavior of channel members and
provides insight into the constraints under which they operate.
Channel managers can use the concept of role to formulate such questions as:
 What role do I expect a particular channel member to play in the channel?
 What role is the member (potential or existing) expected to play by his/her peers
(other firms of a similar type)?
 Do my expectations for this member conflict with those of his/her peers?
 What role does this member expect me to play?
Communication Processes in the Marketing Channel

Communication has been described as “the glue that holds together a channel of
distribution”. Communication activities undertaken by channel members create a flow of
information within the channel, which is necessary for an efficient flow of
products or services throughout the channel. Consequently, the channel manager must
work to create and foster an effective flow of information within the channel.

1. Behavioral Problems in Channel Communications

a. Differing Goals - Corporate management in large manufacturing firms is
characterized by growth psychology, which translates into aggressive efforts to
build sales volume. This growth goal may not be shared by small to medium-size
retailers and/or wholesalers who might be more static orientated in their
approach to sales volume. Channel members should attempt to understand the
goals of their channel members to learn whether they are much different from
those of their firms.
b. Language Differences - The other basic communication problem between
the manufacturer and channel members stems from the terminology or jargon
used by professional corporate management. The channel manager has to
ensure that the language used in channel communications is well understood by
all channel members.
c. Other Behavioral Problems in Channel Communications
Three other behavioral problems that can inhibit effective channel
communications are:

1. Perceptual differences among channel members

2. Secretive behavior
3. Inadequate frequency of communication
4. Perceptual Differences

GENERALIZATION

The marketing channel is characterized not only by economic processes but also by
behavioral processes. The marketing channel may therefore be viewed as a social
system affected by such behavioral dimensions as conflict, power, role, and
communication processes. The manager needs knowledge of these behavioral
dimensions as they operate in the marketing channel so that their effects can be
incorporated into their decision making.

Lesson 7: Strategy of Marketing Channels

MARKETING CHANNEL is the broad principles by which the business unit expects to
achieve its marketing objectives in a target market according to Kotler.

Marketing channel strategy is concerned with the place aspect of marketing

strategy, while the other three Ps of the marketing mix address product, price, and
promotional strategies.

To achieve the distribution objectives, most firms will have to address six basic
distribution decisions:
1. What role should distribution play in the firm’s overall objectives and
strategies?
2. What role should distribution play in the marketing mix?
3. How should the firm’s marketing channels be designed to achieve its
distribution objectives?
4. What kinds of the channel be managed to implement the firms’ channel
strategy and design effectively and efficiently on a continuingly?
5. How can channel member performance be evaluated?
These six decisions are the “heart and soul” of distribution when viewed from a
marketing channel management perspective.

OVERVIEW OF MARKETING CHANNEL STRATEGY IN RELATION TO BASIC

DISTRIBUTION

MARKETING CHANNEL STRATEGY AND THE MARKETING MIX

Developing a marketing mix product, price, promotion, and distribution (place)
strategies that meet the demands of the firm’s target markets better than the
competition is the essence of modern marketing management. This relationship can be
represented as follows:

The job of the marketing manager is to develop the right combination of the four Ps to
provide and maintain the desired level of target market satisfaction. A general case for
stressing distribution strategy can still be made if any one of certain conditions prevails:

1. Distribution is the most relevant variable for satisfying target market demands
– As firms become more oriented to target markets over the past two decades by
listening more closely to their customer, the relevance of distribution has become
more apparent to an increasing number of companies because it plays such a key
role in providing customer satisfaction.
2. Competitive Parity exists among competitors in the other three variables of
the marketing mix – In such an intensely competitive arena, it becomes
increasingly difficult for a company to differentiate its marketing mix from that of the
competition. Distribution, the fourth variable of the marketing mix, however, can offer
 a more favorable basis for a developing competitive edge because advantages
achieved in distribution are not easily copied by competitors as the other three
variables of the marketing mix.

3. A high degree of vulnerability exists because of competitor neglect of

distribution – Neglect of distribution strategy by competitors provides an excellent
opportunity for those companies who are willing to make the effort to develop
distribution as a key strategic variable in the marketing mix. But to pursue this
approach, the channel manager has to make a conscious effort to analyze target
markets to determine if the distribution has been neglected by competitors and
whether vulnerabilities exist that can be exploited.

