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Chap 12

Uploaded by

m.aaaa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Marketing Channels

and Supply Chain


Management

Chapter 12

1
Issues Concerning Distribution
Channels

What is the What Problems


Nature do
Of Distribution Companies
Channels? Face in
Designing and
Managing Their
How do Channel Channels?
Firms Interact
and
Organize to do
the
Work of the
Channel?
Marketing/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.

A strong distribution system can be a competitive


advantage.

Channel decisions involve long-term commitments to


other firms.
Value Delivery Network
The network made-up of the company, suppliers, distributors and
ultimately customers who “partner” with each other to improve the
performance of the entire system in delivering customer value.
Upstream partners: set of firms that supply stuffs needed to create a
product or service.
Down stream partners: firms that help producers to deliver products to
the customers.
Nature & Importance of
Marketing Channels
How Channel Members Add Value
■ Intermediaries require fewer contacts to move the
product to the final purchaser.

■ Intermediaries help match product assortment demand


with supply.

■ Intermediaries help bridge major time, place, and


possession gaps that separate products from those
who would use them.
How a Marketing Intermediary Reduces
the Number of Channel Transactions
Distribution Channel Functions
Functions Should be Assigned to the Channel Member Who Can Perform Most Efficiently and
Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers.

Risk Taking Information

Financing Promotion

Distribution
Contact
Physical

Negotiation Matching
Number of Channel Levels
Channel Level - Each Layer of Marketing Intermediaries that Perform
Some Work in Bringing the Product and its Ownership Closer to the
Final Buyer.

Channel 1 Direct Channel


M C

Channel 2 Indirect Channel


M R C

Channel 3
M W R C
Channel Behavior and Organization
Channel Conflict
■ Occurs when channel members disagree on roles, activities, or
rewards. Who should do what and for what rewards?
■ Types of Conflict:
Horizontal conflict: occurs among firms at the
same channel level e.g: Dealers’ conflict, or retailer to retailer
Vertical conflict: occurs among firms at different channel levels e.g.
Conflict between parent company and re-sellers.
For the channel to perform well, each channel member’s
role must be specified and conflict must be managed.
Conventional Marketing Channel Vs. a
Vertical Marketing System
Conventional Vertical
Marketing Marketing
Channel System
Manufacturer
Manufacturer

Wholesaler
Wholesaler

Retailer
Retailer

Consumer Consumer
Conventional Vs Vertical Marketing System:
Conventional System:
■ A channel consisting of one or more independent producers, wholesalers,
retailers, each a separate business seeking to maximize its own profits, even at the
expense of profits for the system as a whole.
Vertical System (VMS):
■ A channel structure where 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.
Vertical Marketing System (VMS):
Corporate VMS
■ Combines successive stages of production and distribution
under single ownership.
■ Leadership is established through common ownership.
■ Forward integration Vs Backward integration.
Contractual VMS
■ Independent firms at different levels of production and
distribution join together through contracts.
Administered VMS
■ Coordinates successive stages of production and distribution
through the size and power of one of the parties.
Other systems:
Horizontal Marketing System
■ A channel arrangement in which two or more companies at one level join together to follow a new
marketing opportunity. For example, a soft drink company may combine with a chips producer
and the two products are marketed and distributed together.

Multichannel Distribution System


■ In cases where a marketer utilizes more than one distribution design. Starbucks follows this
approach as their distribution design includes using a direct retail system by selling in
company-owned stores, single-party selling system by selling through grocery stores.
Other systems:
Disintermediation
■ removal of intermediaries in a supply chain
Evaluating the Major Alternatives
Exclusive Selective Intensive
Distribution Distribution Distribution
Identifying Major Alternatives
Setting Channel Objectives & Constraints
Analyzing Consumer Service Needs
Channel Design Decisions
Channel Design Decisions
Step 1: Analyzing Consumer Needs
■ Cost and feasibility of meeting needs must be
considered
Do consumers want to buy from nearby locations?
Do they want add-on services?
Would they buy in person or over phone or via the Internet?
Channel Design Decisions
Step 2: Setting Channel Objectives
■ Set channel objectives in terms of targeted level of
customer service
■ Many factors influence channel objectives
Nature of the company: size and financial situation
Its products: perishable or durable
Its competitors: avoid channels used by competitors. E.g.
Avon
Economic conditions: depressed economy
Channel Design Decisions
Step 3: Identifying Major Alternatives
■ Types of intermediaries
Company sales force, distributors, wholesalers, retailers
■ Number of marketing intermediaries
Intensive, selective, and exclusive distribution
■ Responsibilities of channel members: Agree on price
policies, territorial rights, ad specific services to be performed by
each party.
Number of marketing intermediaries
Intensive
■ Stocking the product in as many
outlets as possible
■ Used for Convenience Goods Even found sold in a boat floating
down a deserted section of the Nile
River, says one Globe and Mail
Selective reporter
■ Using more than one but fewer
than all of the intermediaries who
are willing to carry the company's
products
■ Used for Shopping Goods In some selected places. We may
not find a GE appliance in a small
department store
Exclusive
■ Giving a limited number of
dealers the exclusive right to
distribute the company's products
in their territories
■ Used for Specialty Goods
We can’t buy a rolls Royce or a
ferrari just from anywhere
Channel Design Decisions
Step 4: Evaluating Major Alternatives
■ Economic criteria: compare the likely sales, costs and
profitability of different channel alternatives.

■ Control issues: how much control to be given over the


marketing of the product.

■ Adaptive criteria: flexibility of channel members to


adapt with environmental changes.
Evaluating Channel Members
Motivating Channel Members

FEEDBACK
Selecting Channel Members
Channel Management Decisions

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