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MARKETING CHANNELS (Place)

Distribution Channels and Logistics Management

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What is the Nature Of Distribution

Channels?

What is the Nature Of Distribution

Channels?

How do Channel Firms Interact andOrganize to do the

Work of theChannel?

How do Channel Firms Interact andOrganize to do the

Work of theChannel?

Issues Concerning Distribution Channels

What Problems doCompanies Face in

Designing andManaging Their

Channels?

What Problems doCompanies Face in

Designing andManaging Their

Channels?

What Role Does Physical Distribution

Play in Attracting and Satisfying

Customers?

What Role Does Physical Distribution

Play in Attracting and Satisfying

Customers?

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What is a Distribution Channel?

A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

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Why are Marketing Intermediaries Used?

The use of intermediaries results from their greater efficiency in making goods available to target markets.Offer the firm more than it can achieve on it’s own through the intermediaries: Contacts, Experience, Specialization, Scale of operation.

Purpose: match supply from producers to demand from consumers.

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How a Marketing Intermediary Reduces the Number of Channel Transactions

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ContactContact

FinancingFinancing

InformationInformationRisk TakingRisk Taking

PromotionPromotion

MatchingMatchingNegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to

Target Customers.

Distribution Channel Functions

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MM WW JJ RR CC

MM WW RR CC

MM RR CC

MM CC

Channel 1

Channel 2

Channel 3

Channel 4

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its

Ownership Closer to the Final Buyer.

Number of Channel Levels

Direct Channel

Indirect Channel

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Channel Behavior & Conflict

The channel will be most effective when: each member is assigned tasks it can do best. all members cooperate to attain overall channel

goals and satisfy the target market.

When this doesn’t happen, conflict occurs: Horizontal Conflict occurs among firms at the

same level of the channel, i.e retailer to retailer. Vertical Conflict occurs between different levels

of the same channel, i.e. wholesaler to retailer.

For the channel to perform well, each channel member’s role must be specified and conflict must be managed.

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Conventional Marketing Channel Vs. a Vertical Marketing System

Conventional Marketing Channel

Vertical MarketingSystem

Manufacturer

Retailer

Manufacturer

Retailer

Wh

ole

sale

rW

hole

sale

rManufacturer

Wholesaler

Retailer

Consumer Consumer

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CorporateCommon Ownership at Different Levels of the Channel i.e. Sears

ContractualContractual Agreements Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members i.e. Kraft

Degree of Direct Control

Types of Vertical Marketing Systems

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ContractualVMS

ContractualVMS

RetailerCooperatives

RetailerCooperatives

FranchiseOrganizations

FranchiseOrganizations

Wholesaler SponsoredVoluntary Chain

Wholesaler SponsoredVoluntary Chain

Service-Firm-Sponsored

Franchise System

Service-Firm-Sponsored

Franchise System

Manufacturer-Sponsored Wholesaler

Franchise System

Manufacturer-Sponsored Wholesaler

Franchise System

Manufacturer-Sponsored RetailerFranchise System

Manufacturer-Sponsored RetailerFranchise System

Vertical Marketing Systems (VMS)

Vertical Marketing Systems (VMS)

CorporateVMS

CorporateVMS

AdministeredVMS

AdministeredVMS

Types of Vertical Marketing Systems

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Innovations in Marketing Systems

Horizontal Marketing System

Two or More Companies at One Channel Level Join

Together to Follow a New Marketing Opportunity.

Example:

Banks in Grocery Stores

Horizontal Marketing System

Two or More Companies at One Channel Level Join

Together to Follow a New Marketing Opportunity.

Example:

Banks in Grocery Stores

Hybrid Marketing System

A Single Firm Sets Up Two or More

Marketing Channels to Reach One or

More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

Hybrid Marketing System

A Single Firm Sets Up Two or More

Marketing Channels to Reach One or

More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

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To Discuss…

Describe the kinds of horizontal and vertical channel conflict that might occur in one of the following: Personal computer industry, Automobile industry, Music industry, Clothing industry.

How would you remedy the problems you have just described?

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Changing Channel Organization

A Major Trend is Toward Disintermediation Which Means

that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or

That New Types of Channel Intermediaries are Emerging to

Displace Traditional Ones.

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Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

ExclusiveDistribution

SelectiveDistribution

IntensiveDistribution

Identifying Major Alternatives

Evaluating the Major Alternatives

Designing International Distribution Channels

Channel Design Decisions

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Selecting Channel MembersSelecting Channel Members

Motivating Channel Members Motivating Channel Members

Evaluating Channel MembersEvaluating Channel Members

FEED

BA

CK

Channel Management Decisions

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Nature and Importance of Marketing Logistics

Involves getting the right product to the right customers in the right place at the right time.Companies today place greater emphasis on logistics because: customer service and satisfaction have become the

cornerstone of marketing strategy. logistics is a major cost element for most

companies. the explosion in product variety has created a need

for improved logistics management. Improvements in information technology has

created opportunities for major gains in distribution efficiency.

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Goals of the Logistics System

Lower Distribution Costs;

Lower Customer Service Levels

Higher Distribution Costs;

Higher Customer Service Levels

Goal: To Provide a Targeted Level of Customer Service

at the Least Cost.

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InventoryWhen to order

How much to orderJust-in-time

InventoryWhen to order

How much to orderJust-in-time

CostsMinimize Costs ofAttaining Logistics

Objectives

CostsMinimize Costs ofAttaining Logistics

Objectives

WarehousingStorage

DistributionAutomated

WarehousingStorage

DistributionAutomated

Order ProcessingReceivedProcessedShipped

Order ProcessingReceivedProcessedShipped

Logistics

FunctionsTransportation Rail, Truck,

Water, Pipeline, Air, Intermodal

Major Logistics Functions

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RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goodsWater

Low cost for shipping bulky, low-value, non perishable goods, slowest form

WaterLow cost for shipping bulky, low-value,

non perishable goods, slowest form

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

Transportation Modes

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1. Speed2. Dependability

3. Availability4. Costs5. Others

Checklist for ChoosingTransportation Modes

Choosing Transportation Modes

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Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires TeamworkTeamwork, Both Inside the Company and Among All the Marketing Channel Organizations.

Cross-Functional Teamwork inside the CompanyCross-Functional Teamwork inside the Company

Building Channel PartnershipsBuilding Channel Partnerships

Third-Party LogisticsThird-Party Logistics

Integrated Logistics Management