4. Distribution can enhance the firm by creating synergy from marketing

channels – Along with challenges comes opportunity, because a well-developed
marketing channel must have the right channel member that can provide synergy
between the channel members that produces a superior distribution program.
Synergy through distribution goes well beyond the enhancement of the
manufacturer’s image.

DIFFERENTIAL ADVANTAGES AND CHANNEL DESIGN

DIFFERENTIAL ADVANTAGE is also called sustainable competitive advantage. It refers to a

firm’s attainment of an advantageous position in the market relative to competitors (a place
that enables it to use its particular strengths to satisfy customer demands better than its
competitors on a long-term basis. The entire range of resources available to the firm and all of
its major functional activities can contribute to the attempt to create a differential advantage.

CHANNEL DESIGN POSITION It refers to the reputation a manufacturer acquires among

distributors (channel members) for furnishing products, services, financial returns, programs,
and systems that are in some way superior to those offered by competing manufacturers.

CHANNEL POSITIONING is what the firm does with its channel planning and decision-making
to attain the channel position.
MATRIX OF VERTICAL AND HORIZONTAL PORTFOLIOS OF CHANNEL STRUCTURE

According to Schoenbachler and Gordon, they point out in addressing this issue from the
consumer perspective that “The focus has been on the channel, how to improve the channel,
and how to drive customers to the channel without offending other channel members. The
focus should, however, be on the consumer rather than on the channel. The consumer or
customer-centric focus encourages managers to develop and design channel alternatives that
are successful and effective because they consider customer needs”.

USE OF MARKETING MIX IN CHANNEL MANAGEMENT

Optimizing the marketing mix to the demands of the target market requires not only excellent
strategy in each of the four strategic variables of the marketing mix but also an understanding
of the relationship or interfaces among them. Product strategy interfaces with pricing strategy,
which in turn is related to promotional strategy, which further in turn is related to distribution
strategy.

INTERRELATIONSHIPS AMONG THE FOUR STRATEGIC VARIABLES OF

THE MARKETING MIX PIC

STAGES OF PRODUCT DISTRIBUTION

DISTRIBUTION TASK PERFORMED BY MERCHANT WHOLESALER

1. Providing market coverage- Market coverage is provided by merchant wholesalers to

manufacturer because the markets for the products of most manufacturers consist of
many customers spread over large geographical areas.
2. Sales Contact- Sales Contact is a valuable service provided by merchant wholesalers.
For manufacturers, the cost of maintaining an outside sales force is high.
3. Holding Inventory
4. Processing Order
5. Gathering Market Information
6. Offering customer support

GENERALIZATION

This module focused on the channel strategy that refers to the broad principles by
which the firms expect to achieve its objectives for its target markets. Also, it
focuses on the place variable of the four Ps of the marketing mix. Channel strategy
is relevant to all six of the basic distribution decision faced by firms. If the role of distribution is
considered vital to the firm’s long-run success, then distribution strategy should be considered
at the highest management levels in the organization and included in the strategic planning
process. Managing the marketing channel calls for the channel manager to answer three
strategic questions: (1) How close a relationship should be developed with channel members?
(2) How should channel members be motivated? How should the marketing mix be used to
enhance channel member cooperation? The channel manager must make sure the provisions
have been made in the design and management of the channel to assure that channel
member performance will be evaluated effectively.

What is Channel Design?

Channel Design: Those decisions involving the development of new marketing channels
where none had existed before, or the modification of existing channels.

Channel design is presented as a decision faced by the marketer, and it includes either
setting up channels from scratch or modifying existing channels. This is sometimes referred
to as reengineering the channel and in practice is more common than setting up channels
from scratch. The term design implies that the marketer is consciously and actively allocating
the distribution tasks to develop an efficient channel, and the term selection means the actual
selection of channel member

Who Engages in Channel Design?

Producers and manufacturers, wholesalers, and retailers all face channel design decisions.
Producers and manufacturers “look down” the channel. Retailers “look up” the channel while
wholesaler intermediaries face channel design from both perspectives.

