12-1

12-1

Distribution Channels
and
Logistics Management

Copyright 1999 Prentice Hall

What
What is
is aa Distribution
Distribution Channel?
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.
Channel decisions are among the most
important decisions that management
faces and will directly affect every other
marketing decision.

Copyright 1999 Prentice Hall

12-2
12-2

Why
Why are
are Marketing
Marketing Intermediaries
Intermediaries
Used?
Used?
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

Match supply and demand.

Copyright 1999 Prentice Hall

12-3
12-3

Distribution
Distribution Channel
Channel Functions
Functions
All

Use Up Scarce Resources

All May Often Be Performed Better Through Specialization

All Can Often Be Shifted Among Channel Members

Risk
Risk Taking
Taking

Information
Information

Financing
Financing

Promotion
Promotion

Physical
Physical
Distribution
Distribution

Contact
Contact

Negotiation
Negotiation

Copyright 1999 Prentice Hall

Matching
Matching

12-4
12-4

Consumer
Consumer Marketing
Marketing Channels
Channels &
& Levels
Levels
Channel Level - A Layer of Intermediaries that Perform Some Work in
Bringing the Product and its Ownership Closer to the Buyer.

Channel 1

Direct
Direct

M
M

CC

Indirect
Indirect

Channel 2
M
M

RR

CC

RR

CC

RR

CC

Channel 3
M
M

W
W

Channel 4
M
M

W
W

JJ

Channel
Channel Behavior
Behavior &
& Conflict
Conflict

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12-6

The channel will be most effective when:

each member is assigned tasks it can do best.
all members cooperate to attain overall channel goals and
satisfy the target market.

When this doesnt happen, conflict occurs:

Horizontal Conflict occurs among firms at the same level of
the channel.
Vertical Conflict occurs between different levels of the
same channel.

For the channel to perform well, conflict must be

managed.

Copyright 1999 Prentice Hall

Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Greater

Corporate
Corporate

Common
Common Ownership
Ownership at
at Different
Different
Levels
Levels of
of the
the Channel
Channel

Degree
Degree
of
of
Direct
Direct
Control
Control

Contractual
Contractual

Contractual
Contractual Agreement
Agreement Among
Among
Channel
Channel Members
Members

Administered
Administered

Lesser

Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
aa Few
Few Dominant
Dominant Members
Members

Copyright 1999 Prentice Hall

12-7
12-7

Vertical
Vertical Marketing
Marketing Systems
Systems

12-8
12-8

Vertical
Vertical
Marketing
Marketing
Systems
Systems (VMS)
(VMS)

Contractual
Contractual
VMS
VMS

Corporate
Corporate
VMS
VMS

Wholesaler
Wholesaler
Sponsored
Sponsored
Voluntary
VoluntaryChain
Chain

Retailer
Retailer
Cooperatives
Cooperatives

ManufacturerManufacturerSponsored
Sponsored
Retailer
Retailer
Franchise
Franchise System
System

ManufacturerManufacturerSponsored
Sponsored
Wholesaler
Wholesaler
Franchise
FranchiseSystem
System

Copyright 1999 Prentice Hall

Administered
Administered
VMS
VMS

Franchise
Franchise
Organizations
Organizations

Service-FirmService-FirmSponsored
Sponsored
Franchise
FranchiseSystem
System

Innovations
Innovations in
in Marketing
Marketing Systems
Systems
Horizontal
HorizontalMarketing
Marketing
System
System

Hybrid
HybridMarketing
Marketing
System
System

Two or More
Companies at One
Channel Level Join
Together to Follow a
New Marketing
Opportunity.

A Single Firm Sets

Up Two or More
Marketing Channels
to Reach One or
More Customer
Segments.

Example:

Example:

Banks in Grocery
Stores

Retailers, Catalogs,
and Sales Force

Copyright 1999 Prentice Hall

12-9
12-9

Channel
Channel Design
Design Decisions
Decisions

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12-10

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs
Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints
Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive
Distribution
Distribution

Selective
Selective
Distribution
Distribution

Exclusive
Exclusive
Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives

Copyright 1999 Prentice Hall

Channel
Channel Management
Management Decisions
Decisions

Motivating
Motivating

Evaluating
Evaluating

Copyright 1999 Prentice Hall

FEEDBACK

Selecting
Selecting

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12-11

Nature
Nature and
and Importance
Importance of
of Marketing
Marketing
Logistics
Logistics

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12-12

Involves getting the right product to the right

customers in the right place at the right time.
Companies today place greater emphasis on
logistics because:
effective logistics is becoming a key to winning and
keeping customers.
logistics is a major cost element for most companies.
the explosion in product variety has created a need
for improved logistics management.
information technology has created opportunities for
major gains in distribution efficiency.

Copyright 1999 Prentice Hall

Goals
Goals of
of the
the Logistics
Logistics System
System

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12-13

Provide a Targeted Level of Customer Service at

the Least Cost.
Maximize Profits, Not Sales.
Higher Distribution Costs/
Higher Customer Service Levels

Lower Distribution Costs/

Lower Customer Service Levels

Copyright 1999 Prentice Hall

Logistics
Logistics Systems
Systems

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12-14

Order
OrderProcessing
Processing

Costs
Costs

Submitted
Submitted
Processed
Processed
Shipped
Shipped

Minimize
MinimizeCosts
Costsof
of
Attaining
AttainingLogistics
Logistics
Objectives
Objectives

Logistics
Functions

Transportation

Warehousing
Warehousing
Storage
Storage
Distribution
Distribution

Water, Truck,
Rail,
Pipeline & Air

Inventory
Inventory

When
Whento
toorder
order
How
Howmuch
muchto
toorder
order
Just-in-time
Just-in-time

Copyright 1999 Prentice Hall

12-15
12-15

Transportation
Transportation Modes
Modes
Rail
Rail

Nations
Nationslargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback

Truck
Truck

Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods

Water
Water

Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form

Pipeline
Pipeline

Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets

Air
Air

High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items

Copyright 1999 Prentice Hall

Choosing
Choosing Transportation
Transportation
Modes
Modes
Checklist for Choosing
Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.

Copyright 1999 Prentice Hall

12-16
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Integrated
Integrated Logistics
Logistics Management
Management

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12-17

Concept Recognizes that Providing Better Customer

Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.
Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside
the
the Company
Company
Building
Building Channel
Channel Partnerships
Partnerships
Third-Party
Third-Party Logistics
Logistics

Copyright 1999 Prentice Hall