Distribution Channels
Distribution Channels
Distribution Channels
INTRODUCTION
Channels Of Distribution describes the varieties of
intermediaries (i.e., agents, wholesaler and retailers)
involved in moving products between countries as well as
within countries. The tasks and functions of the various
intermediaries will be examined. It should be kept in mind
that certain types of intermediaries do not exist in some
countries and that the pattern of use as well as the
importance of each type of intermediary varies widely from
country to country
.
A manufacturer is required to make several decisions that
will affect its channel strategy, including the length, width,
and number of distribution channels to b used.
Distribution Channels: Terminology
and Structure
Distribution is the physical flow of goods
through channels
Channels are made up of a coordinated
group of individuals or firms that perform
functions that add utility to a product or
service
Distribution Channels
A set of interdependent organizations
(intermediaries) involved in the process of
making a product or service available for
use or consumption.
Channel decisions
affect other marketing decisions
involve long-term commitments
DEFINITION
THE AMERICAN MARKETING ASSOCIATION
DEFINES:--
CHANNEL OF DISTRIBUTION AS—
“An organized network of agencies and institutions
which in combination perform all the activities
required to link producers with users to accomplish
the marketing task.”
DISTRIBUTION:-
Is the physical flow of goods through channels and
CHANNELS:-
Is coordinated groups of individuals or firms that
perform functions adding utility to a product or
services.
International Channel-of-Distribution
Export management
company or company
sales force
Channel Objectives
Marketing channels exist to create utility for
customers
Place utility - availability of a product or service in a
location that is convenient to a potential customer
Time utility - availability of a product or service when
desired by a customer
Form utility - availability of the product processed,
prepared, in proper condition and/or ready to use
information utility - availability of answers to
questions and general communication about useful
product features and benefits
Distribution
Distribution Channel
Channel
Functions
Functions
Information
Information
Transfer
Transfer Communication
Communication
Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering
Risk
Risk Taking
Taking Financing
Financing
Consumer Products
Consumer
Consumer Marketing
Marketing Channels
Channels
Add
Addanother
anotherlevel
level->
->Mail
Mailorder
order(telephone,
(telephone,internet),
internet),this
thiswill
willbe
bealso
also1-level
1-level
0-level channel
Manufacturer
Manufacturer Consumer
Consumer
1-level channel
Manufacturer
Manufacturer Retailer
Retailer → Consumer
Consumer
2-level channel
Mfg
Mfg → Wholesaler
Wholesaler Retailer
Retailer → Consumer
Consumer
3-level channel
Mfg
Mfg → Wholesaler
Wholesaler→ Jobber
Jobber → Retailer
Retailer → Consumer
Consumer
Consumer Products
Piggyback Marketing
channel innovation that has grown in
popularity
One manufacture distributes product by
utilizing another company’s distribution
channel
Requires that the combined product lines
be complementary and appeal to the same
customer
Industrial Products
Manufacturer Industrial Marketing Channels
Industrial
Consumer
distributors
Manufacturer’s
representative
Manufacturer’s
sales branch
Establishing Channels
Direct involvement – the company establishes its
own sales force or operates its own retail stores
Indirect involvement – the company utilizes
independent agents, distributors, and/or
wholesalers
Channel strategy must fit the company’s
competitive position and marketing objectives
with in each national market
Working with Channel
Intermediaries
Select distributors – don’t let them select
you
Look for distributors capable of developing
markets, rather than those with a few good
customer contacts
Treat local distributors as long-term
partners, not temporary market-entry
vehicles
Working with Channel
Intermediaries
Support market entry by committing money,
managers, and proven marketing ideas
From the start, maintain control over marketing
strategy
Make sure distributors provide you with detailed
market and financial performance data
Build links among national distributors at the
earliest opportunity
Global Retailing
Department stores Hypermarkets
Specialty retailers Supercenters
Supermarkets Category killers
Convenience stores Outlet stores
Discount stores and
warehouse clubs
12-17
Global Retailing
Environmental Factors
Saturation in the home country market
Recession or other economic factors
Strict regulation on store development
High operating costs
Critical Question
What advantages do we have relative to the
local competition?
12-18
The most effective channel arrangement is a
clear focus of the company’s marketing effort on
a target market and a determination of its needs
and preferences.
Channel strategy in global marketing must fit the
company’s COMPETITIVE POSITION and
MARKETING OBJECTIVE in each national
market
If a company wants to enter a competitive
market,it has two basic choices:-
DIRECT INVOLVEMENT (sales force,
retail stores etc.)
INDIRECT INVOLVEMENT
(independent agents, distributors, wholesalers)
The Role of Distribution Activities
in Marketing
Distribution
Physically moving products and establishing
intermediary relationships to support such
movement.
Physical Distribution (Logistics)
The activities of distribution involved in the
physical relocation of products.
Channel of Distribution
The system of relationships established to guide
the movement of a product.
The Role of Distribution Activities
in Marketing
Distribution
Physically moving products and establishing
intermediary relationships to support such
movement.
Physical Distribution (Logistics)
The activities of distribution involved in the
physical relocation of products.
Channel of Distribution
The system of relationships established to guide
the movement of a product.
Structuring a Distribution Channel
Important Factors in Building a Distribution
Channel
Costs associated with establishing a direct
channel distribution
Coverage is increased through the use of
indirect channels of distribution.
Control is enhanced using a direct distribution
channel.
Channel Behavior and Conflict
The channel will be most effective when:
each member is assigned tasks it can do best.
all members cooperate to attain overall channel goals
Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
aa Few
Few Dominant
Dominant Members
Members
Contractual
Contractual
Contractual
Contractual Agreement
Agreement Among
Among
Channel
Channel Members
Members
Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel
Manufacturer Manufacturer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
Consumer
Innovations
Innovations in
in Marketing
Marketing Systems
Systems
Horizontal
Horizontal Marketing
Marketing Hybrid
HybridMarketing
Marketing
System
System System
System
Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs
Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints
Identifying
Identifying Major
Major Alternatives
Alternatives
Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution
Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
Analyzing Consumer Needs
Types of Intermediaries
Company sales force
Manufacturer’s agency
Industrial distributors
Number of intermediaries
Intensive distribution
Exclusive distribution
Selective distribution
Responsibilities of intermediaries
Evaluating the Major
Alternatives
Economic Criteria:
A company compares the likely sales, costs, and
profitability of different channel alternatives.
Control Issues:
How and to whom should control be given?
Adaptive Criteria:
Consider long-term commitment vs. flexibility.
Channel Management
Decisions
Selecting channel members
Managing and motivating channel
members
Partner relationship management
Evaluating channel members