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Distribution ChannelsDistribution Channels
A set of interdependent organizationsA set of interdependent organizations(intermediaries) involved in the process of(intermediaries) involved in the process ofmaking a product or service available formaking a product or service available for
use or consumption.use or consumption.
Channel decisionsChannel decisions
affect other marketing decisionsaffect other marketing decisions involve long-term commitmentsinvolve long-term commitments
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The Role of Distribution ActivitiesThe Role of Distribution Activities
in Marketingin MarketingDistributionDistribution
Physically moving products and establishingPhysically moving products and establishingintermediary relationships to support suchintermediary relationships to support suchmovement.movement.
Physical Distribution (Logistics)Physical Distribution (Logistics) The activities of distribution involved in theThe activities of distribution involved in the
physical relocation of products.physical relocation of products.
Channel of DistributionChannel of Distribution The system of relationships established to guideThe system of relationships established to guidethe movement of a product.the movement of a product.
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Distribution ChannelFunctions
Distribution ChannelFunctions
Ordering
Ordering
Payments
Payments
Communication
CommunicationTransfer
Transfer
Negotiation
Negotiation
Financing
FinancingRisk Taking
Risk Taking
Physical
Distribution
PhysicalDistribution
Information
Information
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Consumer Marketing Channels
Add another level -> Mail order (telephone, internet), this will be also 1-level
Consumer Marketing Channels
Add another level -> Mail order (telephone, internet), this will be also 1-level
Wholesaler
Wholesaler Jobber
Jobber Retailer
Retailer Consumer
Consumer
Consumer
Consumer
Retailer
Retailer Consumer
Consumer
Manufacturer
Manufacturer
0-level channel
Wholesaler
Wholesaler Retailer
Retailer Consumer
ConsumerMfg
Mfg
2-level channel
Mfg
Mfg
3-level channel
1-level channel
Manufacturer
Manufacturer
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Industrialdistributors
Ma
nu
fac
turer
C
ons
umer
Manufacturersrepresentative
Manufacturers
sales branch
Industrial Marketing ChannelsIndustrial Marketing ChannelsIndustrial Marketing ChannelsIndustrial Marketing Channels
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Structuring a Distribution ChannelStructuring a Distribution Channel
Important Factors in Building a DistributionImportant Factors in Building a Distribution
ChannelChannel Costs associated with establishing a directCosts associated with establishing a direct
channel distributionchannel distribution
Coverage is increased through the use ofCoverage is increased through the use of
indirect channels of distribution.indirect channels of distribution.
Control is enhanced using a direct distributionControl is enhanced using a direct distributionchannel.channel.
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Channel Behavior and ConflictChannel Behavior and Conflict
The channel will be most effective when:The channel will be most effective when:
each member is assigned tasks it can do besteach member is assigned tasks it can do best.. all members cooperate to attain overall channel goalsall members cooperate to attain overall channel goals
and satisfy the target market.and satisfy the target market.
Focus on individual goals leads to conflictFocus on individual goals leads to conflict Horizontal Conflict occurs among firms at the sameHorizontal Conflict occurs among firms at the same
level of the channel.level of the channel. Vertical Conflict occurs between different levels of theVertical Conflict occurs between different levels of the
same channel.same channel.
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Vertical Marketing SystemVertical Marketing System
A distribution channel structure in whichA distribution channel structure in which
producers, wholesalers, and retailers actproducers, wholesalers, and retailers act
as a unified system.as a unified system.
One channel member owns the other, hasOne channel member owns the other, has
contracts with them, or has so muchcontracts with them, or has so muchpower that they all cooperate.power that they all cooperate.
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Types of Vertical Marketing SystemTypes of Vertical Marketing Systems
CorporateCommon Ownership at DifferentLevels of the Channel
CorporateCommon Ownership at Different
Levels of the Channel
ContractualContractual Agreement Among
Channel Members
ContractualContractual Agreement Among
Channel Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
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Conventional Distribution Channel vs.Conventional Distribution Channel vs.
Vertical Marketing SystemsVertical Marketing Systems
VerticalVerticalmarketingmarketingchannelchannel
Manufacturer
Retailer
ConventionalConventionalmarketingmarketingchannelchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
W
ho
lesa
ler
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Changing Channel OrganizationChanging Channel Organization
Disintermediation:Disintermediation: Occurs when product and service producersOccurs when product and service producers
cut out intermediaries and go directly to finalcut out intermediaries and go directly to final
buyers, or when radically new types ofbuyers, or when radically new types ofchannel intermediaries displace traditionalchannel intermediaries displace traditional
ones.ones.
