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Chapter 8 Distribution channels and logistics management
The learning objectives
The nature of distribution channels Channel behavior and organization Channel design decisions Channel management decision Physical distribution and logistics management
1.The nature of distribution channels
What is distribution? Why are marketing intermediaries used? The function of distribution channel Channel level
What is distribution channel?
A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.
How a Distributor Reduces theNumber of Channel Transactions
= Customer= Customer= Manufacturer= Manufacturer
A. Number of contacts A. Number of contacts without a distributorwithout a distributor
M x C = 3 X 3 = 9M x C = 3 X 3 = 9
11
3322
445566
778899
How a Distributor Reduces theHow a Distributor Reduces theNumber of Channel TransactionsNumber of Channel Transactions
= Distributor= Distributor= Customer= Customer= Manufacturer= Manufacturer
B. Number of contacts B. Number of contacts with a distributorwith a distributorM x C = 3 + 3 = 6M x C = 3 + 3 = 6
Store
11
22
33
44
55
66
Distribution Channel FunctionsDistribution Channel Functions
OrderingOrdering
PaymentsPayments
CommunicationCommunicationTransferTransfer
NegotiationNegotiation
FinancingFinancingRisk TakingRisk Taking
PhysicalDistribution
PhysicalDistribution
InformationInformation
Consumer Marketing ChannelsConsumer Marketing Channels
WholesalerWholesaler JobberJobber RetailerRetailer ConsumerConsumer
ConsumerConsumer
RetailerRetailer ConsumerConsumer
ManufacturerManufacturer
0-level channel
WholesalerWholesaler RetailerRetailer ConsumerConsumer MfgMfg
2-level channel
MfgMfg
3-level channel
1-level channel
ManufacturerManufacturer
Industrialdistributors
Man
ufa
ctu
rer
Co
nsu
mer
Manufacturer’srepresentative
Manufacturer’ssales branch
Industrial Marketing Channels
Customers’ Desired Service Levels
Lot size Waiting time Spatial convenience Product variety Service backup
Why are marketing intermediaries used?
Distribution channel function
Information Promotion Contact Matching negotiation
Channel level
Channel behavior and organization
Channel conflict Vertical marketing system Horizontal marketing system Hybrid marketing systems
Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems
CorporateCommon Ownership at Different
Levels of the Channel
CorporateCommon Ownership at Different
Levels of the Channel
ContractualContractual Agreement Among
Channel Members
ContractualContractual Agreement Among
Channel Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
Conventional Distribution Channel vs. Vertical Marketing Systems
VerticalVerticalmarketingmarketingchannelchannel
Manufacturer
Retailer
ConventionalConventionalmarketingmarketingchannelchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wh
ole
sale
r
Channel conflict
Horizontal conflict Vertical conflict
Vertical marketing systems
Conventional distribution VMS Corporate VMS Contractual VMS Administered VMS Franchise organization
Horizontal marketing system
Hybrid marketing channel
2.channel design decision
Analyzing consumer service needs Setting channel objectives and constraints Identifying major alternatives Evaluating the major alternatives
Identifying major alternative
Types of intermediaries Number of marketing intermediaries Responsibilities of channel members
SellingSellingcostscosts
(dollars)(dollars)
Level of sales (dollars)Level of sales (dollars)
Break-Even Cost Chart
CompanyCompanysales forcesales force
Manufacturer’s Manufacturer’s sales agencysales agency
SSBB
Number of marketing intermediaries
Intensive distribution Exclusive distribution Selective distribution
3.Channel management Decision
Selecting channel members Motivating channel members Evaluating channel members
Channel Management DecisionsChannel Management Decisions
SelectingSelecting
FE
ED
BA
CK
MotivatingMotivating
TrainingTraining
EvaluatingEvaluating
4.physical distribution and logistics management
Physical distribution(marketing logistics) major logistics function Integrated logistics management Third-party logistics
Major logistics function
Order processing Warehousing Inventory transportation
Integrated logistics management
Cross-functional teamwork inside the company Building channel partnerships
Third-party logistics
An independent logistics provider that performs any or all of the functions required to get their clients’ product to market.