Marketing Channels & Distribution

Intermediaries make distribution and selling processes more efficient.

Intermediaries offers supply chain partners more than they could achieve on their own.Market ExposureTechnical Knowledge/Information SharingOperational SpecializationScale of operationThe Importance of Marketing Channels

Channel Efficiency: How Intermediaries Reduce the Number of Channel Transactions

Matching Needs with ProductsPhysical distribution & LogisticsFinancingRisk taking

Other Key Channel Functions

Consumer and Business Marketing Channels

Channels are most effective when:Each member performs the tasks it does best.Channel members cooperate to attain overall channel goals.Channel ConflictHorizontal Conflict: conflict among firms at the same level of the channel (e.g., retailer to retailer). Example: Two retailers compete to carry a suppliers exclusive product.Vertical Conflict: conflict between different levels of the same channel (e.g., wholesaler to retailer).Example: Manufacturer competes with retailer in selling product to target market.Some conflict can be healthy competition.Channel Cooperation & Conflict

Channel Conflict: GoodyearGoodyears conflicts with its independent dealers have decimated the firms replacement tire sales.

Copyright 2007, Prentice-Hall Inc.10-*Channel Conflict ExampleBranded goods using the Wolfgang Puck, T.G. I. Fridays, Taco Bell, Emerils, and Starbucks names are now being sold in grocery stores.Look at the items at right. Which stands the greatest risk of causing channel conflict? Why?

When producers, wholesalers, and retailers act as a unified system.

Can happen throughOutright ownership of channel memberContractsChannel power

Vertical Marketing System

10-*Franchise OrganizationsPowerful force in U.S. Retail (40%+ of all sales)Franchise StructuresCompensation ArrangementsAdvantagesBrand Name RecognitionStandardized Processes and ProceduresAvoids startup hassles safer betQuick access to capital and huge expansion potential

DisadvantagesOver-saturation and territorial issuesMarketing fund disputes Quality (vs. Company-owned)Little room for entrepreneurial creativity

Horizontal Marketing SystemTwo or more companies at one channel level join together to achieve a marketing goal.Joint VenturesAlliances and PartnershipsCo-Marketing, Co-Distribution and Co-Branding

Multichannel Distribution SystemReaching customer segments through multiple marketing channels. (i.e. hybrid system)Example: You can buy Starbucks coffee from Starbucks stores or from the SupermarketProblems with MDSs?Channel Innovations

DisintermediationOccurs when producers sidestep intermediaries and sell directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.The Internet has made the disintermediation of many traditional retailers possible.

Disintermediation ExampleCalyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, drastically reducing the time it takes flowers to reach consumers via conventional retail channels.

(Non-) Disintermediation ExampleBlack & Decker chose to avoid disintermediation by not using the Internet to sell their products. Instead B&D directs consumers to stores that carry its products.

Company sales force vs. Manufacturers RepCompany sales forceEmployed directly by the firm in outside or inside sales capacity.Manufacturers agency/representativeIndependent firms whose sales people handle several companies products simultaneously

Primarily a question of size and life cycle stage.Outsourcing Distribution

How many intermediaries?Intensive distributionStock product in as many outlets as possible.Exclusive distributionGranting a limited number of outlets the exclusive right to sell product.Selective distributionSomewhere in between Intensive and Exclusive Distribution.

Does the company always get to choose?Distribution Strategy Alternatives

Selective DistributionMaytag uses selective distribution like many furniture and appliance manufacturers.The Where to Buy page on their Web site assists buyers in finding stores that carry the Maytag brand.

Every country has its own unique distribution system that has evolved over time.ExamplesJapan: complex, multi-layered distribution systemshard for Western firms to penetrate.India and China: inefficient distribution systems despite their enormous size.separate countries within a countryPoorer but improving transportation infrastructures

International Channel Decisions

Public Policy and DistributionExclusive distribution & dealing (upstream or downstream)

Exclusive territorial agreements (franchising)

Tying agreements (illegal)

If Xerox required every business who bought or leased their copiers to also buy their brand of paper, it would be a tying agreement.

Definition: The physical flow of goods, services, and related information from points of origin to points of consumption.Includes:Inbound distributionOutbound distributionReverse distribution

Marketing Logistics

Inventory ManagementMust strike a balance between too much and too little inventorybuffers and shortagescarrying costs and ordering/setup costs

Just-in-time inventory systems

RFID or Smart Tag technology

RFID technology promises to automate the entire distribution chain, resulting in significant cost savings.

RFID The Wave of the Future?Key benefits fewer stock-outs reduced logistics labor costs more accurate inventory information more efficient flow of goods happier customers

Retailers may soon mandate supplier use of RFID.

TransportationTrucksRailroadsShipsPipelinesAirInternetIntermodal transportation

Intermodal TransportationIntermodal transportation combines two or more modes of transportation. Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water and rail; Airship = air and water.

Third-Party LogisticsMost small and medium size companies outsource transportation to UPS or other logistics providers.