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Chapter 10
Distribution Strategy
Key Terms
Marketing Intermediaries, Direct Marketing, Indirect Channels ,
Intensive Distribution, Selective Distribution, Exclusive
Distribution, Total Distribution Cost, Channel Flexibility,
Relationship Marketing , Administered Systems, Contractual
Systems, Corporate Systems, Mass Merchandisers, Specialty
Stores, Convenience Stores, Catalogs and Direct Mail, Vending
Machines, Electronic Exchange
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Channels of Distribution
 A channel of distribution is the combination of
institutions through which a seller markets products
to the user or ultimate consumer
 Direct channel or direct marketing – Without the
use of other intermediaries
 Indirect channels – With one or more
intermediaries
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Marketing Intermediaries
 Middleman – independent link between producers and
consumers
 Merchant middleman – actually buys goods and takes
title/ownership
 Agent – business unit that negotiates purchases and sales
but does not take ownership
 Wholesaler – a merchant who primarily stores and handles
goods in large quantities
 Retailer – merchant middleman who sells to final consumers
 Broker – middleman who serves as a go-between for the
buyer and seller
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Marketing Intermediaries
 Manufacturer’s agent – an agent who operates by contract
serving a geographic territory
 Distributor – wholesale middleman in lines with selective or
exclusive distribution
 Jobber – a middleman who buys from manufacturers and
sells to retailers
 Facilitating agent – a firm that performs distribution tasks
other than buying, selling and transferring
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Major Functions Performed in
Channels of Distribution
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Channels of Distribution
Conventional Channels of Distribution of Consumer Goods
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Channels of Distribution
Conventional Channels of Distribution for Organizational
Goods
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Selecting Channels of Distribution
 In either the presence or the absence of a traditional
channel, a primary constraint is that of the availability
of various types of middlemen
 Selecting a channel of distribution can hinge on one of
these factors
 Distribution coverage required
 Degree of control desired
 Total distribution cost
 Channel flexibility
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Selecting Channels of Distribution
 Distribution coverage – Channel selection may
depend upon the nature of market coverage desired
 Intensive distribution – Using as many wholesalers and
retailers as possible
 Selective distribution – Using only the best available per
geographic area
 Exclusive distribution – Selected intermediaries are
given exclusive rights within a particular territory
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Selecting Channels of Distribution
 Degree of control desired – Achieved by the seller is
proportionate to the directness of channel
 Total distribution cost – Channel should be viewed as
a total system composed of interdependent
subsystems
 Objective should be to optimize total system
performance
 Generally assumed that the total system should be
designed to minimize costs, other things being equal
 Channel flexibility – Ability of the manufacturer to
adapt to changing conditions
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General Considerations – Channel
Planning
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Managing a Channel of Distribution
 Relationship marketing – Defined as “marketing with
conscious aim to develop and manage long-term and/or
trusting relationships with customers, distributors,
suppliers, or other parties in the marketing
environment”
 Vertical marketing system – Channels in which
members are more dependent on one another and
develop long-term relationships to improve efficiency
and effectiveness
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Vertical Marketing System
Types of Vertical Marketing Systems
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Types of Vertical Marketing Systems
 Administered systems – Higher degree of
interorganizational planning and management than in
a conventional channel
 Contractual systems – Relationships governed by
contracts to perform specific functions
 Retail cooperative organization
 Wholesaler-sponsored voluntary chain
 Various franchising programs
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Types of Vertical Marketing Systems
 Corporate systems – Single ownership of two or more
levels of a channel
 Forward integration – Manufacturer’s purchasing
wholesalers or retailers
 Backward integration – Wholesalers or retailers’
purchasing channel members above them
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Franchising: An Alternative to Conventional
Channels of Distribution
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Franchising: An Alternative to Conventional
Channels of Distribution
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Wholesalers
 Merchants primarily engaged in buying, taking title to,
storing and physically handling goods
 Create value for suppliers, retailers, and users of
goods by handling their functions efficiently and
effectively
 Seek producers of major brands for which sales and
profits are greatest
 Seek to attract retailers and organizational customers
to buy from them
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Some Benefits of Wholesalers for
Various Channel Members
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Store Retailing
 Mass merchandisers – Carry broad assortments of
goods and compete based on selection and price
 Specialty stores – Handle deep assortments in a
limited number of product categories
 Limited-line stores
 Single-line stores
 Category killers
 Convenience stores – Retailers whose primary
advantages are location convenience, close-in
parking, and easy entry and exit
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Non-Store Retailing
 Catalogs and direct mail
 Vending machines
 Television home shopping
 Direct sales
 Electronic exchange
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Annual Nonstore Retail Sales
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Electronic Commerce: Advantages and
Disadvantages for Marketers
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