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Distribution Channels

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The key takeaways are about distribution channels and the roles of different intermediaries in moving products between countries and within countries.

The main types of intermediaries discussed are agents, wholesalers, retailers, company sales force and manufacturers' agencies.

Factors that influence setting channel objectives include cost, the nature of the company, the firm's products, marketing intermediaries, competitors and the environment.

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

from global headquarters

Home Country Foreign Country


The foreign marketer or
producer sells to or through
Foreign
Domestic producer consumer
or marketer sells to
or through

Open distribution via Foreign agent


Foreign
domestic wholesale Exporter Importer or merchant
retailer
middlemen wholesalers
s

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

and satisfy the target market.

 Focus on individual goals leads to conflict



Horizontal Conflict occurs among firms at the same
level of the channel.

Vertical Conflict occurs between different levels of the
same channel.
Vertical Marketing System

 A distribution channel structure in which


producers, wholesalers, and retailers act
as a unified system.

 One channel member owns the other, has


contracts with them, or has so much
power that they all cooperate.
Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

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

Two or more A single firm sets up


companies at one two or more
channel level join marketing channels
together to increase to increase coverage
coverage
Example:Retailers,
Example:Banks in Catalogs, and Sales
Grocery Stores Force
Changing Channel Organization
 Disintermediation:

Occurs when product and service producers
cut out intermediaries and go directly to final
buyers, or when radically new types of
channel intermediaries displace traditional
ones.
Channel
Channel Design
Design Decisions
Decisions

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

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

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
Analyzing Consumer Needs

 Answering key questions helps to determine


customer needs:
 Do consumers want to buy from nearby locations
or are they willing to travel?
 Do they value breadth of assortment or do they
prefer specialization?
 Do consumers want many add-on services?
 Firm must balance needs against costs and
consumer price preferences.
Setting Channel Objectives

 State objectives in terms of targeted levels of


customer service.
 Channel objectives are influenced by:
 Cost
 Nature of the company
 The firm’s products
 Marketing intermediaries
 Competitors
 Environment
Identifying Major Alternatives

 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

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