MP Solomon Chapter 11

Marketing: Real People, Real Choices
Ninth Edition
Chapter 11
Deliver the
Goods
Copyright © 2018, 2016, 2012 Pearson Education, Inc. All Rights Reserved.
Learning Objectives
11.1 Explain what a distribution channel is, identify types
of wholesaling intermediaries, and describe the
different types of distribution channels.
11.2 List and explain the steps to plan a distribution
channel strategy.
11.3 Discuss the concepts of logistics and supply chain.
Real People, Real Choices:
BDP International
• Which option should Michael pursue?
▪ Option 1: Convince Swiss Customs to allow us to put a
new label on the outside of each of the 102 boxes
rather than on each of the 4,020 individual bars in the
shipment.
▪ Option 2: Identify a different Quaker Foods product
that is manufactured in Europe and convince the client
to substitute this for the breakfast bars.
▪ Option 3: Provide the list of required ingredients in the
requested language as our contact at Swiss Customs
proposed.
Types of Distribution Channels and
Wholesale Intermediaries
• Physical distribution refers to activities that move
finished goods from manufacturers to final customers.
• A channel of distribution is a series of firms or
individuals that facilitates the movement of a product to
a final consumer.
▪ Direct channels
▪ Indirect channels
Functions of Distribution Channels
• Distribution channels:
▪ Provide time, place, and ownership utility
▪ Provide logistics and/or physical distribution
▪ Create efficiencies by reducing the number of
transactions
Distribution Channel Functions (1 of 2)
• Breaking bulk: Purchase large quantities of goods
from producers but sell only one or a few at a time to
many different customers.
• Creating assortments: Provide variety of products in
one location, so customers can conveniently buy
many different items from one seller.
• Transportation and storage: Occurs when retailers
and other channel members move the goods from the
production point to other locations where they can
hold them until consumers want them
Distribution Channel Functions (2 of 2)
• Facilitating functions: Make the purchase process
easier for customers and manufacturers (e.g., offering
credit to buyers)
• Risk taking: Chance retailers take on the loss of a
product when they buy a product from a manufacturer
because the product sits on the shelf because no
customers want it
• Communication and transaction: When channel
members develop and execute both promotional and
other types of communication among members of the
channel
Figure 11.1 Reduce Transactions via
Intermediaries
Evolution of Distribution Functions
• If intermediaries fail to
provide unique value, they
are at risk of
disintermediation.
▪ New technology can
render channel members
obsolete.
Online Distribution
• The Internet has changed how channel members
coordinate supply chains.
▪ Knowledge management
• Use of the Internet as a distribution channel not
without challenges
▪ Online distribution piracy
Figure 11.2 Key Types of
Intermediaries
Merchant Wholesalers
• Full-service merchant wholesalers

• Limited-service merchant wholesalers
▪ Cash-and-carry wholesalers
▪ Truck jobbers
▪ Drop shippers
▪ Mail-order wholesalers
▪ Rack jobbers
Merchandise Agents and Brokers
• Agents and brokers provide paid services but never

take title to the product.
▪ Manufacturer’s agents
▪ Selling agents
▪ Commission agents
▪ Merchandise brokers
Manufacturer-Owned Intermediaries
• Producers may set up their own channel

intermediaries.
• Perform functions of independent intermediaries
while maintaining control:
▪ Sales branches
▪ Sales offices
▪ Manufacturer’s showrooms
Figure 11.3 Different Types of Channels
of Distribution (1 of 3)
Major Types of Channels of Distribution
▪Channels differ by the number of members who participate
▪Choice influenced by market size, purchase frequency and
intermediary availability
Figure 11.3 Different Types of
Channels of Distribution (2 of 3)
Typical Consumer Channels
Figure 11.3 Different Types of
Channels of Distribution (3 of 3)
Set Typical B2B Channels
Dual (Hybrid) Distribution Channels
• Channel members may participate in more than one
type of channel—a concept known as dual or hybrid
distribution channels
▪ Pharmaceutical companies
• Some companies combine channels—direct sales,
distributors, retail sales, and direct mail—to create a
hybrid marketing system
▪ Xerox
Distribution Channels and
the Marketing Mix
• Channel decisions impact
other elements of the
marketing mix.
• Pricing objectives and
strategies will vary based
on channel member
selection.
• Physical features and
complexity of product have
channel implications.
Ethics in the Distribution Channel
• Channel decisions can create ethical dilemmas

▪ Slotting allowances are fees paid by producers to
large retailers for access to premium shelf space.
▪ Product diversion is the distribution of a product
through one or more channels not authorized for use by
the manufacturer of the product.
▪ Selection of large intermediaries like Wal-Mart can
have detrimental effects on smaller retailers.
Channels of Distribution
• Channels facilitate movement of goods and services
from producer to end consumer.
▪ May be direct or indirect channels
• Channel intermediaries vary in terms of ownership,
functions performed, and whether or not they take title
to products.
What do you think about the practice of slotting
fees? Is this practice unethical? Unfair?
Figure 11.4 Steps in Distribution
Planning
Step 1: Develop
Distribution Objectives
• Objectives must support overall marketing goals.
▪ How does distribution work with the other marketing
mix elements to increase sales, profits, or market
share?
▪ Specific objectives may depend on nature of the
product (e.g., if product is heavy, a key goal may be to
minimize shipping costs).
Step 2: Evaluate Internal and External
Environmental Influences
• What are relevant
internal and external
environmental
influences?
• How can these factors be
used or minimized in
developing the best
channel structure?
Step 3: Choose a
Distribution Strategy
• Choice of distribution strategy involves several

