Chapter 15 Distribution Channel

Chapter 15
Distribution Channels and

Supply Chain Management
Boone
Boone&&Kurtz,
Kurtz,Contemporary
ContemporaryMarketing,
Marketing,Nineteenth
NineteenthEdition.
Edition.©©2022
2022Cengage.
Cengage.All AllRights
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
copiedororduplicated,
duplicated,ororposted
postedtotoaapublicly
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
Learning Objectives
15.1 Describe the four types of distribution channels.

15.2 Describe the three functions of marketing intermediaries.
15.3 Outline the five factors that influence selection of distribution channels.
15.4 List the key priorities for each function of the manufacturing supply chain.
15.5 Summarize methods for managing the warehousing and storage function
of the supply chain.
15.6 Compare the five major modes of transportation.
15.7 Given an example of a supply chain, identify methods for accomplishing
the priorities of that supply chain.
Boone & Kurtz, Contemporary Marketing, Nineteenth Edition. © 2022 Cengage. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Icebreaker
1. Choose one product.
2. Explain where could you find the product (internet, grocery stores, etc)
https://padlet.com/ctngayesah/7dk02whcio60xfwm
15-1
What are the Four Distribution Channels?
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-1 What are the Four Distribution Channels?
(1 of 6)
• Distribution channels: the individuals and organizations who manage the

flow of product from producers to consumers
• Also are called marketing channels
• A firm must analyze channels with regard to consumer needs to determine

the most appropriate channel(s) for its goods and services.
(2 of 6)
• Types of Distribution Channels

• The first step in choosing a distribution channel is to determine which type
of channel will best meet:
• Seller’s objectives
• Distribution needs of customers
• Four distribution channels:
• Direct channel
• Channels using marketing intermediaries
• Dual distribution
• Reverse channels
(3 of 6)
• Direct channel: carries goods directly from a producer to the ultimate user
• Simplest and shortest distribution channel
• Direct selling: a marketing tactic in which a producer establishes direct
sales contact with its product’s final users
• Important option for goods requiring demonstrations to persuade customers to buy
• A company can use more than one direct channel.
Exhibit 15.1 Direct Distribution Channels
(4 of 6)
• Marketing intermediary: an organization that operates between producers

and consumers to help bring the product to market
• More efficient, less expensive, and less time-consuming than direct channels
• Wholesalers: marketing intermediary who takes title to the goods, stores
them in warehouses, and distributes them to retailers, other distributors,
and sometimes end consumers
• Sales agent: a third-party person or company who represents the producer
to wholesalers and retailers
• A contracted sales force with expertise in a particular market or geography
• Particularly important for smaller firms
Exhibit 15.2 Distribution Channels Using Marketing
Intermediaries
(5 of 6)
• Vertical integration: is when a producer assumes control over functions

that were previously handled by an intermediary
• Example: Apple decided to open its own retail stores in addition to distributing its
products through other retailers.
Exhibit 15.3 Dual Distribution
(6 of 6)
• Reverse channels: channels designed to return goods to their producers
• Example: incurring a recycling charge for disposing of old tires when you buy new ones
• Have gained importance due to:
• Rising prices of raw materials
• Increased availability of recycling facilities
• Increased environmental sustainability
• Reverse channels also handle product recalls and repairs.
15-2
Functions of Intermediaries
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-2 Functions of Intermediaries (1 of 4)
• Intermediaries often can perform the distribution functions more effectively

and less expensively than the producer can.
• Intermediaries perform three functions:
• Facilitating the exchange process
• Lowering the cost of logistics
• Increasing a company’s sales and marketing infrastructure
Exhibit 15.4 Intermediaries Facilitate the Exchange
Process
• A producer can cut the costs of

buying and selling to multiple
customers by using an intermediary.
• Lower cost of logistics:
• By using intermediaries, a manufacturer doesn’t have the cost of:
• Buying or leasing its own warehouses to inventory product
• Operating its own fleet of vehicles to deliver product
• Instead, it can partner with:
• A logistics company to ship product
• A wholesaler who can inventory and deliver product to retailers or end-users
• Increase Sales and Marketing Infrastructure:
• Intermediaries provide cost-effective sales and marketing services to manufacturers.
• Instead of hiring thousands of sales reps to reach retailers and consumers across the
United States, a firm can:
• Work with large sales and marketing companies that have existing sales forces
• Partner with large retailers who have thousands of locations and service millions of existing
customers on a daily basis
• Short and Long Distribution Channels:

