What is a Distribution Channel?

A set of interdependent organizations

(intermediaries) involved in the process of
making a product or service available for use
or consumption by the consumer or business
user.
Marketing Channel decisions are among the
most important decisions that management
faces and will directly affect every other
marketing decision.
Why are Marketing Intermediaries
Used?
The use of intermediaries results from their greater
efficiency in making goods available to target
markets.
Offer the firm more than it can achieve on its own
through the intermediaries:
Contacts,
Experience,
Specialization,
Scale of operation.
Purpose: match supply from producers to demand
from consumers.
Distribution
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DISTRIBUTION
Distribution Channel Functions
Ordering
Payments
Communication
Transfer
Negotiation
Financing
Risk Taking
Physical
Distribution
Information
Typical Channels of Distribution
ANUFACTURER ONSUMER
HOLESALER
ETAILER
GENT
Business-to-Business Channels
Direct
Wholesaler
Agent
Business-to-Business Channel Trends
Infomediaries & Vertical Exchange
Conventional Distribution Channel vs.
Vertical Marketing Systems
Vertical
marketing
channel
Manufacturer
Retailer
Conventional
marketing
channel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
W
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Types of Vertical Marketing Systems
Corporate
Common Ownership at Different
Levels of the Channel
Contractual
Contractual Agreement Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members
Vertical Marketing Systems
Corporate systems total/Common Ownership
Administered - strong leadership
Contractual - legal relationships
Planning the Channel of Distribution
Determining the structure
Marketing mix strategy
Organizational resources
External environmental factors
Market characteristics
Consumer preferences and behavior
The nature and availability of Intermediaries
Other environmental factors
Customers Desired Service Levels
Lot size
Waiting time
Spatial convenience
Product variety
Service backup
Steps in Distribution Planning
Intensive
Distribution
Exclusive
Distribution
Selective
Distribution

Distribution
Intensity

Choosing a Distribution System
Intensive Distribution
Seeks to obtain
maximum product
exposure at the
retail level
Producer
Retailer Retailer Retailer
Retailer
Retailer Retailer
Retailer
Retailer
Retailer Retailer Retailer
Retailer
Retailer Retailer Retailer
Selective Distribution
Product is sold in a
limited number
of outlets
Producer
Retailer Retailer Retailer
Retailer Retailer Retailer
Product is sold in only
one outlet in a given
area
Producer
Retailer
Exclusive Distribution
Developing Distribution Tactics
Selecting Channel Partners
Reward or
Coercive
Power
Legitimate
Power
Economic
Power
Managing the Channel of Distribution
Channel Leader Power
Distribution Channels & the Marketing Mix
Materials Handling
Moving Products Into,
Within, and
Out of Warehouses
Warehousing
Number Needed
Where
What Type
Inventory
Control
When to order
How much to order

Order Processing
Received
Processed
Shipped
Physical
Distributio
nFunctions Transportation
Rail, Water,
Trucks, Air,
Pipeline, Internet
Physical Distribution
Rail
Cost-effective for shipping bulk products,
piggy-back, fishyback, birdyback.
Water
Low cost for shipping bulky, low-value,
non perishable goods, slowest form.
Truck
Most important carrier for consumer
goods, flexible.
Air
High cost, ideal when speed is needed or
distant markets have to be reached
Pipeline
Carry petroleum based products,
very low cost, requires little energy.
Transportation Modes
I nternet
Web sites have products available, used
especially for services.
Channel Relationships
Cooperation
Conflict
Power
Coercive
Expert
Legitimate
Decision Making Framework
Prospects
of
Destructive
Conflict
Importance of threatened
channel in terms of current or
potential volume or profitability
High Low
High (FIRE) Act to prevent or
address conflict
Allow threatened
channel to
decline
Low
(Smoke)
Look for opportunities
to reassure threatened
channel and leverage
your power
Do nothing
Channel Conflict: Identifying Threats
First, are the channels really attempting to
serve the same end users?
Second, do channels mistakenly believe they
are competing when in fact they are benefiting
from each other's actions?
Third, is the deteriorating profitability of a
griping player genuinely the result of another
channel's encroachment?
Fourth, will a channel's decline necessarily
harm a manufacturer's profits?
Managing Channel Conflict
When Two or More Channels Target The
Same Customer Segment
Differentiate the Channel offer
Define Exclusive Territories
Enhance or Change the Channels
Value
Managing Channel Conflict
Channel Economics Deteriorate
Change the channels economic formula: (Grant
rebates if an intermediary fulfill certain requirements;
Adjust margins between products to support different
channel economics; and Treat channels fairly to create
level playing field)
Create Segment Specific Programs (certain services
not available via direct channels)
Complement value proposition of the existing channel
by introducing a new channel
Foster consolidation among intermediaries in a
declining channel
Managing Channel Conflict
Threatened Channel Stop Performing or
Retaliate Against The Supplier
Leverage Power (e.g. Strong Brand) against the
channel to prevent retaliation
Migrate volume to winning channel
Back off
Other Distribution Management
Issues
Reverse distribution
One Coca Cola
Distributor
One thousand
retailers
OK
Difficult
Ethical, Political, & Legal