Distribution Channels Distribution channel a set of interdependent

Distribution Channels

Distribution channel - a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

Distribution channel functions a. information - gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange

B. Promotion - developing and spreading persuasive communications about an offer.

C. Contact - finding and communicating with prospective buyers.

D. Matching - shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging

E. Negotiation - reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.

F. Physical distribution transporting and storing goods.

G. Financing - acquiring and using funds to cover the costs of the channel work

H. Risk taking - assuming the risks of carrying out the channel work

Channel level - a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Customer marketing channels channel 1 = manufacturer to consumer

Channel 2 = manufacturer, retailer, to consumer

Channel 3 = manufacturer, wholesaler, retailer, to consumer

Channel 4 = manufacturer, wholesaler, jobber, retailer, to consumer

Business marketing channels channel 1 = manufacturer to industrial customer

Channel 2 = manufacturer, industrial distributor, to industrial customer

Channel 3 = manufacturer, manufacturer’s representatives of sales branch, to industrial customer

Channel 4 = manufacturer, manufacturer’s representatives or sales branch, industrial distributor, to industrial customer

Channel conflict - disagreement among marketing channel members on goals and sales-who should do what and for what rewards

Horizontal conflict- occurs among firms at the same level of the channel.

Vertical conflict - conflicts between different levels of the same channel.

Conventional distribution channel - consisting of one or more independent producers, wholesalers, and retailer, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.

Vertical Marketing system(VMS) - producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.

Corporate VMS - combines successive stages of production and distribution under single ownership.

Contractual VMS - independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.

Franchise organization - a contractual VMS in which a channel member, called a franchiser, links several stages in the production-distribution process.

Forms of Franchises 1. manufacturer-sponsored retailer franchise system - found in the car industry. Ex: Ford licenses dealers to sell its cars.

2. Manufacturer-sponsored wholesaler franchise system - found in the soft drink industry. Ex: coca cola licenses bottlers in various markets who buy coca cola syrup concentrate and then carbonate, bottle, and sell the finished product to retailer in the local markets.

3. Service-firm-sponsored retailer franchise system - a service firm licenses a system of retailers to bring its services to consumers. Ex: Avis, Mc. Donald, Holiday Inn

Administrative VMS coordinates successive stages of production and distribution, not through common ownership or contractual ties but through the size and power of one of the parties.

Horizontal marketing system - a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

Hybrid marketing channel multichannel distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Disintermediation - the elimination of a layer of intermediaries from a marketing channel or the displacement of traditional resellers by radically new types of intermediaries.

Channel Design Decisions 1. Analyzing consumer service needs (Do consumers want to buy from nearby locations or are they willing to travel to more distant centralized locations; prefer to buy in person, thru telephone, mail, or internet; do they value assortment;

2. Setting channel objectives and constraints - should be stated in terms of the desired service level of target consumers. Ex: to distribute the goods in the most economical way, using shorter channels and dropping unneeded services that add to the final price.

3. Identifying major alternatives - in terms of types of intermediaries, the number of intermediaries, and the responsibilities of each channel member.

Channel alternatives (types of intermediaries) a. company sales force b. manufacturer’s agency independent firms whose sales forces handle related products from many companies c. industrial distributors

strategies for the number of marketing intermediaries a. intensive distribution - stocking the product in as many outlets as possible b. exclusive distribution -giving a limited number of dealers the exclusive right to distribute the company’s products in their territories.

c. selective distribution - the use of more than one, but fewer than all, of the intermediaries who are willing to carry the company’s products.

responsibilities of channel members in terms of price policies, conditions of sale, territorial rights, and specific services to performed by each party.

4. Evaluating the major alternatives in terms of economic criteria, control issue, and adaptive criteria.

Physical Distribution and Logistics Management

Physical distribution (marketing logistics) - the tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Major logistics functions Order processing warehousing inventory transportation

Distribution center - a large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible

Intermodal transportation - combining two or more modes of transportaion. Piggyback - use of railroad and trucks fishyback - water and trucks trainship -water and train airtruck - air and truck

Integrated logistics management - the logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.

Third-party logistics - an independent logistics provider that performs any or all of the functions required to get their clients’ products to market.

Retailing - all activities involved in selling goods or services directly final consumers for their personal, nonbusiness use.

Retailer - business whose sales come primarily from retailing

Types of Retailers

In terms of: A. Amount of service 1. self-service retailers 2. limited-service retailers - provide more sales assistance because they carry more shopping goods about which customers ned information. full-service retailers

3. full-service retailers - sales people assist customers in every aspect of the shopping process.

B. Product line 1. specialty store - carries a narrow product line with a deep assortment within that line. 2. department store - carries a wide variety of product lines -typically clothing, home furnishings, and household goods.

3. Supermarket- large, low cost, low margin, high volume, self-service store that carries a wide variety of food, laundry, and household products. 4. convenience store- a small store, located near a residential area, that is open long hours seven days a week and carries a limited line of high turnover convenience goods.

5. superstore - twice the size of a regular supermarket that carries a large assortment of routinely purchased food and nonfood items and offers services such as dry cleaning, post offices, photo finishing, check cashing, bill paying, lunch counter, care, and pet care.

. 6. category killer - giant specialty store that carries a very deep assortment of a particular line and is staffed by knowledgeable employees.

C. Relative prices 1. discount store - sells standard merchandise at lower prices by accepting lower margins and selling at higher volume. 2. off-price retailer - buys at less than regular wholesale prices and sells at less than retail.

Types. independent off-price retailers - either owned and run by entrepreneurs or is division of larger retail corporation. . factory outlet - owned and operated by a manufacturer and that normally carries the manufacturer’s surplus, discontinued, or irregular goods.

warehouse club - sells a limited selection of brand name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay annual membership fees.

D. Retail Organizations

1. corporate chain stores - two or more outlets that are commonly owned and controlled, employ central buying and merchandising, and sell similar lines of merchandise. 2. voluntary chains - retailer wholesaler-sponsored groups of independent retailers engaged in bulk buying and common merchandising.

3. Retailer cooperatives - groups of independent retailers who set up a central buying organization and conduct joint promotion efforts. 4. franchise organizations

5. merchandising conglomerates- A free-form corporation that combines several diversified retailing lines and forms under central ownership, along with some integration of their distribution and management function.

shopping center - a group of retail businesses planned, developed, owned, and managed as a unit

wheel of retailing concept - a concept of retailing that states that new types of retailers usually begin as lowmargin, low price, low status operations but later evolve into higher-priced, higher service operations, eventually becoming like the conventional retailer they replaced.

wholesaling - all activities involved in selling goods and services to those buying for resale or business use. Wholesaler - a firm engaged primarily in wholesaling activity.

types of wholesalers merchant wholesaler - independently owned business that takes title to the merchandise it handles.

agent - represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods

broker - does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation

manufacturer’s sales branches and offices - wholesaling by sellers or buyers themselves rather than through independent wholesalers.