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Ch 15 - Place: The Final Frontier
 Supply chain:
– All of the activities necessary to turn raw
materials into a good or service and put it in
the hands of the consumer
• Distribution channels are a subset of the
supply chain
• Logistics management deals with the process
of actually moving goods through the supply
chain
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Links in the Supply Chain
 Supply chain management:
The management of flows among the firms in a
supply chain to maximize total profitability
– Includes physical movement of and sharing of
information about goods
– Insourcing:
Firms contract with a specialist that handles all or part of
the company’s supply chains
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Figure 15.3
Hewlett Packard’s Supply Chain
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Links in the Supply Chain
 Channel of distribution:
The series of firms or individuals that facilitates
the movement of a product from producer to final
customer
 Supply chain links
– The supplier network provides raw materials and
parts to the manufacturer
– Firm manufactures a product
– Products are sent to distribution channel for resale
to buyers
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 Channel intermediaries
Firms or individuals such as wholesalers, agents,
brokers, and retailers that help move the product
from the producer to the consumer or business
user
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Functions of Distribution Channels
 Channels:
– Provide time, place, and ownership utility
– Provide logistics and/or physical distribution
functions
– Create efficiencies by reducing the number of
transactions
• Breaking bulk:
Purchasing large quantities of goods to sell
one/few at a time to customers
• Creating assortments:
Providing variety of products in
one location
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Figure 15.4
Reducing Transactions via Intermediaries
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Functions of Distribution Channels
– Transport and store goods
– Perform facilitating functions to make
purchase process easier
– Provide setup, repair, and maintenance
services for products carried
– Provide communication and transaction
functions
Note: You can eliminate the intermediary,
but not the function.
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The Internet in the Distribution Channel
 E-commerce has created radical changes in
distribution strategies
– Disintermediation:
Eliminating traditional intermediaries
• MAY reduce manufacturer costs
– Knowledge management:
Sharing knowledge with other supply chain
members
– Online distribution piracy can be problematic
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Channel Composition:
Types of Wholesaling Intermediaries
 Wholesaling intermediaries:
Firms that handle the flow of products from the
manufacturer to the retailer/business user
– Independent intermediaries
• Merchant wholesalers
• Merchandise (manufacturer’s) agents and brokers
– Manufacturer-owned intermediaries
• Sales branches, offices, salespeople
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Types of Distribution Channels
 Marketers must consider the number of
channel levels when designing a distribution
system
 Various channel structures exist
– Consumer channels
– Business-to-business channels
– Dual distribution systems and Hybrid marketing
systems
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Figure 15.5 Different Types of Dist’n. Channels
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Figure 15.5, Part C
Different Types of Channels of Distribution
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The Language of Channels
 Direct channel: a producer and a customer
 Indirect channel: one or more intermediaries
– Firms/individuals such as wholesalers,
agents, brokers, and retailers that help move
product to consumer or business user
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Distribution and the Marketing Mix
 Distribution decisions interact with the
marketing mix in a number of ways:
– Place decisions influence pricing
– Distribution decisions can help develop a position in
the market
– Nature of the product influences choice of distribution
channels, especially retailers
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Distribution and Ethical Issues
Distribution decisions can create ethical
dilemmas
– Slotting allowances
– Size of channel intermediaries
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Steps in Distribution Planning
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Planning a Channel Strategy
 Step 1:
– Develop distribution objectives that support the firm’s
overall marketing goals
 Step 2:
– Evaluate internal and external environmental
influences to develop best channel structure
• Firm’s ability to handle distribution functions
• Channel intermediaries available
• How the competition distributes
its products
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Planning a Channel Strategy
 Step 3: Choose a distribution strategy
– * # of channel levels:
• Direct vs. indirect vs. dual distribution
• Issues: cost, control, coverage, conflict
– Types of intermediaries (covered earlier in the chapter)
– Nature of channel relationships: conventional, vertical,
or horizontal system
– Distribution Intensity (Penetration/coverage; see later
slide)
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 Channel relationships:
Conventional, vertical, or horizontal system
• Conventional marketing system:
Members work independently of one another
– Vertical marketing system (VMS):
• Formal cooperation among channel members
– Many different types: Administered, Corporate,
Contractual, Retailer cooperative, Franchise organizations
– Horizontal marketing system:
• Two or more firms at the same channel level agree to
work together to get their product to the customer
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Planning a Channel Strategy
 Step 3: Choose a distribution strategy
– Distribution intensity = f (type of good;
conflict)
• Intensive distribution:
Selling through all suitable wholesalers or
retailers
• Exclusive distribution:
Selling only through a single outlet in a region
• Selective distribution:
Using fewer outlets than intensive but more
than exclusive distribution
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Planning a Channel Strategy
 Step 4: Develop distribution tactics
– Selecting channel partners (normally a long-term
commitment)
– Managing the channel
•
•
•
•
•
Conflict
Communication
Coordination
Customer focus
Channel leader/captain:
– Dominant firm that controls the channel (via economic,
legitimate, reward/coercive power)
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Logistics
 the process of designing, managing, and
improving the movement of products
through the supply chain
– Purchasing
– Manufacturing
– Storage
– Warehousing
– Transport
• Physical distribution
– Inventory control
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