A Paradigm of the Channel Design Decision

The channel design decision can be broken down into seven phases or steps. These are:
1. Recognizing the need for a channel design decision
2. Setting and coordinating distribution objectives
3. Specifying the distribution tasks
4. Developing possible alternative channel structures
5. Evaluating the variable affecting channel structure
6. Choosing the “best” channel structure
7. Selecting the channel members

Phase 1: Recognizing the Need for a Channel Design Decision

Many situations can indicate the need for a channel design decision. Among them are:
1. Developing a new product or product line
2. Aiming an existing product to a new target market
3. Making a major change in some other component of the marketing mix
4. Establishing a new firm
5. Adapting to changing intermediary policies
6. Dealing with changes in availability of particular kinds of intermediaries
7. Opening up new geographic marketing areas
8. Facing the occurrence of major environmental changes
9. Meeting the challenge of conflict or other behavioral problems
10. Reviewing and evaluating

Phase 2: Setting and Coordinating Distribution Objectives

In order to set distribution objectives that are well coordinated with other marketing and
firm objectives and strategies, the channel manager needs to perform three tasks:
1. Become familiar with the objectives and strategies in the other marketing mix areas and
any other relevant objectives and strategies of the firm.
2. Set distribution objectives and state them explicitly.
3. Check to see if the distribution objectives set are congruent with marketing and the other
general objectives and strategies of the firm.
1) Become Familiar with Objectives and Strategies- whoever is responsible for
setting distribution objectives should also make an effort to learn which existing
objectives and strategies in the firm may
impinge of the distribution objectives. In practice, often the same
individual(s) who set(s) objectives for other components of the marketing mix will do
so for distribution.
2) Setting Explicit Distribution Objectives- distribution objectives are essentially
statements describing the part that
distribution in expected to play in achieving the firm’s overall marketing
objectives.
3) Checking for Congruency- a congruency check verifies that the distribution
objectives do not conflict with the other areas of the marketing mix.

Phase 3: Specifying the Distribution Tasks

The job of the channel manager in outlining distribution functions or tasks is a much more
specific and situationally dependent one. The kinds of tasks required to meet specific
distribution objectives must be precisely stated. In specifying distribution tasks, it is especially
important not to underestimate what is involved in making products and services
conveniently available to final consumers.

Phase 4: Developing Possible Alternative Channel Structures

The channel manager should consider alternative ways of allocating distribution objectives to
achieve their distribution tasks. Often, the channel manager will choose more than one
channel structure in order to reach the target markets effectively and efficiently. Whether
single – or multiple – channel structures are chosen, the allocation alternatives (possible
channel structures) should be evaluated in terms of the following three dimensions:

1. Number of Levels
- The number of levels in a channel can range from two levels – which is the most direct –
up to five levels and occasionally even higher.

2. Intensity at the Various Levels

- Intensity refers to the number of intermediaries at each level of the marketing
channel.
a. Intensive: sometimes called saturation means that as many outlets as possible
are used at each level of the channel.
b. Selective: means that not all possible intermediaries are used, but rather those
included in the channel have been carefully chosen.
c. Exclusive: a way of referring to a very highly selective pattern of
distribution.

The intensity of distribution dimension is a very important aspect of channel

structure because it is often a key factor in the firm’s basic marketing strategy and will reflect
the firm’s overall corporate objectives and strategies.

3. Types of Intermediaries
- The third dimension of channel structure deals with the particular types of intermediaries to
be used (if any) at the various levels of the channel. The channel manager should not
overlook new types of intermediaries that are emerging such as Internet companies.

4. Number of Possible Channel Structure Alternatives

- Given that the channel manager should consider all three structural dimensions (level,
intensity, and type of intermediaries) in developing channel structures, there are, in theory, a
high number of possibilities. Fortunately, in practice, the number of feasible alternatives for
each dimension is often limited due to industry or the number of current channel members.

Phase 5: Evaluating the Variables Affecting Channel Structure

Having laid out alternative channel structures, the channel manager should then evaluate a
number of variables to determine how they are likely to influence various channel structures.
These six basic categories are most important:

1. Market variables
2. Product variables
3. Company variables
4. Intermediary variables
5.Environmental variables
6. Behavioral variables

1) Market Variables
Market variables are the most fundamental variables to consider when designing a marketing
channel. Four basic subcategories of market variables are particularly important in
influencing channel structure. They are:

a.) Market Geography

Market geography refers to the geographical size of the markets and their physical locations
and distance from the producer and manufacturer. A popular heuristic (rule of thumb) for
relating market geography to channel design is: “The greater the distance between the
manufacturer and its markets, the higher the probability that the use of intermediaries will be
less expensive than direct distribution.”

b.) Market Size

The number of customers making up a market (consumer or industrial) determines the
market size. From a channel design standpoint, the larger the number of individual
customers means the larger the market size. A heuristic about market size relative to channel
structure is: “If the market is large, the use of intermediaries is more likely to be needed
because of the high transaction costs of serving large numbers of individual customers.
Conversely, if the market is small, a firm is more likely to be able to avoid the use of
intermediaries.”

