Distribution of Channels

8/3/2019 Distribution of Channels

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Channels of Distribution:

Conflict, Cooperation, andManagement


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Chapter Goals

To gain an understanding of: The nature and importance of intermediaries What a distribution channel is and does The decisions involved in designing a channel of

distribution Major channels used to distribute consumer goods,

business goods, and services Vertical marketing systems

Intensity of distribution Choice of intermediaries and conflict management Legal considerations and channel arrangements

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The Distribution Function

distribution is about getting the product orservice to the customer as conveniently aspossible; it deals with access andavailability

intermediaries perform many of thedistribution functions on behalf of suppliers

merchant intermediariesactually take title

to physical products that they distribute agentsdo not ever own the products, but

they arrange the transfer of title

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Distribution Channels

The role of distribution entails: Arranging for its sale and transfer of title

Promoting the product

Storing the product Assuming some risk during distribution.

Intermediaries often perform theseactivities for producer or consumer.

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Provides marketinformation

Interprets consumerswants

Promotes producersproducts

Creates assortments Stores products Negotiates with

customers Provides financing Owns products Shares risks

Anticipates wants Subdivides largequantities of a product

Stores products

Transports products Creates assortments Provides financing Makes productsreadily available

Guarantees products Shares risks

SALES SPECIALISTFOR PRODUCERS

PURCHASING AGENTFOR BUYERS

I

NTERM

EDIARY

The Distribution Functions


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Designing the Channel

Channel design is a strategic marketingtool. Four decisions can be help a firmdesign a distribution channel:

what roledistribution is to play in achieving

objectives what type of channelis needed? with or

without intermediaries?

what level of intensityof distribution? which specific intermediaries to use? which

will be best suited to achieve objectives?

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Specifythe role ofdistribution

within themarketingmix

Selecttype of

distribu-tionchannel

Determineappropriate

intensityof distri-bution

Choosespecific

channelmembers

The Well-DesignedDistribution Strategy


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Selecting the Type of Channel

some firms will distribute directly; otherswill use a number of intermediaries:

Producer consumer (direct)

producer retailer consumer producer wholesaler retailer consumer

producer agent retailer consumer

producer agent wholesale retailerconsumer

when would each of these be considered?

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Major DistributionChannels For distribution of consumer goods, five

different types of channels are widely used. Business goods are normally distributed

through four major types of channels.

There are only two common channels ofdistribution for services. Some producers are not content to use only

a single distribution channel and usemultiple channels (a.k.a dualdistribution)

Multiple channels can aggravate middlemenand cause conflicts in the channels.

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ULTIMATE CONSUMERS

PRODUCERS OF CONSUMER GOODS

Retailers Retailers Retailers Retailers

Merchantwholesalers

Merchantwholesalers

Agents Agents

Consumer Channels


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BUSINESS USERS

PRODUCERS OF BUSINESS GOODS

Merchant wholesalers(industrial distributors)

Agents Agents

Merchant wholesalers(industrial distributors)

Business Channels


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ULTIMATE CONSUMERS OR BUSINESS USERS

PRODUCERS OF SERVICES

Agents

Service Channels


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Multiple Distribution Channels

some firms will use several distributionchannels to reach specific markets orsegments

dual distribution is used, for example, toreach business and consumer markets, orto carry different groups of products

or may be used to reach different segments

of the sellers market; different sizes ofbuyers or different regions of the country

some companies operate their own stores

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Vertical Marketing

Systems (VMS)

a tightly coordinated distribution channeldesigned to improve operating efficiency andmarketing effectiveness.

Corporate VMS: One firm owns other firms inchannel or the entire channel-- Goodyear, Roots.

Contractual VMS: Independents work together formuch greater effectiveness: IGA, IDA.

Administered VMS: Relies on economic power ofone channel member-- Rolex, Kraft General

Foods..

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INTENSIVE SELECTIVE EXCLUSIVE

Distributionthrough every

reasonableoutlet in a

market

Distributionthrough multiple,

but not all,reasonableoutlets in a

market

Distributionthrough a single

wholesalingmiddleman

and/or retailerin a market

Intensity of Distribution


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Considerations in

Channel Choice

Market Considerations: Type of market,concentration, potential customers, ordersize.

Product Considerations: Consider unitvalue, perishability, technical nature ofproduct.

Intermediaries Considerations: Servicesoffered, availability, attitude, dominance.

Company Considerations: Desire forchannel control, management, money andservices seller can provide to support sales.

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Conflict and Controlin Channels

Channel conflict exists when channel membersinterfere with each others objectives.

Horizontal conflict involves firms on same level--grocery store vs. drug store.

Vertical conflict involves firms at different levels

producer versus wholesaler

producer versus retailer

Channel Power is the ability to influence ordetermine behaviour of others in channel.

Based on expertise, rewards and sanctions.

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Producer/Retailer Conflict

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Small suppliers complaints about largedepartment stores:

Onerous logistical demands.

Pressure to cut prices. Demands to give the stores exclusivity.

Forcing suppliers to contribute advertisingand promotional dollars to the stores.

Requiring suppliers to invest in elaboratecomputerized inventory systems.


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More Complaints

Small suppliers complaints about discounters: Being asked to supply their goods on

consignment.

Being asked to deal directly with the retailers

headquarters and to give to the retailer an amountequal to the commission that would have gone tomanufacturers agents.

Responses from smaller suppliers:

Quit doing business with big retailers whosedemands are too strict and outlandish.

Become a retailer.

Merge with another manufacturer.

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Legal Considerations

Dealer Selection: Refusing to sell to somefirms. Can be done carefully.

Exclusive Dealing involves shutting outcompetitors, giving most business to one

firm. Tying Contracts involves providing one item

on condition other lines be carried as well.

Exclusive Territories can createmonopolies.

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Channels for EnteringForeign Markets

Exporting, through: An export merchant in the manufacturer's country

that buys goods and exports them. An export agent located in either the manufacturer'

or the destination country. A companys sales branches.

Contracting, via: Licensing: Right to use production process, patents

trademarks, or other assets. Franchising. Contract manufacturing: having a foreign-based

manufacturer produce the product

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More Foreign Market Entry ChannelOptions

Direct investment, including:

Joint venture or partnership with aforeign company.

Strategic alliance. Wholly-owned subsidiaries.

Multinational corporation, in which the

foreign and domestic operations areintegrated and are not separatelyidentified.

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The Changing Faceof Distribution

Internet (click and mortar vs. brickand mortar) a major factor-- where is itheading?

Direct Response TV sales are growingin popularity, especially for time-starvedshoppers

The worlds largest bookstore is on theInternet! (Amazon.com)

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Distribution of Channels