• A short distribution channel involves few intermediaries.
• Examples: business market products, service firms
• A long distribution channel involves several intermediaries working in succession to

move goods from producers to consumers.
15-3
Selecting Distribution Channels
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-3 Selecting Distribution Channels (1 of 7)
• A variety of factors affect the selection of a distribution channel:
• Market
• Product
• Organizational
• Competitive
• Intensity
• Market Factors: Products are intended for consumer or business market

end-users.
• Business market purchasers usually prefer to deal directly with manufacturers.
• Consumers mainly make their purchases from retailers.
• Other market factors affect channel choice:

• Market’s needs
• Geographic location
• Average order size
• Product Factors: Product characteristics guide the selection of the optimal

distribution channel strategy.
• Perishable goods move through short distribution channels to reduce storage time.
• Examples: fresh fruit and vegetables, milk
• Products with low unit costs usually travel through long channels to gain the widest
distribution possible.
• Examples: canned dog food, bars of soap, gum
• Organizational Factors: Companies with strong financial, management, and

marketing resources need less help from intermediaries.
• A large, financially strong manufacturer can hire its own sales force, warehouse its own
goods, and extend credit to retailers or consumers.
• A firm with a broad product line can usually market directly to retailers or business users.
• A small firm with fewer resources may need intermediaries.
• Direct selling is often unaffordable for single-product firms.
• Competitive Factors: Marketers sometimes choose distribution channels to

either:
• Avoid competitors
• Compete with competitors head-to-head
• Two types of conflict can hinder the functioning of a distribution channel:
• horizontal conflict: disagreements among channel members at the same level, such as
two or more wholesalers or retailers
• vertical conflict: disagreements among channel members at different levels
• The answer to channel conflict is effective cooperation among channel
members.
• Best achieved when all channel members regard themselves as equal components of
the same organization
• Intensity Factors: Another key channel strategy is the intensity of distribution
• Distribution intensity: the number or percentage of intermediaries (usually

retailers) through which a manufacturer distributes its goods in a particular
market
Three general categories of distribution intensity:

• Intensive distribution: • Selective distribution: when • Exclusive distribution: when a
seeks to distribute a product a firm chooses only a limited producer sells to only a small
through all available retailers number of retailers in a market number of retailers or grants
in a trade area area to handle its line exclusive rights to a wholesaler
or retailer to sell its products in
• Suits items with wide • Reduces marketing costs
a specific geographic region
appeal across broad while establishing strong
groups of consumers working relationships • May sacrifice some market
within the channel coverage
• Selected retailers often • Often develop and maintain
comply with the firm’s an image of product quality
rules for advertising, and prestige
pricing, and displaying its
• Limits marketing costs
products
15-4
Components of the Supply Chain
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-4 Components of the Supply Chain (1 of 3)
• Supply chain: the complete sequence of suppliers and activities that

contribute to the creation and delivery of goods and services
• Also is known as the value chain
• The supply chain:
• Begins with raw material inputs for manufacturing a product
• Proceeds to actual production activities
• Ends with the movement of finished products through the distribution channel to
customers
• Logistics: activities related to the physical movement and management of raw materials or
products
Exhibit 15.5 The Supply Chain of a Manufacturing
Company
• Supply chain management takes place in two directions:
• Upstream management: the management of raw materials, inbound logistics, and

warehouse and storage facilities
• downstream management: the management of finished product storage, outbound

logistics, marketing and sales, and customer service
• Common methods for managing the supply chain:

• Radio frequency identification (RFID): a tiny chip with identification information is
placed on an item; that chip can then be read by a radio frequency scanner from a
distance, making tracking easier
• Enterprise resource planning (ERP) system: an integrated software package that

consolidates data from among the firm’s units
• logistical cost control: businesses reexamine each link in their supply chains to
identify activities that don’t add value for customers
RFID
15-5
Key Priorities of Warehousing and Storage
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-5 Key Priorities of Warehousing and Storage
(1 of 5)
• A firm’s warehousing and storage function contains the following elements:

