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14-1 Chapter 14 Channels of Distribution 14-2 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Goals • Nature and importance of middlemen and distribution channels • Direct sales to retailers • Decisions in designing a channel • Major channels for goods and services • Vertical marketing systems • Choosing specific channels and middlemen • Intensity of distribution • Conflict and control within channels • Legal considerations in channels 14-3 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Middlemen Middlemen A business firm that renders services directly related to the sale/purchase of a product as it flows through from producer to consumer You can eliminate middlemen, but not the essential distribution activities they perform 14-4 Distribution Channels DISTRIBUTION CHANNELS People and firms involved in the transfer of title to a product as the product moves from producer to ultimate consumer or business user Producers 14-5 Middlemen Final Consumer Or Business User Middleman Activities 14-6 Middleman Activities 14-7 Major Channels of Distribution 14-8 Vertical Marketing Systems 14-9 Choice of Channels: Market Type of Market Geographic concentration 14-10 Number of potential customers Order size Choice of Channels: Product Perishability Unit Value Technical Nature 14-11 Choice of Channels: Middleman Services provided by middlemen Availability of desired middlemen Producer’s and middlemen’s policies 14-12 Choice of Channels: Company Desire for channel control Services provided by seller Ability of management Financial resources 14-13 Intensity of Distribution 14-14 Conflict in Channels Horizontal Middlemen of the same type Retailer 14-15 Retailer Different types of middlemen on the same level Retailer Retailer Conflict in Channels Vertical Producer vs. Wholesaler Producer vs. Retailers 14-16 Who Controls the Channels? Expertise Rewards Sanctions 14-17 Channel as Partnership 14-18 Cooperation Collaboration Coordination Relationship Marketing Legal Considerations 14-19 Exclusive dealing Tying contracts Refusal to deal Exclusive territory Key Terms and Concepts Middlemen Contractual vertical marketing system Merchant middlemen Agent middlemen Administered vertical marketing system Disintermediation Intensity of distribution Distribution channel Intensive distribution Gray marketing Selective distribution Direct distribution Exclusive distribution Indirect distribution Channel conflict Multiple distribution channels Chargeback Vertical marketing system Horizontal conflict Corporate vertical marketing system Scrambled merchandising 14-20 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms and Concepts Vertical conflict Slotting fee Channel control Channel power Exclusive dealing Tying contract Refusal to deal Exclusive-territory policy 14-21 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.