MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 1

DISTRIBUTIONDISTRIBUTION Intermediaries--functionsIntermediaries--functions Intermediaries--structures and Intermediaries--structures and

their justificationstheir justifications Channel powerChannel power Cross-national variationsCross-national variations Selectivity of distribution--do we Selectivity of distribution--do we

want our product available at K-want our product available at K-Mart?Mart?

Parallel Distribution StructuresParallel Distribution Structures DiversionDiversion

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 2

Intermdiaries: Adding ValueIntermdiaries: Adding Value

MANUF. 1

MANUF. 2

MANUF. 3

WHOLE-SALER (or agent) 1

WHOLE-SALER (or agent) 2

RETAILER

PRODUCTS FROMOTHER MANUFS.

Value added:•breaking bulk•consolidating supplies•holding inventory

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 3

Potential Channel Structures Potential Channel Structures (U.S.)(U.S.)

Agents/Brokers

Wholesalers

Retailers

Consumer

Producer

Wholesalers

Retailers

Consumer

Producer

Consumer

Producer

Retailers

Consumer

Producer

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 4

Approaches to DistributionApproaches to Distribution

These strategies These strategies require tradeoofs:require tradeoofs:– WideWide--essential to --essential to

low involvement low involvement goodsgoods

– SelectiveSelective--desire to --desire to maintain imagemaintain image

– ExclusiveExclusive--very --very high prestige high prestige needed or very high needed or very high service service requirementsrequirements

Admission ByINVITATION

ONLY

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 5

Manufacturer and Retailer Manufacturer and Retailer Distribution InterestsDistribution Interests

Full service retailers tend dislike intensive Full service retailers tend dislike intensive distributiondistribution

Low service channel members can “free ride” Low service channel members can “free ride” on full service sellerson full service sellers

Manufacturers may be Manufacturers may be temptedtempted toward toward intensive distribution—appropriate only for intensive distribution—appropriate only for some; may be profitable in the short runsome; may be profitable in the short run

Market balance suggests a need for diversity Market balance suggests a need for diversity in product categories where intensive in product categories where intensive distribution is appropriatedistribution is appropriate

Service requirements differ by product Service requirements differ by product categorycategory

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 6

Parallel Distribution Parallel Distribution StructuresStructures

MANUFAC-TURER

DISTRI-BUTOR

RETAILER

MAJORCHAIN

(e.g., Wal-Mart)

FACTORYOUTLET

DIRECTMARKETING

MKTG 370 PRICING/DISTRIBUTION Lars Perner, Instructor 7

DiversionDiversion Products often end up where manufacturers Products often end up where manufacturers

did not intend them to godid not intend them to go– Trade promotions in one regionTrade promotions in one region

Within countriesWithin countriesBetween countries--different price sensitivities and Between countries--different price sensitivities and

structures may exist (e.g., pharmaceuticals, luxury structures may exist (e.g., pharmaceuticals, luxury autosautos

– ““Over-purchases” by large buyers to supplyOver-purchases” by large buyers to supplySmaller buyers at lower pricesSmaller buyers at lower pricesUnauthorized distributors (e.g., Levis’ for Price-Unauthorized distributors (e.g., Levis’ for Price-

Costco)Costco)