Download Channel of distribution

Marketing: Real People, Real Decisions
Channel Management, Wholesaling, and
Physical Distribution
Chapter 14
Lecture Slides
Solomon, Stuart,
Carson, & Smith
Your name here
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Marketing: Real People, Real Decisions
Chapter Learning Objectives
When you have completed your study of this chapter,
you should be able to:
• Explain what a distribution channel is and
what functions distribution channels
perform.
• Describe some of the types of wholesaling
intermediaries found in distribution
channels.
• Discuss the steps in planning distribution
channel strategies.
• Describe the important activities in the
physical distribution process.
• Discuss the distribution implications of the
Internet.
©Copyright 2003 Pearson Education Canada Inc.
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Marketing: Real People, Real Decisions
Introduction to the Topic
• Distribution is either the most boring of the 4 P’s of the marketing
mix, or the most interesting, depending on your perspective. In either
case, its importance does not change.
• As a field of study, distribution consists
of two parts: strategy and logistics.
• Channel of distribution: the
series of firms or individuals that
facilitates the movement of a product
from the producer to the final customer.
• This is the strategy side to it.
• Logistics deals with the physical
movement of the products, which will
be covered later in the chapter.
Figure 14.3
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Marketing: Real People, Real Decisions
The Purpose of Distribution
• The purpose of the distribution system is to create place utility
for customers, which is the value of having the product where the
customer wants it to be.
• While many producers choose to sell
their products direct to end-users, most
do not.
• Channel intermediaries: firms or
individuals such as wholesalers, agents,
brokers, or retailers that help move a
product from the producer to the
consumer or business user.
• Why do producers use marketing
intermediaries?
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Marketing: Real People, Real Decisions
The Purpose of Distribution (continued)
• Producers use marketing intermediaries to help distribute their goods
for three reasons: contactual efficiency, specialization and division of
labour, and economies of scale.
Without Intermediaries: 16 calls
With 1 Intermediary: 8 calls
Mfg
Cus
Mfg
Cus
Mfg
Cus
Mfg
Cus
W/S
Mfg
Cus
Mfg
Cus
Mfg
Cus
Mfg
Cus
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Marketing: Real People, Real Decisions
Functions Performed by Intermediaries
• Bulk breaking: dividing larger quantities of goods into smaller
lots to meet the needs of buyers. Producers typically ship in full
truckloads to their retailers who unpack and sell individually.
• Creating assortments: providing
a variety of products in one location to
meet the needs of buyers. Someone
building a house would prefer one-stop
shopping to save time.
• Facilitating functions: functions
of channel intermediaries that make the
purchase process easier for customers
and manufacturers.
• This can be providing service, technical
advice on selection and use, or credit.
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Marketing: Real People, Real Decisions
Types of Intermediaries
• Wholesaling intermediaries: firms that handle the flow of
products from the manufacturer to the retailer or business user.
• Independent intermediaries: channel
intermediaries that are not controlled by any
manufacturers but rather do business with
many different manufacturers and many
different customers.
• Merchant wholesalers: intermediaries
that buy goods from manufacturers (take title
to them) and sell to retailers and other
business-to-business customers.
• Take title: to accept legal ownership of a
product and the accompanying rights and
responsibilities of ownership.
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Marketing: Real People, Real Decisions
Types of Intermediaries (continued)
• Merchandise agents or brokers: channel intermediaries that
provide services in exchange for commissions but never take title to
the product.
• These can include:
– Manufacturer’s agents
– Selling agents
– Commission merchants
– Merchandise brokers
• Manufacturer owned intermediaries:
– Sales branches
– Sales offices
– Manufacturer’s showrooms
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Marketing: Real People, Real Decisions
Types of Channels of Distribution
• Channel levels: the number of distinct categories of intermediaries
that populate a channel of distribution.
Figure 14.2
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Marketing: Real People, Real Decisions
Planning a Channel Strategy
• Conventional marketing system: A multiple-level
distribution channel in which channel members work independently
of one another.
• Vertical marketing system: a
channel of distribution in which there is
cooperation among members at the
manufacturing, wholesaling, and
retailing levels.
• Franchised organizations are considered
vertical marketing systems.
• Horizontal marketing system:
an arrangement within a channel of
distribution in which two or more firms
at the same channel level work together
for a common purpose.
Figure 14.3
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Marketing: Real People, Real Decisions
Distribution Channel Strategy
• The number of intermediaries (intensity of distribution) to be
used in any given market area is an important decision to be made,
and is directly influenced by consumer behaviour for the product.
• Intensive distribution: selling a product
through all suitable wholesalers or retailers
that are willing to stock and sell the product.
Example: convenience goods.
• Selective distribution: distribution using
fewer outlets than in intensive distribution but
more than in exclusive distribution. Example:
shopping goods.
• Exclusive distribution: selling a product
only through a single outlet in a particular
region. Example: specialty or luxury goods.
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Marketing: Real People, Real Decisions
Distribution Channel Strategy (continued)
• Selecting channel members: the effort expended on selecting
channel members will be inversely proportional to the intensity of
distribution used. (huh?)
• A producer using intensive distribution will sell to any and all
intermediaries who are willing to carry the product, so they will not
likely be too choosy in who they pick.
• Conversely, a producer using
exclusive distribution wants
to find one intermediary per
market area who will act as
an extension of their
company, hence, their
interest in being very careful
in who they choose to
represent them.
©Copyright 2003 Pearson Education Canada Inc.
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Marketing: Real People, Real Decisions
Managing the Channel of Distribution
• Channel leader: a firm at one level of distribution that takes a
leadership role, establishing operating norms and processes that
reduce channel conflicts, reduce costs, and enhance customer value.
• A firm has economic power when it has the ability to control
resources.
• A firm has legitimate power if it
has the legal authority to make
decisions on behalf of other firms.
• A firm has reward or coercive
power if it has the ability to
provide rewards or punish firms
for compliance (or the lack
thereof) with its requests.
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Marketing: Real People, Real Decisions
Logistics: Physical Distribution
• Physical distribution: the activities used to move finished goods
from manufacturers to final customers, including order processing,
warehousing, materials handling, transportation, and inventory control.
• Materials handling: the moving of products into, within, and out
of warehouses.
• Warehousing: storing goods
in anticipation of sale or transfer
to another member of the
channel of distribution.
• Inventory control:
activities to ensure that goods
are always available to meet
customers’ demands.
©Copyright 2003 Pearson Education Canada Inc.
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Marketing: Real People, Real Decisions
Logistics: Modes of Transportation
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Marketing: Real People, Real Decisions
Famous Last Words…
• Distribution is an important
topic in marketing because
without it, consumers would
have a difficult time finding
the products that they want.
• Distribution creates the
place utility that consumers
are looking for.
• Creating this utility is the
job of marketing
intermediaries, who perform
valuable functions for the
producers they represent.
©Copyright 2003 Pearson Education Canada Inc.
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