Chapter 12 & Chapter 12 & 1313

Distribution and Marketing Channel

DistributionConsists of distribution channels and physical distribution.Physical distribution or market logistics involves planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from point of origin to point of use, to meet customer requirements at a profit.

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.

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.

How a Marketing Intermediary Reduces the Number of Channel Transactions

Contact

Financing

InformationRisk Taking

Promotion

MatchingNegotiation

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

M W J R C

M W R C

M R C

M CChannel 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 (Fig. 12.2)

Direct Channel

Indirect Channel

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.

WholesalingWholesaling includes all activities involved in selling goods and services to those buying for resale or business use.

Wholesaler is a firm engaged primarily in wholesaling activity.

Types of wholesalersMerchant wholesaler is independently owned business that takes title to the merchandise it handles.

Broker is a wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation.

Agent is a wholesaler who represents buyers or sellers on a relatively permanent basis, perform only a few function, and does not take title to goods.

Types of wholesalersManufacturers’ branches and sales offices are wholesaling by sellers themselves rather than through independent wholesalers.

RetailingRetailing includes all activities involved in selling goods and services directly to final consumers for their personal, non business use.

Retailer is a business whose sales come primarily from retailing.

Types of retailers – amount of services

Self-service retailers serve customers who are willing to perform their own “locate-compare-select” process to save money - e.g. supermarkets.

Limited-service retailers provide more assistance because they carry more shopping goods about which customers need information – e.g. Sears.Full-service retailers provide assistance in every phase of the shopping process – e.g. specialty stores and first-class department stores.

Types of retailers – product line

Convenience store is a retail store that carries a narrow product line with a deep assortment within that line.

Department store is a retail organization that carries a wide variety of product lines; each line is operated as a separate department manage by specialist buyers or merchandisers.

Supermarket is a large, low cost, low margin, high-volume, self service store that carries a wide variety of food, laundry, and household products.

Types of retailers – product line

Specialty store is a small store, located near a residential areas, that is open long hours 7 days a week and carries a limited line of high-turnover convenience goods. Superstore is a store much larger that a regular supermarket that carries a large assortment of routinely purchased food products, nonfood items, and services.Category killer is a giant specialty store that carries a very deep assortment of a particular item and is staffed by knowledgeable employees.

Types of retailers – product line

Hypermarket is a huge superstore, perhaps as large as six football fields.

Service retailers such as hotels, motels, banks, airlines, colleges, restaurants, etc.

Types of retailers – organizational approach

Chain stores are two or more outlets that are owned and controlled in common, have central buying and merchandising, and sell similar lines of merchandise – e.g. corporate chain stores, voluntary chains, and retailer cooperatives.Franchise organization is a contractual association between a manufacturer, wholesaler, or service organization (a franchiser) and independent businesspeople (franchisees) who buy the right to own and operate one or more units in the franchise system.Merchandising conglomerate is corporation that combine several different retailing forms under central ownership.

Conventional Marketing Channel Vs. a Vertical Marketing System (Fig. 12.3)

Conventional Marketing Channel

Vertical Marketing System

Manufacturer

Retailer

Who

lesa

lerManufacturer

Wholesaler

Retailer

Consumer Consumer

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

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

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

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

ExclusiveDistribution

SelectiveDistribution

IntensiveDistribution

Identifying Major Alternatives

Evaluating the Major Alternatives

Designing Distribution Channels

Channel Design Decisions