decisions:
▪ Number of levels
▪ Conventional system vs. highly integrated system
▪ Distribution intensity
Conventional Marketing System
• Multilevel distribution channel in which members work
independently
▪ Relationships limited to buying and selling from each
other.
• While members work independently, each recognizes
self-interest is best served by fair dealing.
Vertical Marketing Systems (VMS)
• Channel in which there is formal cooperation among
members at two or more levels.
• Three types of vertical marketing systems
▪ Administered VMS: Independent channel members
work together due to power of a dominant channel
member.
▪ Corporate VMS: A single firm owns manufacturing,
wholesaling, and retailing operations.
▪ Contractual VMS: Channel member cooperation
enforced by contracts that spell out rights and
responsibilities of each member.
Horizontal Marketing System
• Two or more firms at the same channel level agree

to work together to get their product to the
customer.
▪ e.g., airline code sharing agreements
Intensive, Exclusive, or Selective
Distribution
• How many wholesalers and retailers should carry
the product within a given market?
▪ Intensive distribution: Maximize coverage by
selling through as many outlets as possible.
▪ Exclusive distribution: Limit distribution to a
single outlet in a particular region.
▪ Selective distribution: Seeks to strike a balance
between intensive and exclusive distribution.
Table 11.2 Characteristics that Favor
Intensive versus Exclusive
Distribution
Decision Factor Intensive Distribution Exclusive Distribution
Company Oriented toward mass markets Oriented toward specialized markets
Customers High customer density Low customer density
Price and convenience are Service and cooperation are priorities
priorities
Channels Overlapping market coverage Nonoverlapping market coverage
Constraints Cost of serving individual Cost of serving individual customers
customers is low is high
Competition Based on a strong market Based on individualized attention to
presence, often through customers, often through relationship
advertising and promotion marketing
Step 4: Develop Distribution Tactics
•Distribution tactics relate to two aspects of

strategy implementation:
1. Selecting channel partners
▪ Firms consider economic, competitive,
relationship, and sustainability factors.
2. Managing the channel
Channel Management
• The channel leader or channel captain is the

dominant firm that controls the channel.
• Channel power derives from different potential
sources:
▪ Economic power
▪ Legitimate power
▪ Coercive power
• Cooperation and conflict within the channel
Logistics and the Supply Chain
• Marketing success depends on more than just

plans—implementation is crucial!
▪ Logistics plays a crucial role in firm efforts to deliver on
their brand’s promise.
• Logistics is the process of designing, managing, and
improving the movement of products through a supply
chain.
• Supply chain is all activities needed to turn raw
materials into a product delivered to a customer.
Figure 11.5 The Five Functions of
Logistics
Order Processing
• Order processing includes activities that occur

between the time an order comes in and the time the
product goes out.
▪ Many firms automate this process using enterprise
resource planning (ERP) software.
Warehousing
• Storage of good in anticipation of sale or transfer of

goods to another member of distribution channel
• Logistics planning determines:
▪ How many warehouses will be needed
▪ Where will warehouses be located
▪ What type of warehouses
Materials Handling
• Materials handling relates to the movement of

products into, within, and out of warehouses.
• Procedures that limit the number of times a product
must be handled:
▪ decrease the likelihood of damage.
▪ reduce the cost of materials handling.
Transportation
• Transportation modes
differ along multiple
dimensions, including:
▪ Dependability
▪ Cost
▪ Speed of delivery
▪ Accessibility
▪ Capability
▪ Traceability
Table 11.3 A Comparison of
Transportation Modes
Transportation Dependability Cost Speed of Accessibility Capability Traceability Most Suitable Products
Mode Delivery
Railroads Average Average Moderate High High Low Heavy or bulky goods,
such as automobiles,
grain, and steel
Water Low Low Slow Low Moderate Low Bulky, nonperishable
goods, such as
automobiles
Trucks High High for long Fast High High High A wide variety of
distances; low products, including those
for short that need refrigeration
distances
Air High High Very fast Low Moderate High High-value items, such as
electronic goods and
fresh flowers
Pipeline High Low Slow Low Low Moderate Petroleum products and
other chemicals
Internet High Low Very fast Potentially very Low High Services such as
high banking, information, and
entertainment
Inventory Control
• Firms store goods (i.e., create an inventory) for many

reasons.
▪ Must balance extra costs of holding excess inventory
with risk of stock-outs
• Inventory control: Activities to ensure goods are
available to meet customers’ demands
▪ Just in time (JIT) delivery systems help ensure
deliveries arrive when they are actually needed.
▪ New technologies like RFID also reduce costs.
Ethical/Sustainable Decisions in the
Real World
• Chipotle has been at the forefront of responsible food
sourcing and handling for years.
• In 2015, the chain was hit hard with foodborne illness
outbreaks.
• Chipotle now requires suppliers to use “DNA-based
tests” on shipments to ensure they are free from E.
coli.
If a restaurant knows that an upstream supplier has had problems in
the past related to the improper production or handling of
ingredients (even if it did not necessarily affect this particular
restaurant chain), should the restaurant continue to work with that
supplier?
Copyright

MP Solomon Chapter 11

Uploaded by

Copyright:

Available Formats

MP Solomon Chapter 11

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MP Solomon Chapter 11

Uploaded by

Copyright:

Available Formats

Marketing: Real People, Real Choices

• Full-service merchant wholesalers

• Agents and brokers provide paid services but never

• Producers may set up their own channel

• Channel decisions can create ethical dilemmas

• Choice of distribution strategy involves several

• Two or more firms at the same channel level agree

•Distribution tactics relate to two aspects of

• The channel leader or channel captain is the

• Marketing success depends on more than just

• Order processing includes activities that occur

• Storage of good in anticipation of sale or transfer of

• Materials handling relates to the movement of

• Firms store goods (i.e., create an inventory) for many

You might also like