Introduction to Channels of Distribution

Introduction to Channels of

DistributionDistribution

Workshop

Learning Objectives

� Why study marketing Channels

� What a marketing Channel is

� Why manufacturers choose to use

intermediaries between themselves and end-

usersusers

� What marketing flows define the work of the

channel

� Who the members of marketing channels are

and the flows in which they can specialise

Why Marketing Channels are

important?1. The channel is the gatekeeper

2. The channel is an important asset in the company’s

overall marketing and positioning strategy.

3. Channel experience impacts end-user’s perception of a

brand image.

4. Channel key strategic marketing asset

5. Useful to develop a framework for managing a channel to

operate more effectively.

What is a Marketing Channel?

A marketing channel is a set of interdependent

organisations involved in the process of making a

product or service available for use or product or service available for use or

consumption.

Primary Functions of Channel Members

� to be a stockist of your product

� to represent your brand in the market place�to gather marketing intelligence� to assume risk� to deliver product and offer post sales � to deliver product and offer post sales

support� to add value to the sale

How Channel Members Add Value

What recent channel issues have

Starbuck experienced with their

outlets?outlets?

Distribution is Global

http://video.google.com.au/videosearch?q=starbucks+distribution&hl=en&emb=1&aq=-

1&oq=#q=starbucks+store+closures&hl=en&emb=1

What challenges and opportunities

does Wrigley’s face in distributing

chewing gum in China?chewing gum in China?

Wrigley’ s Chews through China•Distribution in China expanded

from 20 stores to 1.6 million

outlets (Shanghai accounts for

30,000)

•Outlets (Mum and Pop Shops)

• A single pack of gum sold for • A single pack of gum sold for

only 18 cents, its twenty

percent profit margin led to

hundreds, then thousands, then

tens of thousands of loyal

dealers.

•"I make 0.3 yuan [about 4

cents] from each pack," a

Chinese newspaper quoted one

satisfied storekeeper. "I don't

sell other brands anymore."

How does Google earn it’s

revenue?revenue?

Power of the Internet is Changing

Distribution

Harley Davidson �1300 Harley Dealerships in 60 countries worldwide.

�Programs customised for individual dealers

�Treat customers as individuals

�“We’re a motorcycle company, and our distribution partners don’t like

to see our brand on sale”.

�“Harley-Davidson licensees meet�“Harley-Davidson licensees meet

twice a year at semi-annual dealer shows where dealers have exclusive access to preview and order licensed products.”

�The Harley Owners Group (H.O.G.), established in 1983, and the Buell

Riders Adventure Group (BRAG) are home to more than 900,000 members

Worldwide

Primary Questions

1. Which distributor, or distributor combination, is best suited for to take a new product or service to market?market?

2. How should the distributor network be managed once it is up and running?

Why do distribution channels

exist?exist?

Two Main Reasons

1. Demand Side Factors

a. Facilitation of search

b. Adjustment of Assortment discrepancy1. Sorting (Alderson, 1957) - breaking down in separate stocks

2. Accumulation – bring similar stocks together2. Accumulation – bring similar stocks together

3. Allocation - smaller lots

4. Assorting - building assortment

2. Supply- Side Factors

a. Routinisation of Transactions

b. Reduction in number of contacts

FIGURE 1.2: MARKETING FLOWS IN CHANNELS

Physical Physical Physical

Possession Possession Possession

Ownership Ownership Ownership

Promotion Promotion PromotionPromotion Promotion Promotion

Negotiation Negotiation Negotiation Consumers

Producers Wholesalers Retailers Industrial

Financing Financing Financing and

Household

Risking Risking Risking

Ordering Ordering Ordering

Payment Payment Payment

Commercial Channel Subsystem

Key Members?

�Manufacturers

�Intermediaries

�End-users�End-users

Consumer Marketing Channels

Multi Channel Distribution System

Table 1 The Need for a Multi-Channel Strategy Will Intensify

Increasing need for

multi-channel

strategy

Ch

an

nel

su

bst

itu

tab

ilit

y

High

Retail

Strategic

choice

Ch

an

nel

su

bst

itu

tab

ilit

y

Frequency of customer interactionsHigh

Low

Autos

PC’sP&C Insurance

Airlines

Retailing

bankingStrategic

opportunity

Summary

• We defined concept of a marketing channel

• We looked at how channels work and what functions and activities are performed inside the channel

• Develop an analytical framework for channel design, modification and implementation

• Framework for analyzing channel flows covered in Figure 1.2

You are welcome to contact Nigel Bairstow at B2B

Whiteboard your source of B2B Asia / Pacific

marketing advice

http://www.linkedin.com/pub/nigel-bairstow/6/41b/726

http://twitter.com/#!/b2bwhiteboard