Ch 8/9 ObjectivesCh 8/9 Objectives

• Recognize the importance of marketing channels and distribution

• Understand marketing channels in terms of creating time, place, and possession utilities

• Understand some of the complexity of physical distribution

What is a Distribution Channel?

• A distribution channeldistribution channel consists of the set of people and firms involved in transfer of title to a product as it moves from producer to ultimate consumer or business user.

• Every firm wants to have a distribution channel that meets customer's needs and also provides a competitive advantage.

Common Marketing Channels for Consumer Products

Producer Producer Producer

Retailers

Consumers

Wholesalers

Retailers

Consumers Consumers

WholesalerChannel

RetailerChannel

DirectChannel

Determining Intensity of Distribution

• A firm must decide on the appropriate intensity of distributionintensity of distribution for its product.

• Intensity is actually a continuum, but three categories are normally used:– Intensive– Selective– Exclusive

Intensity-of- Distribution Continuum

INTENSIVEINTENSIVE SELECTIVESELECTIVE EXCLUSIVEEXCLUSIVE

DistributionDistributionthrough everythrough every

reasonablereasonableoutlet in a outlet in a

marketmarket

DistributionDistributionthrough multiple,through multiple,

but not all,but not all,reasonablereasonableoutlets in aoutlets in a

marketmarket

DistributionDistributionthrough a singlethrough a single

wholesalingwholesalingmiddlemanmiddleman

and/or retailerand/or retailerin a marketin a market

Terms Used for Marketing IntermediariesTerms Used for Marketing Intermediaries

TERM DESCRIPTION

Middleman Any intermediary between manufacturer and end-

user markets

Agent or Any intermediary with legal authority to act on

Broker behalf of the manufacturer

Wholesaler An intermediary who sells to other intermediaries,

usually to retailers; usually applies to consumer

markets

Retailer An intermediary who sells to consumers

How Intermediaries Minimize TransactionsHow Intermediaries Minimize Transactions

Lynne

Troy

Todd

Diane

Compaq

IBM

Apple

Hewlett-Packard

Computer City

HP®

Diane

Lynne

Troy

Todd

Apple

IBM

Compaq

Hewlett-Packard

Contacts with no intermediaries4 producer x 4 buyers=16 contacts

Contacts with one intermediaries4 producer + 4 buyers=8 contacts

Marketing Channel Functions Performed by IntermediariesMarketing Channel Functions Performed by Intermediaries

Transactional Function

Logistical Function

-Buying. Purchasing products for resale or as an agent for supply of a product-Selling. Contracting potential customers, promoting products, and soliciting orders-Risk Taking. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate.

Facilitating Function

Look through this on your own!

Channel Terms:

• Disintermediation • What is Disintermediation?

Terms:

• Disintermediation:“The removal of organizations or business process layers

responsible for certain intermediary steps in a given value chain”

• Show channel “delayering” graphs

Rationale for Middlemen

• You can eliminate the middleman, but you can’t eliminate the middleman’s function

• Benefit both Producers and Retailers

“Direct” Distribution

• What is it?• For what types of products does it seem to work?• Doesn’t work for all products...

AA BB CC DD

665544332211

WHOLESALING MIDDLEMANWHOLESALING MIDDLEMAN

PRODUCERS

RETAILERS

“2-Step” Dist. Is Extremely Efficient!!!

Marketing Channel Management...

Formulating channel strategy

Design channel structure

Select channel members

Motivate channel members

Coordinate with marketing mix

Evaluate member performance

Set distribution objectives

Specify tasks to be performed by the channel

Consider alternative structures

Choose optimal structure

Channel Conflict

Conflict in Marketing ChannelsConflict in Marketing Channels

1.1. Vertical Conflict Vertical Conflict

2.2. Horizontal Conflict Horizontal Conflict

Don’t worry about this distinction…Don’t worry about this distinction…

Conflict is conflict.Conflict is conflict.

Channel Conflict: An Internet Example:

• Go to the clinique web site:– www.clinique.com

Vertical Marketing SystemsVertical Marketing Systems

• Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact.

• Major types of vertical marketing systems:– corporate– contractual– administered

Look at this stuff on your own...

Definition of a Supply Chain

A Supply Chain is . . . .A Supply Chain is . . . .

a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.

a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.

The Supply Chain

• A supply chain differs from a marketing

channel in terms of membership.

• A supply chain includes suppliers

who provide raw material inputs to a

manufacturer as well as the wholesalers

and retailers who deliver finished goods.

PP17-2 The Automotive Supply Chain

steel

aluminum

Dodge/Plymouth

Lincoln/Mercury

Cadillac/Chevy

rubber seats

brakes

engine

chassis

Chrysler

Ford

transmission suspension GMC

Raw materials components subassembly assembly Dealer network

Supplier Network auto manufacturer marketing channel consumer

Merchant WholesalersMerchant WholesalersMerchant WholesalersMerchant Wholesalers

MerchantMerchantWholesalersWholesalers

Full ServiceFull ServiceFull ServiceFull Service Limited ServiceLimited ServiceLimited ServiceLimited Service

• General Wholesalers

• Limited Line Wholesalers

• Specialty Line Wholesalers

• Industrial Distributors

• Cash And Carry Wholesalers

• Truck Jobbers

• Drop Shippers

• Mail-order Wholesalers

• Rack Jobbers

Types Of Wholesaling IntermediariesTypes Of Wholesaling Intermediaries