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What We Will Discuss Today SHOPPER’S HEAVEN Distribution channels • What are their functions? • How are they organized? Distribution channel decisions • Design decisions • Management decisions Why Use Distribution Channels? Why Use Distribution Channels? To make the product or service available to consumers. • risk • cost Why Use Distributors? Efficiency Information Contact and promotion Matching Transportation Financing and storage and risk taking Negotiation Direct Channels of Distribution Manufacturer’s sales office Manufacturer’s branch office Catalog mail order Indirect Channels of Distribution Direct to retailer Through wholesaler to retailer Through wholesaler to jobber to retailer Through exporter to freight forwarder to shipper to importer..... Channel Behavior Power Conflict • Horizontal • Vertical Trust Trends in Marketing Channel Systems Vertical Marketing Systems • Corporate • Contractual • Administered Horizontal Marketing Systems Multi-channel Marketing Systems Channel Design Decisions Types of distributors Number of distributors • Intensive distribution • Exclusive distribution • Selective distribution Alternative Evaluation Criteria Economic Control Adaptive Channel Management Decisions Selecting channel members Motivating channel members Evaluating channel members Wholesalers and Retailers Mostly business customers Larger trade areas, larger transactions Less resources to promotion, atmosphere and location Regulations and taxes Why Direct Marketing? Less shopping time Costs of driving and lines Toll free telephone numbers Use of credit cards Growth of computer power Reduces high costs of reaching customers through sales people Allows sellers greater selectivity Forms of Direct Marketing Direct Mail Catalog Marketing Telemarketing TV Marketing A Theory! Transaction Cost Analysis Should an activity be performed within the organization by employees or should the organization contract with an external agent to perform the activity? Distribution Transaction Cost Analsysis 2 Examples: • Make or buy • Direct salesperson or manufacturer's representative • In-house advertising or advertising agency Transaction Cost Analysis 3 Assumptions • Humans are subject to bounded rationality • Agents are given to opportunism Factors Underlying Decision to Integrate Asset Specificity External Uncertainty • Supply Uncertainty • Demand Uncertainty Frequency of Transactions What We Discussed Today Distribution channels • What are their functions? • How are they organized? Distribution channel decisions • Design decisions • Management decisions