Dr Close CHANNELS DISTRIBUTION Introduction to Channels 1
Dr. Close CHANNELS & DISTRIBUTION
Introduction to Channels (1) Channel: firms handling goods between production and consumption (Wal-Mart) Importance: Toughest “P” to change: expense (Sears) Functions: producers & consumers are far apart (geographically & desires)
Introduction to Channels (2) Adjusting Discrepancies (also customers generally do not want to shop separately) Middlemen: Discrepancies of quantity Producers make a lot of each item (examples? ? ) Consumers want just a few (P&G: toothpaste) Middlemen: Discrepancies of Assortment Consumers want many types of items (examples? ? ) Producers make a few types (Ford; diversity)
Introduction to Channels (3) How we change quantity & assortment: regrouping activities Middlemen: Adjusting quantity Accumulating: collect products from many small producers (shipping firm; farmer market; what else? ? ) Bulk breaking: reducing quantity as products move to consumer (autos)
Introduction to Channels (4) Middlemen: Adjusting assortment Sorting: group by grade quality (mutual funds; agricultural products; bonds; what else? ? ) Assorting: put items together in attractive offering (K-Mart) Many other types of intermediaries
Marketing Intermediaries ù Middleman – independent link between producers and consumers ù Merchant middleman – actually buys goods and takes title/ownership ù Agent – business unit that negotiates purchases and sales but does not take ownership ù Wholesaler – a merchant who primarily stores and handles goods in large quantities ù Retailer – merchant middleman who sells to final consumers ù Broker – middleman who serves as a go-between for the buyer and seller Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Marketing Intermediaries ù Manufacturer’s agent – an agent who operates by contract serving a geographic territory ù Distributor – wholesale middleman in lines with selective or exclusive distribution ù Jobber – a middleman who buys from manufacturers and sells to retailers ù Facilitating agent – a firm that performs distribution tasks other than buying, selling and transferring Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Channels & the Customer (1) Traditional: no cooperation Vertical marketing system Entire channel focuses on customer Over 60% of consumer products Any examples?
Vertical Marketing System Types of Vertical Marketing Systems Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Channels & the Customer (2) Variations on vertical marketing system Corporate channel: AKA vertical integration Buy/create own channel members (Wal-Mart, Motorola) Adv: greater control Dis: need great skill Administration channel Informal agreement to cooperate Grocery store Ordering: restock Promotion: displays
Channels & the Customer (3) Variations on vertical marketing system (cont…) Contractual Channel: formal, written agreement to cooperate (joint venture) Short term agreements also possible (movies, cereals, and what else? ? )
Outcomes (1) Goal: ideal market exposure – product available enough to meet (not exceed) needs. Alternatives: Intensive (Candy, gum) Good available at all suitable outlets Not necessarily all Adv: exposure Seen in growth and market maturity
Outcomes (2) Alternatives: Selective (Levi’s and what else? ? ) Only “better” outlets (those giving push) Gaining relative to intensive (80 -20 rule) Exclusive (fast food; Rolex; autos) One intermediary/area Expansion? (buy first, Mc. Donald’s)
Channels of Distribution Conventional Channels of Distribution of Consumer Goods Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Some Benefits of Wholesalers for Various Channel Members Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Major Functions Performed in Channels of Distribution Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Selecting Channels of Distribution ù In either the presence or the absence of a traditional channel, a primary constraint is that of the availability of various types of middlemen ù Selecting a channel of distribution can hinge on one of these factors ù Distribution coverage required ù Degree of control desired ù Total distribution cost ù Channel flexibility Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Selecting Channels of Distribution ù Distribution coverage – Channel selection may depend upon the nature of market coverage desired ù Intensive distribution – Using as many wholesalers and retailers as possible ù Selective distribution – Using only the best available per geographic area ù Exclusive distribution – Selected intermediaries are given exclusive rights within a particular territory Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Selecting Channels of Distribution ù Degree of control desired – Achieved by the seller is proportionate to the directness of channel ù Total distribution cost – Channel should be viewed as a total system composed of interdependent subsystems ù Objective should be to optimize total system performance ù Generally assumed that the total system should be designed to minimize costs, other things being equal ù Channel flexibility – Ability of the manufacturer to adapt to changing conditions Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Franchising: An Alternative to Conventional Channels of Distribution Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Franchising: An Alternative to Conventional Channels of Distribution Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Store Retailing ù Mass merchandisers – Carry broad assortments of goods and compete based on selection and price ù Specialty stores – Handle deep assortments in a limited number of product categories ù Limited-line stores ù Single-line stores ù Category killers ù Convenience stores – Retailers whose primary advantages are location convenience, close-in parking, and easy entry and exit Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Non-Store Retailing ù Catalogs and direct mail ù Vending machines ù Television home shopping ù Direct sales ù Electronic exchange ù E-cart abandonment Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Annual Nonstore Retail Sales Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
Electronic Commerce: Advantages and Disadvantages for Marketers Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved
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