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Marketing Channels and Physical DistributionMarketing Management Text and Cases

18-1

Marketing Channels and Physical Distribution

4Chapter

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Marketing Channels and Physical Distribution

Learning Outcomes•What is a channel?

•Broad Perspective on Marketing

•Types of channels

•Examples

•Summary

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Marketing Channels and Physical Distribution

• “A marketing channel is a system of relationships existing among businesses that participate in the process of buying and selling products and services.”

• The processes and partners that move a product from the producer to the consumer. Producer via channel to the final consumer.

• I other words, channel distribution answers the crucial question: how and where will the customer obtain the product or service?

• In a broader perspective, it fits within the 4 p’s in marketing, ie, price, place (Channel), promotion, product.

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Marketing Channels and Physical Distribution

Channel Functions: What does the channel do? Connects producers with consumers

Channel Members Facilitate Exchange Efficiencies

Channel Members May Reduce Discrepancies and Separations

Completes the transaction

Handles Logistics

Post-Sales support

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Marketing Channels and Physical Distribution

Definition of Terms• Place

• Marketing Channel

• Channel of Distribution

• Distribution

• Distribution System

• Channel

All the above mean the same thing.

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Marketing Channels and Physical Distribution

Types of ChannelsDirect Channel•When producer and ultimate consumer deal directly with each other. Eg, Dell, HP Toshiba etc

Indirect Channel•When there are independent intermediaries between the producer and the consumer. Eg coca cola products, EABL products etc

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Marketing Channels and Physical Distribution

Marketing Channels for Consumer Products

Manufacturer Manufacturer

Manufacturer

Manufacturer

Agents

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers Consumers

Consumers

Consumers A

B C

D

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Marketing Channels and Physical Distribution

Industrial Product ChannelsMarketing Channels for Industrial Products

Manufacturer Manufacturer

Manufacturer

Manufacturer

Agent

Agent

IndustrialDistributors

IndustrialDistributors

Industrial

Buyers

Industrial

Buyers

Industrial

Buyers

Industrial

Buyers

P Q

R S

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Marketing Channels and Physical Distribution

Factors Affecting Selection of Marketing Channel SystemThis includes

•product,

•company,

•customer,

•competition factors,

•PLC stages,

•objectives, and desired market coverage intensity and control etc.

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Marketing Channels and Physical Distribution

Direct Channel: Strength and WeaknessesStrength

•Dedicated to your product

•High quality contact with customers

•Fast feedback loop

Weaknesses

•Smaller coverage

•Higher Fixed Cost

•On your own to generate leads

•Whole solution can be challenging to offer to consumers on your own.

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Marketing Channels and Physical Distribution

Indirect Channel: Strength and WeaknessesStrength

•Larger Coverage

•Reach new target segments

•Create solutions to consumer problems

•Lower fixed cost

Weaknesses

•Less focused on your products

•Smaller Margins since you have to split profits

•May limit customer information

Case study: Walt Disney.

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Marketing Channels and Physical Distribution

Intensity of Market CoverageA company must determine the distribution coverage intensity a product should get, what number and kinds of channel in which the product will be sold. Three major coverage strategies include intensive, selective, and exclusive distribution.

Intensive Distribution: A company uses all available distribution outlets for making its product available to consumers.

Selective Distribution: Companies use selective distribution, which means using more than a few and less than all available outlets in a market area to distribute products.

Exclusive Distribution: This type of distribution means using one or very limited few outlets.

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Marketing Channels and Physical Distribution

Selecting a channel: Four key questions1. Does the channel fit the target customer?

2. Does the channel fit the brand positioning?

3. Is the channel a good fit for our organization?

4. Can we achieve our economic goals using this channel?

Walt Disney Example;

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Marketing Channels and Physical Distribution

How do producers motivate channel partners?1. Opportunity for profit

2. Price terms and conditions

3. Support and training

4. Product line; present and future direction

5. Attractive brand

6. Personal Attention

7. Co-marketing

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Marketing Channels and Physical Distribution

Evaluation of Channel AlternativesIn making a decision about channel alternatives, producers’ evaluation criteria is generally based on some combination of the following factors:

Product characteristics.

Buyer behaviour and location.

Severity of competition.

Cost effectiveness and channel efficiency.

Degree of desired control on intermediaries.

Adaptability to dynamic market conditions.

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Marketing Channels and Physical Distribution

Summary of Key Points• A channel is processes and partners that move a product from the

producer to the consumer

• Two main types of channels, i.e. direct and indirect channel of distribution

• A channel of distribution can provide a unique added value for a particular target market.

• Four key questions can help us choose the right channel of distributing our products.