MARKET DENSITY
The number of buying units per unit of land area determines the density of the market. In
general, the less dense the market, the more difficult and expensive is distribution. A
heuristic for market density and channel structure is as follows: “The less dense the market,
the more likely it is that intermediaries will be used.

MARKET BEHAVIOR
Market behavior refers to the following four types of buying behaviors:
1) How customers buy
2) When customers buy
3) Where customers buy
4) Who does the buying
Each of these patterns of buying behavior may have a significant effect on channel
structure.

PRODUCT VARIABLE
Product variables such as bulk and weight, perishability, unit value, degree of standardization
(custom-made versus standardized), technical versus nontechnical, and affect alternative
channel structures.

a) Bulk and Weight

Heavy and bulky products have very high handling and shipping costs relative to their value.
Therefore, a producer should attempt to minimize these costs by
shipping only in large lots to the fewest possible points. Consequently, the channel structure
should be as short as possible usually from producer to user.

b) Perishability
Products subject to rapid physical deterioration and those of rapid fashion obsolescence
require rapid movement from production to consumption. The following heuristic is
appropriate in these situations: “When products are highly perishable, channel structures
should be designed to provide for rapid delivery from producers to consumers.

c) Unit Value
The lower the unit value of the product, the longer the channel should be. This is because
low unit value leaves a small margin for distribution costs. When the unit value is high
relative to its size and weight, direct distribution is feasible because the handling and
transportation costs are low relative to the product’s value.

d) Degree of Standardization
Custom-made products should go from producer to consumer while more standardized
products allow opportunity to lengthen the channel.

e) Technical versus Nontechnical

In the industrial market, a highly technical product will generally be distributed through a
direct channel. This is because the manufacturer may need sales and service people
capable of communicating the product’s technical features to the user. The consumer
market, relatively technical products are usually distributed through short channels for the
same reasons.

f) Newness
New products, both industrial and consumer, require extensive and aggressive promotion in
the introductory stage to build demand. Usually, the longer the channel of distribution the
more difficult it is to achieve this kind of promotional effort from all channel members.
Therefore, a shorter channel is generally viewed as an advantage for new products as a
carefully selected group of intermediaries is more likely to provide aggressive promotion.

COMPANY VARIABLES
The most important company variables affecting channel design are
a.) Size - In general, the range of options for different channel structures is a positive
function of a firm’s size. Larger firms have more options available to them than smaller
firms do.

b.) Financial Capacity- Generally, the greater the capital available to a company, the lower
its dependence on its channel.

c.) Managerial Expertise- For firms lacking in the managerial skills necessary to perform
distribution tasks, channel design must of necessity include the services of intermediaries
who have this expertise. Over time, as the firm’s management gains experience, it may
be feasible to change the structure to reduce the amount of reliance on intermediaries.

d.) Objectives and Strategies- The firm’s marketing and general objectives and strategies,
such as the desire to exercise a high degree of control over the product, may limit the use of
intermediaries. Strategies emphasizing aggressive promotion and rapid reaction to changing
markets will constrain the types of channel structures available to those firms employing
such strategies.

4) Intermediary Variables

The key intermediary variables related to channel structure are:

AVAILABILITY - The availability (number of and competencies of) adequate intermediaries

will influence channel structure.

COST - The cost of using intermediaries is always a consideration in choosing a channel

structure. If the cost of using intermediaries is too high for the services performed, then the
channel structure is likely to minimize the use of intermediaries.

SERVICES OFFERED - This involves evaluating the services offered by particular

intermediaries to see which ones can perform them most effectively at the lowest cost.

ENVIRONMENT VARIABLES
Economic, sociocultural, competitive, technological, and legal environmental forces can have
a significant impact on channel structure as well as behavioral process.

PHASE 6: CHOOSING THE BEST CHANNEL STRUCTURE

In theory, the channel manager should choose an optimal structure that would offer the
desired level of effectiveness in performing the distribution tasks at the lowest possible cost.
In reality, choosing an optimal structure is not possible. “Characteristics of Goods and
Parallel Systems” Approach - First laid out in the 1950s by Aspinwall, the main emphasis for
choosing a channel structure should be based upon product variables. Each product
characteristic is identified with a particular color on the spectrum. These variables are:
1. Replacement rate
2. Gross margin
3. Adjustment
4. Time of consumption
5. Searching time

ASPINWALL APPROACH
This approach offers the channel manager a neat way of describing and relating a number of
heuristics about how product characteristics might affect channel structure. The major
problem with this method is that it puts too much emphasis on product characteristics as the
determinant of channel structure.

