Chapter 18 marketing channels and physical distribution marketing management

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Marketing Channels and Physical DistributionMarketing Management Text and Cases

18-1

Marketing Channels and Physical Distribution

18Chapter

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“A marketing channel is a system of relationships existing among businesses

that participate in the process of buying and selling products and services.”

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Channel Functions Channel Members Create Utility

Channel Members Facilitate Exchange Efficiencies

Channel Members May Reduce Discrepancies and Separations

Other Functions

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Types of ChannelsConsumer Product Channels

zero-level channel

One-level channel

Two-level channel

Three-level channel

strategic channel alliance

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Marketing Channels for Consumer Products

Manufacturer Manufacturer

Manufacturer

Manufacturer

Agents

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers Consumers

Consumers

Consumers

A

B C

D

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Industrial Product Channels

Marketing Channels for Industrial Products

Manufacturer Manufacturer

Manufacturer

Manufacturer

Agent

Agent

IndustrialDistributors

IndustrialDistributors

Industrial

Buyers

Industrial

Buyers

Industrial

Buyers

Industrial

Buyers

P Q

R S

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Factors Affecting Selection of Marketing Channel System

This includes product, company, customer, competition factors, PLC stages,

objectives, and desired market coverage intensity and control etc.

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Channel Objectives

A company’s channel objectives aim at what the company seeks to

accomplish through marketing channels.

Some general objectives can be:

Convenience to customers.

Effective target market coverage.

Cost-effective distribution.

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Some major factors that affect objectives are discussed below:

End Customer

Product Characteristics

Company Factors

Competition

Product Life Cycle Stages

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Intensity of Market CoverageA company must determine the distribution coverage intensity a product should

get, what number and kinds of channel in which the product will be sold. Three

major coverage strategies include intensive, selective, and exclusive distribution.

Intensive Distribution: A company uses all available distribution outlets for

making its product available to consumers.

Selective Distribution: Companies use selective distribution, which means

using more than a few and less than all available outlets in a market area to

distribute products.

Exclusive Distribution: This type of distribution means using one or very limited

few outlets.

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Channel Terms and ConditionsThe producer stipulates terms and condition and responsibilities of channel

partners to develop better mutual understanding and usually include price

policy and trade margins, payment terms, and territorial demarcation,

guarantee and returns policy, and mutual responsibilities etc.

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Evaluation of Channel AlternativesIn making a decision about channel alternatives, producers’ evaluation

criteria is generally based on some combination of the following factors:

Product characteristics.

Buyer behaviour and location.

Severity of competition.

Cost effectiveness and channel efficiency.

Degree of desired control on intermediaries.

Adaptability to dynamic market conditions.

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Channel Selection and TrainingAfter determining the most appropriate channel alternative, the producer

selects the most qualified parties and arranges for their training.

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Performance Evaluation of Intermediaries

Producers must periodically evaluate performance of dealers against laid

down and agreed upon parameters. The evaluation criteria differ across

industries and from one company to another in the same industry.

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Channel ModificationEvaluation of channel system in place may sometimes make it necessary

for the firm to modify it as a result of changes in buyer behaviour, market

conditions, availability of new and more effective and suitable alternatives,

and later PLC stages.

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Vertical, Horizontal, and Multichannel Marketing SystemsWith the passage of time and changes in business environment and strategies,

marketing channel systems evolve and new wholesaling and retailing

institutions appear.

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Vertical Marketing System (VMS)Vertical marketing system refers to an arrangement in which the whole

channel focuses on the same target market at the end of the channel.

There are three types of VMS –

corporate

administered, and

contractual.

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Horizontal Marketing Systems Horizontal marketing system occurs when two or more related or unrelated

companies working at the same level come together to exploit marketing

opportunities.

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Multichannel Marketing SystemSome companies use several marketing channels simultaneously to reach

diverse target markets. This system is also called hybrid channels or

multichannel.

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Channel Conflicts and Cooperation“Channel conflict is a situation in which one channel member perceives another

channel member(s) to be engaged in behaviour that prevents or impedes it from

achieving its goals. The amount of conflict is, to a large extent, a function of goal

incompatibility, domain descensus, and differing perceptions of reality.”

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Types of ConflictIn any distribution channel arrangement there can possibly develop

three kinds of conflicts:

Vertical channel conflict

Horizontal channel conflict

Multichannel conflict

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Causes of ConflictMajor causes of conflict include:

Goal incompatibility,

Roles and rights ambiguity, and

Differing perceptions.

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Intensity of ConflictThis refers to how serious is the conflict.

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Managing the Channel ConflictSeveral approaches for effective conflict management:

Regular Communication

Forming Dealer Councils

Co-option

Arbitration and Mediation

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Physical DistributionThe term physical distribution is more appropriate to outgoing (outbound

logistics) or forward movement of products, services, and information from a

firm’s manufacturing facility to customers, and involves defined network of

transportation links, warehousing and storage, and finally delivery at the

destination in a cost effective manner within the desired time.

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Order ProcessingThe receipt of order and transmission of sales order information is an

important function of physical distribution.

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Managing Inventory

Inventory managing involves building and maintaining enough product

assortments to meet the customer demand.

Following formula can be used to calculate when to reorder:

Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock

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Warehousing

Some basic physical distribution functions of warehouses are given below:

Receiving goods and assuming responsibility.

Recording quantity of each item and marking with codes, tags, or physical property etc.

Sorting goods to store in an appropriate area.

Dispatching goods for storage.

Holding products in properly protected condition until needed.

Recalling and picking products ordered by customers from storage.

Collecting for a single shipment, checking for completeness or explaining omissions.

Warehousing is an important physical distribution function and refers to the

design and operation of facilities for storing and moving goods.

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TransportationThere are five main transportation modes for moving goods that include:

Railways,

Roadways,

Waterways,

Airways, and

Pipelines.

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Typical Means of Transporting Various Products

Railways Roadways Waterways Airways Pipelines

Coal Paper goods Petroleum Overnight mail Oil

Lumber Clothing Iron ore Flowers Natural gas

Chemicals Computers Chemicals Emergency Chemicals

Autos Livestock Grain parts Processed

Steel Cement Bauxite Instruments coal

Grain Scooters Perishable food Water

Business

Chapter 18 marketing channels and physical distribution marketing management