• Inventory control
• Quantity of inventory the firm maintains at each location
• Protective packaging and materials handling
• How the firm packages and efficiently handles goods in the factory, warehouse, and transport
terminals
• Warehousing
• The distribution system’s location of stock and the number of warehouses the firm maintains
(2 of 5)
• Inventory Control: Companies must maintain enough inventory to meet

customer demand without incurring costs for carrying excess inventory.
• With just-in-time (JIT) production, companies keep low inventory, relying on suppliers to
deliver parts quickly when they are needed.
• RFID technology tracks the quantity and whereabouts of inventory more precisely.
(3 of 5)
• Protective packaging and materials handling: Two concepts influence materials

handling choices:
• Unitizing: or palletizing, combining as many packages as possible into each load that moves within
or outside a facility
• Promotes efficient materials handling because each package requires minimal labor to move
• Minimizes damage and pilferage
• Containerization: the process of combining several unitized loads into a single, well-protected load
• Reduces loading/unloading time
• Limits in-transit damage to freight
Protective Packaging and
Materials Handling
Two concepts influence materials handling choices:
Unitizing Containerization
(4 of 5)
• Warehousing: Products flow through two types of warehouses:

• Storage
• Holds goods for moderate to long periods to balance supply and demand for producers and
purchasers
• Distribution
• Assembles and redistributes goods, keeping them moving
• Logistics managers can cut costs by:

• Developing central distribution centers
• Automating warehouse systems
(5 of 5)
• When determining the number and location of storage facilities, a company

must consider:
• Warehousing and materials handling costs
• Delivery costs from warehouses to customers
• Large facilities offer economies of scale in facilities and materials handling

systems.
• Delivery costs rise as the distance from warehouse to customer increases.
15-6
Modes of Transportation
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-6 Modes of Transportation (1 of 7)
• Logistic managers choose from five major modes of transportation:

• Railroads
• Motor carriers
• Water carriers
• Pipelines
• Air freight
• Railroads: control the largest share of the freight business as measured by ton-miles
• Ton-mile: shipping activity required to move 1 ton of freight 1 mile
• Rail provides the most efficient way to move bulky commodities over long distances
• Goods most often handled by railroads: lumber, iron, steel, coal, automobiles, grain, chemicals
• Motor Carriers: trucks haul more than 10.5 billion tons of freight each year
• Deliver to areas railroads can’t reach
• Provide fast and consistent service for both large and small shipments
• Technology has improved the efficiency of trucking
• Example: in-truck computers that allow last-minute changes in scheduling and delivery
• Goods most often handled by motor carriers: clothing, furniture, fixtures,

lumber, plastics, food, machinery
• Water Carriers: two types of transport methods move products over water:
• Inland or barge lines
• Transport bulky, low-unit-value commodities
• Oceangoing deepwater ships
• Costs are low compared with the rates for other modes of transportation.
• Transit time is often longer than other options.
• Goods most often handled by water carriers: fuel, oil, chemicals;

automobiles, electronics, clothing, toys from foreign manufacturers
Water Carriers
Inland or barge lines Oceangoing deepwater ships
• Pipelines: more than 2.5 million miles of pipeline crisscross the United
States transporting energy products.
• Offer low maintenance and dependable methods of transportation, but
have limitations:
• Have fewer locations than water carriers
• Able to accommodate shipments of only a small number of products
• Offer a relatively slow method of transportation
• Goods most often handled by pipelines: oil, diesel fuel, jet fuel,
kerosene, natural gas
• Air freight is the shipment and transfer of goods through an air carrier.
• Provides a number of benefits to shippers:
• Products can be delivered to remote or hard-to-reach locations.
• Time-sensitive material can more easily be shipped “express” via air.
• Smaller and mid-sized companies can participate more easily in international trade.
• Airport controls provide a higher level of security.
• Goods most often handled by air freight: flowers, medical testing kits, and
gourmet food products sent directly to consumers
Exhibit 15.6 Comparing Modes of Transportation
Mode Speed Dependability Frequency of Availability in Flexibility Cost