FINANCIAL APPROACH
Lambert offers another approach, which argues that the most important variables in choosing
a channel structure are financial. Basically, this decision involves comparing estimated
earnings on capital resulting from alternative channel structures in light of the cost of capital
to determine the most profitable channel.

 Using the Financial Approach - By viewing the channel as a long-term investment

that must more than cover the cost of capital invested in it and to provide a better
return than other alternative uses for capital, the criteria for choosing a channel
structure is more rigorous. The major problem with Lambert’s approach lies in the
difficulty of making it operational in a channel decision-making context.

TRANSACTION COST ANALYSIS APPROACH

Based on the work of Williamson, TCA addresses the choice of marketing channel structure
only in the most general case situation of choosing between the producer in performing all of
the distribution tasks itself through vertical integration versus using independent
intermediaries to perform some or most of the distribution tasks. It is based upon
opportunistic behaviors of channel members. The main focus of TCA is on the cost of
conducting the transactions necessary for a firm to accomplish its distribution tasks. In order
for transactions to take place, transaction-specific assets are needed. These are the set of
unique assets, both tangible and intangible, required to perform the distribution tasks.
 Using the TCA approach
TCA has some substantial limitations from the standpoint of managerial usefulness.
1. It deals only with the most general channel structure dichotomy of vertical integration
versus use of independent channel members.
2. The assumption of opportunistic behavior may not be an accurate reflection of behavior
in marketing channels.
3. No real distinction is made between long-term and short-term issues in channel
structure relationships.
4. The concept of asset specificity (transaction-specific assets) is very difficult to
operationalize.
5. TCA is one-dimensional, overly simplistic and neglects other relevant variables in
channel choice.

MANAGEMENT SCIENCE APPROACH

It would certainly be desirable if the channel manager could take all possible channel
structures, along with all the relevant variables, and “plug” these into a set of equations,
which would then yield the optimal channel structure. The work of Balderston and Hoggatt,
Artle and Berglund, Alderson and Green, Baligh, Rangan, Moorthy, Menezes, Maier, and
Atwong and Rosenbloom have pioneered some quantitative work in this area. These
approaches still need much more development before they are likely to find wide spread
application to channel choice.

JUDGMENTAL-HEURISTIC APPROACH
These approaches rely heavily on managerial judgment and heuristics for decisions. Some
attempt to formalize the decision-making process whereas others attempt to incorporate
cost and revenue data.

STRAIGHT QUALITATIVE JUDGMENT APPROACH

The qualitative approach is the crudest but, in practice, the most commonly used approach
for choosing channel structures. The various alternative channel structures that have been
generated are evaluated by management in terms of decision factors that are thought to
be important. These factors may include short- and long-run cost and profit considerations,
channel control issues, long- term growth potential, and many others.
WEIGHTED FACTOR SCORE APPROACH
A more refined version of the straight qualitative approach to choosing among channel
alternatives is the weighted factor approach suggested by Kotler. This approach forces
management to structure and quantify its judgments in choosing a channel alternative and
consists of four basic steps:
1. The decision factors must be stated explicitly.
2. Weights are assigned to each of the decision factors to reflect relative importance
precisely in percentage terms.
3. Each channel alternative is rated on each decision factor, on a scale of one to ten.
4. The overall weighted factor score (total score) is computed for each channel alternative
by multiplying the factor weight (A) by the factor score (B).

DISTRIBUTION COSTING APPROACH

Under this approach, estimates of costs and revenues for different channel alternatives
are made, and the figures are compared to see how each alternative compares to another.
Regardless of how elaborate or detailed the analysis, the basic theme of this approach
stresses managerial judgment and estimations about what the costs and revenues of
various channel structure alternatives are likely to be.

