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Chapter 12
Distribution Channels and
Logistics Management
1
Issues Concerning
Distribution Channels
What is the Nature
Of Distribution
Channels?
How do Channel
Firms Interact and
Organize to do the
Work of the
Channel?
What Role Does
Physical Distribution
Play in Attracting
and Satisfying
Customers?
What Problems do
Companies Face in
Designing and
Managing Their
Channels?
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What is a Distribution
Channel?
A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
Marketing Channel decisions are among
the most important decisions that
management faces and will directly
affect every other marketing decision.
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Why are Marketing
Intermediaries Used?
The use of intermediaries results from their
greater efficiency in making goods available to
target markets.
Offer the firm more than it can achieve on it’s
own through the intermediaries:




Contacts,
Experience,
Specialization,
Scale of operation.
Purpose: match supply from producers to demand
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from consumers.
How a Marketing Intermediary
Reduces the Number of
Channel Transactions
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In th is vid eo clip, a Dupont executive speaks about managing
the supply chain and the logistics p rocess f or two well-known
brand s: Nomex and Kevlar.
Distribution Channel
Functions
Click to play
Click to retur
These Functions Should be Assigned to the Channel Member Who Can
Perform Them Most Efficiently and Effectively to Provide Satisfactory
Assortments of Goods and Services to Target Customers.
Risk Taking
Financing
Information
Promotion
Physical
Distribution
Negotiation
Contact
Matching
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Number of Channel Levels
(Fig. 12.2)
Channel Level - Each Layer of Marketing Intermediaries that
Perform Some Work in Bringing the Product and its Ownership
Closer to the Final Buyer.
Channel 1
Direct Channel
M
Channel 2
Indirect Channel
M
C
R
C
R
C
R
C
Channel 3
M
W
Channel 4
M
W
J
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Channel Behavior & Conflict
The channel will be most effective when:


each member is assigned tasks it can do best.
all members cooperate to attain overall channel goals
and satisfy the target market.
When this doesn’t happen, conflict occurs:


Horizontal Conflict occurs among firms at the same
level of the channel, i.e retailer to retailer.
Vertical Conflict occurs between different levels of the
same channel, i.e. wholesaler to retailer.
For the channel to perform well, each channel
member’s role must be specified and conflict must
be managed.
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Conventional Marketing Channel
Vs. a Vertical Marketing System
(Fig. 12.3)
Manufacturer
Wholesaler
Retailer
Consumer
Vertical
Marketing
System
Manufacturer
Wholesaler
Conventional
Marketing
Channel
Retailer
Consumer
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Types of Vertical Marketing
Systems
Corporate
Common Ownership at Different
Levels of the Channel i.e. Sears
Degree of
Direct
Control
Contractual
Contractual Agreements Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members i.e. Kraft
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Types of Vertical Marketing
Systems
Vertical Marketing
Systems (VMS)
Corporate
VMS
Wholesaler Sponsored
Voluntary Chain
ManufacturerSponsored Retailer
Franchise System
Contractual
VMS
Retailer
Cooperatives
Administered
VMS
Franchise
Organizations
ManufacturerSponsored Wholesaler
Franchise System
Service-FirmSponsored
Franchise System
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Innovations in Marketing
Systems
Horizontal Marketing
System
Hybrid Marketing
System
Two or More Companies
at One Channel Level
Join Together to Follow
a New Marketing
Opportunity.
A Single Firm Sets Up
Two or More Marketing
Channels to Reach
One or More Customer
Segments.
Example:
Example:
Banks in Grocery Stores
Retailers, Catalogs,
and Sales Force
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Discussion Connections
Describe the kinds of horizontal and
vertical channel conflict that might occur in
one of the following:




Personal computer industry,
Automobile industry,
Music industry,
Clothing industry.
How would you remedy the problems you
have just described?
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Changing Channel
Organization
A Major Trend is Toward
Disintermediation Which Means that
Product and Service Producers are
Bypassing Intermediaries and Going
Directly to Final Buyers or That New
Types of Channel Intermediaries are
Emerging to Displace Traditional Ones.
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Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Intensive
Distribution
Selective
Distribution
Exclusive
Distribution
Evaluating the Major Alternatives
Designing International Distribution Channels
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Channel Management
Decisions
Motivating Channel Members
FEEDBACK
Selecting Channel Members
Evaluating Channel Members
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Nature and Importance of
Marketing Logistics
Involves getting the right product to the right
customers in the right place at the right time.
Companies today place greater emphasis on
logistics because:
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customer service and satisfaction have become the
cornerstone of marketing strategy.
logistics is a major cost element for most companies.
the explosion in product variety has created a need
for improved logistics management.
Improvements in information technology has created
opportunities for major gains in distribution efficiency.
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Goals of the Logistics System
Higher Distribution Costs;
Higher Customer Service
Levels
Goal:
To Provide a Targeted Level of Customer Service
at the Least Cost.
Lower Distribution Costs;
Lower Customer Service
Levels
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Major Logistics Functions
Order Processing
Costs
Received
Processed
Shipped
Minimize Costs of
Attaining Logistics
Objectives
Logistics
Transportation
Rail, Truck, Water,
Pipeline, Air,
Intermodal
Functions
Warehousing
Storage
Distribution
Automated
Inventory
When to order
How much to order
Just-in-time
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Transportation Modes
Rail
Nation’s largest carrier, cost-effective
for shipping bulk products, piggyback
Truck
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value,
non perishable goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
Air
High cost, ideal when speed is needed or
distance markets have to be reached
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Choosing Transportation
Modes
Checklist for Choosing
Transportation Modes
1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
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Third party logistics
Integrated Logistics
Management
Many companies are
now outsourcing
logistics tasks to
companies like
Ryder Integrated
Logistics.
Click or press space bar to return.
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork, Both Inside the Company and Among All the
Marketing Channel Organizations.
Cross-Functional Teamwork inside the Company
Building Channel Partnerships
Third-Party Logistics
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Review of Concept
Connections
Explain why companies use distribution channels
and discuss thee functions these channels
perform.
Discuss how channel members interact and how
they organize to perform the work of the channel.
Identify the major channel alternatives open to a
company.
Discuss the nature and importance of physical
distribution.
Analyze integrated logistics, including how it may
be achieved and its benefits to the company. 23