marketingchannelsandphysicaldistribution-marketingmanagement

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Dr S.l Gupta 18-1 Marketing Channels and Physical Distribution Marketing Management  Text and Cases 18-1 Marketing Channels and Physical Distribution 18 Chapter 

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Dr S.l Gupta18-1

Marketing Channels and Physical Distribution

Marketing Management Text and Cases

18-1

Marketing

Channels andPhysical

Distribution

18Chapter 

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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.” 

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Marketing Channels and Physical Distribution

Channel Functions Channel Members Create Utility

Channel Members Facilitate Exchange Efficiencies

Channel Members May Reduce Discrepancies and Separations

Other Functions

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Marketing Channels and Physical Distribution

Types of ChannelsConsumer Product Channels

zero-level channel

One-level channel

Two-level channel

Three-level channel

strategic channel alliance

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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

Industrial Distributors

Industrial 

Distributors

IndustrialBuyers

IndustrialBuyers

IndustrialBuyers

IndustrialBuyers

P Q R S

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Marketing Channels and Physical Distribution

Factors Affecting Selection of MarketingChannel System

This 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

Channel Objectives A company’s channel objectives aim at what the company seeks to

accomplish through marketing channels.

Some general objectives can be:

  Convenience to customers.

  Effective target market coverage.

  Cost-effective distribution.

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Marketing Channels and Physical Distribution

Some major factors that affect objectives are discussed below:

End Customer 

Product Characteristics

Company Factors

Competition

Product Life Cycle Stages

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Marketing Channels and Physical Distribution

Intensity of Market Coverage A 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

Channel Terms and ConditionsThe producer stipulates terms and condition and responsibilities of channel

partners to develop better mutual understanding and usually include price

policy and trade margins, payment terms, and territorial demarcation,

guarantee and returns policy, and mutual responsibilities etc.

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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

Channel Selection and Training After determining the most appropriate channel alternative, the producer 

selects the most qualified parties and arranges for their training.

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Marketing Channels and Physical Distribution

Performance Evaluation of IntermediariesProducers must periodically evaluate performance of dealers against laid

down and agreed upon parameters. The evaluation criteria differ across

industries and from one company to another in the same industry.

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Marketing Channels and Physical Distribution

Channel ModificationEvaluation of channel system in place may sometimes make it necessary

for the firm to modify it as a result of changes in buyer behaviour, market

conditions, availability of new and more effective and suitable alternatives,

and later PLC stages.

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Marketing Channels and Physical Distribution

Vertical, Horizontal, and MultichannelMarketing SystemsWith the passage of time and changes in business environment and

strategies, marketing channel systems evolve and new wholesaling and

retailing institutions appear.

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Marketing Channels and Physical Distribution

Vertical Marketing System (VMS)Vertical marketing system refers to an arrangement in which the whole

channel focuses on the same target market at the end of the channel.

There are three types of VMS – 

corporate

administered, and

contractual.

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Marketing Channels and Physical Distribution

Horizontal Marketing SystemsHorizontal marketing system occurs when two or more related or unrelated

companies working at the same level come together to exploit marketing

opportunities.

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Marketing Channels and Physical Distribution

Multichannel Marketing SystemSome companies use several marketing channels simultaneously to reach

diverse target markets. This system is also called hybrid channels or 

multichannel.

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Marketing Channels and Physical Distribution

Channel Conflicts and Cooperation“Channel conflict is a situation in which one channel member perceives another 

channel member(s) to be engaged in behaviour that prevents or impedes it from

achieving its goals. The amount of conflict is, to a large extent, a function of goal 

incompatibility, domain descensus, and differing perceptions of reality.”  

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Marketing Channels and Physical Distribution

Types of ConflictIn any distribution channel arrangement there can possibly develop

three kinds of conflicts:

Vertical channel conflict

Horizontal channel conflict

Multichannel conflict

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Marketing Channels and Physical Distribution

Causes of ConflictMajor causes of conflict include:

Goal incompatibility,

Roles and rights ambiguity, and

Differing perceptions.

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Marketing Channels and Physical Distribution

Intensity of ConflictThis refers to how serious is the conflict.

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Marketing Channels and Physical Distribution

Managing the Channel ConflictSeveral approaches for effective conflict management:

Regular Communication

Forming Dealer Councils

Co-option

Arbitration and Mediation

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Marketing Channels and Physical Distribution

Physical DistributionThe term physical distribution is more appropriate to outgoing (outbound

logistics) or forward movement of products, services, and information from a

firm’s manufacturing facility to customers, and involves defined network of 

transportation links, warehousing and storage, and finally delivery at the

destination in a cost effective manner within the desired time.

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Marketing Channels and Physical Distribution

Order ProcessingThe receipt of order and transmission of sales order information is an

important function of physical distribution.

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Marketing Channels and Physical Distribution

Managing InventoryInventory managing involves building and maintaining enough product

assortments to meet the customer demand.

Following formula can be used to calculate when to reorder:

Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock

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Marketing Channels and Physical Distribution

Warehousing

Some basic physical distribution functions of warehouses are given below:

Receiving goods and assuming responsibility.

Recording quantity of each item and marking with codes, tags, or physical

property etc.

Sorting goods to store in an appropriate area.

Dispatching goods for storage.

Holding products in properly protected condition until needed.

Recalling and picking products ordered by customers from storage.

Collecting for a single shipment, checking for completeness or explaining

omissions.

Warehousing is an important physical distribution function and refers to the

design and operation of facilities for storing and moving goods.

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Marketing Channels and Physical Distribution

TransportationThere are five main transportation modes for moving goods that include:

Railways,

Roadways,

Waterways,

Airways, and

Pipelines.

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Marketing Channels and Physical Distribution

Typical Means

of Transporting

Various

Products

Railways  Roadways  Waterways  Airways  Pipelines 

Coal  Paper goods  Petroleum  Overnight mail  Oil 

Lumber  Clothing  Iron ore  Flowers  Natural gas 

Chemicals  Computers  Chemicals  Emergency  Chemicals 

Autos  Livestock  Grain  parts  Processed 

Steel  Cement  Bauxite  Instruments  coal 

Grain  Scooters  Perishable food  Water