Marketing Management Text and Cases Marketing Channels and Physical Distribution

18
Chapter
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Marketing Channels and Physical Distribution

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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Channel Functions
Channel Members Create Utility Channel Members Facilitate Exchange Efficiencies Channel Members May Reduce Discrepancies and Separations Other Functions

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Types of Channels
Consumer 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 A

Consumers B

Consumers C

Consumers D

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Industrial Product Channels

Marketing Channels for Industrial Products Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Agent

Industrial Distributors

Industrial Distributors

Industrial Buyers P

Industrial Buyers Q

Industrial Buyers R

Industrial Buyers S

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Factors Affecting Selection of Marketing Channel System

This includes product, company, customer, competition factors, PLC stages, objectives, and desired market coverage intensity and control etc.

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Channel Objectives
A companys 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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Some major factors that affect objectives are discussed below:

End Customer
Product Characteristics Company Factors Competition Product Life Cycle Stages

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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 Conditions

The 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 Alternatives

In 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 Intermediaries

Producers 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 Modification
Evaluation 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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Vertical, Horizontal, and Multichannel Marketing Systems

With 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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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 Systems

Horizontal 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 System

Some 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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Types of Conflict
In any distribution channel arrangement there can possibly develop three kinds of conflicts: Vertical channel conflict Horizontal channel conflict

Multichannel conflict

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Causes of Conflict
Major causes of conflict include:

Goal incompatibility,
Roles and rights ambiguity, and Differing perceptions.

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Intensity of Conflict
This refers to how serious is the conflict.

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Managing the Channel Conflict

Several approaches for effective conflict management: Regular Communication Forming Dealer Councils Co-option Arbitration and Mediation

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Physical Distribution
The term physical distribution is more appropriate to outgoing (outbound

logistics) or forward movement of products, services, and information from a firms 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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Order Processing
The receipt of order and transmission of sales order information is an important function of physical distribution.

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Managing Inventory
Inventory 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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Warehousing
Warehousing is an important physical distribution function and refers to the design and operation of facilities for storing and moving goods. 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.

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Transportation
There are five main transportation modes for moving goods that include:

Railways,
Roadways, Waterways,

Airways, and
Pipelines.

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Typical Means of Transporting Various Products

Railways Coal Lumber Chemicals Autos Steel Grain

Roadways Paper goods Clothing Computers Livestock Cement Scooters

Waterways Petroleum Iron ore Chemicals Grain Bauxite

Airways Overnight mail Flowers Emergency parts Instruments Perishable food

Pipelines Oil Natural gas Chemicals Processed coal Water

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