GENERALIZATION
Channel design refers to those decisions associated with developing new marketing
channels where none had existed before. It is a very important aspect of the firm’s over-all
marketing strategy because it can be a key factor in helping the firm gain a differential
advantage (sustainable competitive advantage). Channel design can be viewed as a
seven-phase process, referred to as the channel design paradigm. Phase seven will be
discussed next module.
PARADIGM OF THE CHANNEL DESIGN DECISION
WEIGHTED FACTOR SCORE APPROACH
A more refined version of the straight qualitative approach to choosing among channel
alternatives is the weighted factor approach suggested by Kotler. This approach forces
management to structure and quantify its judgments in choosing a channel alternative and
consists of four basic steps:
1. The decision factors must be stated explicitly.
2. Weights are assigned to each of the decision factors to reflect relative
importance precisely in percentage terms.
3. Each channel alternative is rated on each decision factor, on a scale of one to ten.
4. The overall weighted factor score (total score) is computed for each channel alternative
by multiplying the factor weight (A) by the factor score (B).

DISTRIBUTION COSTING APPROACH

Under this approach, estimates of costs and revenues for different channel alternatives
are made, and the figures are compared to see how each alternative compares to another.
Regardless of how elaborate or detailed the analysis, the basic theme of this approach
stresses managerial judgment and estimations about what the costs and revenues of various
channel structure alternatives are likely to be.

GENERALIZATION
Channel design refers to those decisions associated with developing new marketing
channels where none had existed before. It is a very important aspect of the firm’s over-all
marketing strategy because it can be a key factor in helping the firm gain a differential
advantage (sustainable competitive advantage). Channel design can be viewed as a
seven-phase process, referred to as the channel design paradigm. Phase seven will be
discussed next module.

ADDITIONAL:

1. PROMOTION FLOW- refers to the flow of persuasive communication in the form

of advertising, personal selling, sales promo and publicity.

2. GLOBALIZATION- this term is commonly used to describe the interconnectedness

and interdependencies of countries around the world.

3. RECESSION- it refers to general decline of economic activity.

4. PRODUCT FLOW- It refers to the actual physical movement of the product from
the manufacturer.

5. INFORMATION FLOW- It refers to all parties participate in the exchange of

information, and the flow can be either up or down.

6. INTER-TYPE COMPETITION- is a competition between different types of firms

at the same channel level.

7. SOCIAL NETWORKING- This term refers to interaction in networks comprised

of individuals or organizations that are linked together based on some type of
common interest, beliefs, etc.

8. HORIZONTAL COMPETITION- it is a competition between firms of the same

type.

9. INTERMEDIARIES- also known as middleman

10. CHANNEL SYSTEM COMPETITION- it refers to complete channels competing

 with other complete channels.

11. OWNERSHIP FLOW- it shows the movement of the title to the product as it is
passed along from the manufacturer to final consumers.

12. DEFLATION- overall decrease in the cost of an economy’s goods and services.

13. INFLATION- the decline of purchasing power of a given currency over time.

14. ANCILLAIARY STRUCTURE- a group of institution that assist channel members

in performing distribution tasks.

15. PLACEMENT- This refers to the process that ensures the availability,
accessibility, and visibility of products to ultimate consumers or business users in
the target channels or customers.

16. CHANNEL POWER- It refers to the ability of any channel member to alter or
modify behavior of other members in the distribution channel, due to its relatively
strong position in the market.

17. CHANNEL EFFICIENCY- it is the degree to which the total investment in the
various inputs necessary to achieve a given distribution objective can be
optimized in terms of outputs.

18. EXCLUSIVE DEALING- refers when suppliers requires its channel members to
sell only its products or to refrain from selling products or to refrain from selling
products from directly competitive suppliers.

19. LEGAL ENVIRONMENT- It refers to the set of laws that impact marketing
channels.

20. POWER- it refers to the capacity of a particular channel member to control or

influence another channel member.

21. DUAL DISTRIBUTION- This term refers to the practice whereby a producer or
manufacturer uses two or more different channel.

22. ROLE- is a set of prescriptions defining what the behavior of a positioning

member should be.

23. FULL-LINE FORCING- it refers to when the supplier requires channel members
to carry a broad group of products to sell any particular products in the supplier
line.

24. PRICE MAINTENANCE- also known as fair trade.

25. TECHNOLOGICAL ENVIRONMENT- this is the most continuously and rapidly

changing aspect of the environment.

26. REFUSAL TO DEAL- a supplier may select whoever they want as a channel
member and may refuse to offer.

27. PRICE DISCRIMINATION- refers to the practice whereby a supplier, either

directly or indirectly sells at different prices to the same class of channel
members to the extent that such price differentials tend to lessen competition.