GLOBAL MARKETING

Distribution Management

Why A Distribution Strategy?

• To make the right quantities of the right product or service available at the right place, at the right time.

• To create time, place, and possession utility.

• To create: – Functional efficiency.– Scale efficiency.– Transactional efficiency.

Functional Efficiency

• Routinize transactions so that the cost of distribution can be minimized.

• Standardizing products and services.

• Standardizing issues such as lot size, delivery frequency, payment, and communication,

• Automating activities.

Scale Efficiency

• Support economies of scope by adjusting the discrepancy of assortments.– Producers supply large quantities of a

relatively small assortment of products and services.

– Customers require relatively small quantities of a large assortment of products and services.

– Channel members solve this discrepancy by aggregating stocks from several different suppliers.

Transactional Efficiency

• Facilitate the searching processes of both producers and customers by structuring the information essential to both parties.

• Distribution channels make it easy for customers to find what they’re looking for and to be able to choose from a large assortment of goods.

What Is A Distribution Channel?

A set of interdependent organizations involved in the process of making a product or service available for consumption or use by consumers or industrial users.

Alternative Distribution Systems

• Direct Channel System

• Indirect Channel System

• Mixed Channel System

• Vertical Marketing System

• Horizontal Marketing System

Direct Channel Systems

Manufacturers

DirectSales

E-Commerce

DirectMarketing

Tele-marketing

Reps/Agents

Customer Markets

Direct Channel Systems

• The manufacturer retains ownership (title) of the products.

• The manufacturer is responsible for delivery to customers.

• The manufacturer is responsible to provide value-added functions desired by customers.

Direct Channel Systems

• Preferred when:– High purchase quantity– High need for product information and

customization– High need for product quality– Low need for large product assortment– Low need for availability and after-sale

service– Complex logistics

Indirect Channel Systems

Manufacturers

Reps/Agents

Retailers

Wholesalers

Customer Markets

Indirect Channel Systems

• Involve at least one intermediary who takes over both ownership of the product and the majority of the control in both sales and distribution.

• VARs and OEMs are unique indirect channel systems--they buy products, add value to them, and then resell them.

Indirect Channel Systems

• Preferred when:– Low purchase quantity– Low need for product information and

customization– Low need for product quality– High need for large assortment– High need for availability and after-sale

service– Simple logistics.

Mixed Channel Systems

• A combination of direct and indirect channel systems to meet the needs of different target markets.

• Three benefits:– Increase market coverage– Reduced delivery costs for existing customers– More customized selling

Vertical Marketing Systems (VMS)

• The manufacturer, wholesaler, and retailer act as a unified system.

• One channel member either owns the other channel members, franchises them, or has so much power that all channel members cooperate.

• Arose in an effort to control channel conflict.

Types of VMS

Corporate VMS

Combines successive stages of production and distribution under single ownership.

Highest level of control.

Types of VMS

Administered VMS

Coordinates successive stages of production and distribution through the size and power of one of its members.

Generally, manufacturers of a dominant brand are able to secure strong trade cooperation and support from retailers.

Types of VMS

Contractual VMS

Independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.

Contractual VMS: Three Types

• Wholesaler-sponsored voluntary chains– Wholesalers organize groups of independent

retailers to better compete with large chain organizations.

• Retailer cooperatives– Retailers organize to carry on wholesaling

and possibly some production.

• Franchise organizations

Horizontal Marketing Systems

• Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.

• Temporary or permanent basis.

• May form a joint venture company.

Channel Design Issues

Analyze Customers’ DesiredService Output Levels

Five Service Outputs

1. Lot size: – The number of units the channel permits a typical

customer to purchase on one occasion.

2. Waiting time: – The average time customers wait for receipt of the

goods.

3. Spatial convenience: – The degree to which the marketing channel makes it

easy for the customers to purchase the product.

Service Outputs (continued)

4. Product variety: – The assortment breadth provided by the

channel.

5. Service backup: – The add-on services (credit, delivery,

installation, repairs) provided by the channel.

Channel Design Decisions

Analyzing Customers’ DesiredService Output Levels

Establishing ObjectivesAnd Constraints

Establishing Objectives & Constraints

• Under competitive conditions, arrange functional tasks to minimize total channel costs with respect to desired levels of service outputs.

• Constraints:– Selling effort of intermediaries– Competitors’ channels– Marketing environment– Legal regulations and restrictions

Channel Design Decisions

Analyzing Customers’ DesiredService Output Levels

Establishing ObjectivesAnd Constraints

Identifying Major Channel Alternatives

Identifying Major Channel Alternatives

• The types of available intermediaries.

• The number of intermediaries needed.

• The terms and responsibilities of each channel member.

Types of Intermediaries

• Merchants– Wholesalers and retailers

• Agents– Brokers, manufacturers’ reps, and sales

agents

• Facilitators– Transportation companies, independent

warehouses, banks, and advertising agencies

Number of Intermediaries

• Usually one of three strategies:

• Exclusive distribution

• Selective distribution

• Intensive distribution

Terms & Responsibilities of Channel Members

• Price policy

• Conditions of sale

• Territorial rights

• Mutual services and responsibilities

Channel Design Decisions

Analyzing Customers’ DesiredService Output Levels

Establishing ObjectivesAnd Constraints

Identifying MajorChannel Alternatives

Evaluating theMajor Alternatives

Evaluating the Major Alternatives

• Economic criteria

• Control criteria

• Adaptive criteria

• Brand image

Channel Management Issues

• Channel power– Manufacturer vs. wholesaler vs. retailer

• Channel conflict– Goal incompatibility– Unclear roles and rights– Differences in perception– Intermediary dependence

Channel Management Issues

• Impact of Technology– Death of Distance– Homogenization of Time– Irrelevance of Location

Channel Management Issues

• Channel control– Pull strategy– Push strategy

• Trade incentives

• Legal & ethical issues– Exclusive dealing– Exclusive territories– Tying agreements– Dealers’ rights