in Meeting Shipments Different in Handling
Schedules Locations
Rail Average Average Low Low High Average
Water Very slow Average Very low Limited Very high Very low
Truck Fast High High Very extensive Average High
Pipeline Slow High High Very limited Very low Low
Air Very fast High Average Average Low Very high
• Intermodal operations: utilizing a combination of transport modes to

improve customer service and achieve cost advantages
• Piggyback: rail and highway carriers
• Birdyback: air and highway carriers
• Fishyback: water and air carriers
15-7
Accomplishing the Priorities of a Supply Chain
Boone
Boone&&Kurtz,
Kurtz,Contemporary
NineteenthEdition.
Edition.©©2022
2022Cengage.
RightsReserved.
Reserved.May
Maynot
notbe
be
scanned,
scanned,copied
publiclyaccessible
accessiblewebsite,
website,ininwhole
wholeororininpart.
part.
15-7 Accomplishing the Priorities of a Supply
Chain
• Firms that tightly manage their supply chain can lower costs and improve
customer satisfaction.
• The entire supply chain management process is complex and requires the
coordination of countless data points, integration of internal systems with
partner systems, along with several other strategic planning steps.
Knowledge Check
Which of the following is not a major mode of transportation?
a. Railroad
b. Motor carriers
c. Air freight
d. Underground carriers

Chapter 15 Distribution Channel

Uploaded by

Copyright:

Available Formats

Chapter 15 Distribution Channel

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 15 Distribution Channel

Uploaded by

Copyright:

Available Formats

Chapter 15

Distribution Channels and

15.1 Describe the four types of distribution channels.

1. Choose one product.

• Distribution channels: the individuals and organizations who manage the

• A firm must analyze channels with regard to consumer needs to determine

• Types of Distribution Channels

• Marketing intermediary: an organization that operates between producers

• Vertical integration: is when a producer assumes control over functions

• Reverse channels: channels designed to return goods to their producers

• Have gained importance due to:

• Rising prices of raw materials

• Increased availability of recycling facilities

• Increased environmental sustainability

• Reverse channels also handle product recalls and repairs.

• Intermediaries often can perform the distribution functions more effectively

• Intermediaries perform three functions:

• Facilitating the exchange process

• Lowering the cost of logistics

• Increasing a company’s sales and marketing infrastructure

• A producer can cut the costs of

• Lower cost of logistics:

• By using intermediaries, a manufacturer doesn’t have the cost of:

• Buying or leasing its own warehouses to inventory product

• Operating its own fleet of vehicles to deliver product

• Instead, it can partner with:

• A logistics company to ship product

• A wholesaler who can inventory and deliver product to retailers or end-users

• Increase Sales and Marketing Infrastructure:

• Intermediaries provide cost-effective sales and marketing services to manufacturers.

• Short and Long Distribution Channels:

• A long distribution channel involves several intermediaries working in succession to

• A variety of factors affect the selection of a distribution channel:

• Market Factors: Products are intended for consumer or business market

• Consumers mainly make their purchases from retailers.

• Other market factors affect channel choice:

• Average order size

• Product Factors: Product characteristics guide the selection of the optimal

• Examples: fresh fruit and vegetables, milk

• Examples: canned dog food, bars of soap, gum

• Organizational Factors: Companies with strong financial, management, and

• A small firm with fewer resources may need intermediaries.

• Direct selling is often unaffordable for single-product firms.

• Competitive Factors: Marketers sometimes choose distribution channels to

• Intensity Factors: Another key channel strategy is the intensity of distribution

• Distribution intensity: the number or percentage of intermediaries (usually

Three general categories of distribution intensity:

• Supply chain: the complete sequence of suppliers and activities that

• Supply chain management takes place in two directions:

• Upstream management: the management of raw materials, inbound logistics, and

• downstream management: the management of finished product storage, outbound

• Common methods for managing the supply chain:

• Enterprise resource planning (ERP) system: an integrated software package that

• A firm’s warehousing and storage function contains the following elements:

• Quantity of inventory the firm maintains at each location

• Protective packaging and materials handling

• Inventory Control: Companies must maintain enough inventory to meet

• Protective packaging and materials handling: Two concepts influence materials

• Minimizes damage and pilferage