place decisions practitioners

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STRATEGIC

DECISIONS

PLACEMENT


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Definition

A distribution channel is a set of independent

organizations involved in the process of making a

product or service available for use or

consumption by the consumer or business user. The channels ease the transfer of ownership as

products move from producer to user.

Also called marketing intermediaries


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Why use intermediaries?

Lack of financial resources to carry out directmarketing

When direct marketing is not feasible eg

sweets There are higher returns investing in the main

business than establishing own channels

Channels achieve higher efficiency in making

good available and accessible to targetmarkets.

Provide economies by matching supply todemand


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Functions of channelsThey overcome the time, place and possessions

gaps that separate goods and services fromthose who want them

Information gather & distribute

Promotion develop and disseminate persuasivecommunications

Contacts find and communicate with respectivebuyers

Matching Shaping and fitting the offer to buyersneeds

Physical distribution storage and transportingphysical products


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Types of intermediaries

Retailer

MerchantWholesaler

Agents andBrokers

A channel intermediary thatsells mainly to customers.

Take title to goods and Risk

An institution that buys goodsfrom manufacturers, takes title

to goods, stores them,and resells and ships them.Take title to goods and Risk

Wholesaling intermediaries who facilitatethe sale of a product by representing

channel member.Do not take title to goods


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Each layer of marketing intermediaries that

perform some work in bringing the product and

its ownership closer to the final buyer is a

channel level

Zero level direct channel / marketing

producer sells directly

One level channel 1 intermediary eg retailer

Two level channel 2 intermediaries Three level channels 3 intermediaries

Channel Levels


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Channels for Consumer Products

Producer Producer Producer Producer

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents orBrokers

WholesalerChannel

RetailerChannel

DirectChannel

Agent/BrokerChannel


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Channels for B2B Products

Producer Producer Producer Producer

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialDistributor


Agents orBrokers

Agents orBrokers

Agent/BrokerChannel


DirectChannel

Producer

GovernmentBuyer

DirectChannel

Agent/BrokerIndustrialChannel


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Channel Organization

A conventional marketing channelcomprises of an independent producer,wholesaler and retailer - traditional

New models

Vertical marketing systems - VMS

Horizontal marketing systems HMS

Multichannel marketing systems - MMS


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Vertical Marketing Systems

A VMS comprises of the producer, wholesaler(s)and retailer(s) acting as a unified system

One channel member (channel captain) owns the

others and has so much power that they all co-

operate.

Corporate VMS

Administered VMS

Contractual VMS


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Horizontal Marketing Systems

Two or more unrelated companies put togetherresources or programs to exploit an emerging

market opportunity. Eg in store banking


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Multi-channel MarketingSystems

A single firm uses more than one marketing

channel to reach one or more customer

segments.


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Channel Behaviour

Each member plays a role in the channel and

specializes in performing one or more functions

Channel conflict disagreement among

marketing channel members on goals and roles

Vertical channel conflict between differentmembers within same channel

Horizontal channel conflict between members at

the same level within the channel

Multichannel conflict between two or more

channels that sell to the same market


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Causes of conflict

Goal incompatibility

Market penetration

Low price policy

Unclear roles and rights - territories

Dependence on producer


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Channel Design Decisions

The channel system evolves in response to localopportunities and conditions

4 steps in designing a channel system Analyzing customer needs

Establishing channel objectives

Identifying major channel alternatives

Evaluating major channel alternatives


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Analyzing Customers NeedsChannels produce 5 service outputs

Lot size number of units the channel permits a

customer to purchase on one occasion

Waiting time customers prefer fast delivery

Convenience ease of purchase

Product variety assortment breadth provided

Service backup add on services

The higher the service output, the higher the

channel costs and hence higher prices for

customers.


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Establish Objectives & Constraints

Stated in terms of targeted service output levels Product characteristics

Company characteristics

Intermediaries characteristics

Competitors channels

Environmental factors


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Channel Design Decisions

The channel system evolves in response to localopportunities and conditions

4 steps in designing a channel system Analyzing customer needs

Establishing channel objectives

Identifying major channel alternatives

Evaluating major channel alternatives


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Identify Major Alternatives

Wide variety of channels for reaching customers

Various channel alternatives are described by

Types of business intermediaries available

Sales force, internet, distributors, franchise

Number of intermediaries needed

Exclusive, selective, intensive

Terms and responsibilities of each channel

member


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Evaluate Major Alternatives

Economic Criteria associated sales and costs. 4 steps in designing a

channel system

Control Criteria

Level of control desired by firm

Adaptive Criteria

The producer and channel must be able to adapt quicklyto each other, intermediaries other lines carried, size

and quality of their sales force.


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Level of distribution intensity

Intensity Level Objective Number ofIntermediaries

Intensive

Selective

Exclusive

Achieve mass marketselling.

Convenience goods.

Work with selectedintermediaries.

Shopping and somespecialty goods.

Work with singleintermediary. Specialtygoods and industrial

equipment.

Many

Several

One


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Channel Management Decisions

Selecting channel members

Training

Motivating

Evaluating

Modifying

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