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Channel Design DecisionsChannel Design Decisions
Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs
Setting Channel Objectives & ConstraintsSetting Channel Objectives & Constraints
ExclusiveDistribution
ExclusiveDistribution
SelectiveDistribution
SelectiveDistribution
IntensiveDistribution
IntensiveDistribution
Identifying Major AlternativesIdentifying Major Alternatives
Evaluatin the Ma or AlternativesEvaluatin the Ma or Alternatives
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Analyzing Consumer NeedsAnalyzing Consumer Needs
Answering key questions helps to determineAnswering key questions helps to determine
customer needs:customer needs:
Do consumers want to buy from nearby locationsDo consumers want to buy from nearby locationsor are they willing to travel?or are they willing to travel?
Do they value breadth of assortment or do theyDo they value breadth of assortment or do they
prefer specialization?prefer specialization?
Do consumers want many add-on services?Do consumers want many add-on services?
Firm must balance needs against costs andFirm must balance needs against costs and
consumer price preferences.consumer price preferences.
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Setting Channel ObjectivesSetting Channel Objectives
State objectives in terms of targeted levels ofState objectives in terms of targeted levels of
customer service.customer service.
Channel objectives are influenced by:Channel objectives are influenced by: CostCost
Nature of the companyNature of the company
The firms productsThe firms products
Marketing intermediariesMarketing intermediaries CompetitorsCompetitors
EnvironmentEnvironment
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Identifying Major AlternativesIdentifying Major Alternatives
Types of IntermediariesTypes of Intermediaries Company sales forceCompany sales force
Manufacturers agencyManufacturers agency
Industrial distributorsIndustrial distributors
Number of intermediariesNumber of intermediaries Intensive distributionIntensive distribution
Exclusive distributionExclusive distribution Selective distributionSelective distribution
Responsibilities of intermediariesResponsibilities of intermediaries
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Evaluating the MajorEvaluating the Major
AlternativesAlternatives
Economic Criteria:Economic Criteria: A company compares the likely sales, costs, andA company compares the likely sales, costs, and
profitability of different channel alternatives.profitability of different channel alternatives.
Control Issues:Control Issues: How and to whom should control be given?How and to whom should control be given?
Adaptive Criteria:Adaptive Criteria: Consider long-term commitment vs. flexibility.Consider long-term commitment vs. flexibility.
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Channel ManagementChannel Management
DecisionsDecisions
Selecting channel membersSelecting channel members
Managing and motivating channelManaging and motivating channel
membersmembers Partner relationship managementPartner relationship management
Evaluating channel membersEvaluating channel members
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Marketing LogisticsMarketing Logistics
Planning, implementing, and controlling thePlanning, implementing, and controlling the
physical flow of goods, services, andphysical flow of goods, services, and
related information from points of origin torelated information from points of origin topoints of consumption to meet customerpoints of consumption to meet customer
requirements at a profit.requirements at a profit.
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Market logistics planningMarket logistics planning
Market logistics planning has four steps:Market logistics planning has four steps: Deciding on the companys value proposition to its customersDeciding on the companys value proposition to its customers
Deciding on the best channel design and network strategy forDeciding on the best channel design and network strategy for
reaching the customerreaching the customer
Developing operational excellence in sales forecasting,Developing operational excellence in sales forecasting,warehouse management, transportation management andwarehouse management, transportation management and
materials management.materials management.
Implementing the solution with the best information systems,Implementing the solution with the best information systems,
equipment, policies and procedures.equipment, policies and procedures.
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Goals of the Logistics SystemGoals of the Logistics System
& Major Logistics Functions& Major Logistics Functions
Goals of the Logistics System:Goals of the Logistics System: Deliver a targeted level of customer service at the leastDeliver a targeted level of customer service at the least
cost.cost.
Major Logistics Functions:Major Logistics Functions: WarehousingWarehousing
Inventory managementInventory management
TransportationTransportation
Logistics information managementLogistics information management
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WarehousingWarehousing
How many, what types, and where?How many, what types, and where?
Storage warehousesStorage warehouses
Distribution centersDistribution centers
Automated warehousesAutomated warehouses
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Inventory ManagementInventory Management
Must balance between too much and tooMust balance between too much and too
little inventory.little inventory.
Just-in-time logistics systemsJust-in-time logistics systems RFID or Smart Tag technologyRFID or Smart Tag technology
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TransportationTransportation
TrucksTrucks
RailroadsRailroads
Water carriersWater carriers
PipelinesPipelines
AirAir
InternetInternet
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Integrated Logistics ManagementIntegrated Logistics Management
The logistics concept that emphasizesThe logistics concept that emphasizes
teamwork, both inside the company and amongteamwork, both inside the company and among
all the marketing channel organizations, toall the marketing channel organizations, to
maximize the performance of the entiremaximize the performance of the entire
distribution system.distribution system. Involves:Involves:
Cross-functional teamwork inside the companyCross-functional teamwork inside the company
Building logistics partnershipsBuilding logistics partnerships
Third-party logisticsThird-party logistics