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4.1 Channelm Strategy & Design

There are several types of utility distribution offers including time, place, possession, and form. Channel objectives are determined by positioning strategy and distribution channels must be consistent with other marketing tools. There are three distribution options: intensive for low-priced goods, exclusive with limited intermediaries, and selective as a compromise. Distribution channels can be direct from producer to consumer or indirect using wholesalers and/or retailers. Wholesalers purchase large quantities from producers to resell while retailers buy from wholesalers or producers to sell to consumers. Vertical marketing systems coordinate the marketing channel under a single member.

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15 views

4.1 Channelm Strategy & Design

There are several types of utility distribution offers including time, place, possession, and form. Channel objectives are determined by positioning strategy and distribution channels must be consistent with other marketing tools. There are three distribution options: intensive for low-priced goods, exclusive with limited intermediaries, and selective as a compromise. Distribution channels can be direct from producer to consumer or indirect using wholesalers and/or retailers. Wholesalers purchase large quantities from producers to resell while retailers buy from wholesalers or producers to sell to consumers. Vertical marketing systems coordinate the marketing channel under a single member.

Uploaded by

Rahul Mathur
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Types of utility distribution offers:

• TIME...when the customers want to purchase the product.

• PLACE...where the customers want to purchase the product.

• POSSESSION...facilitates customer ownership of the product.

• FORM...sometimes, if changes have been made to the


product in the distribution channel, i.e. Pepsi/Coke,
concentrate to bottlers.
Designing a channel of distribution
• Channel objectives will be determined by the organization's positioning
strategy. The "place“ element of the marketing mix must be consistent with
the remaining marketing tools used by the marketing manager to gain a
sustainable competitive advantage.

Three options can be identified


• Intensive distribution:- Generally used for FMCGs and other relatively low-
priced or impulse purchases.

• Exclusive distribution
Here, distribution may be limited to a small number ofintermediaries who gain
better margins and exclusivity.

• Selective distribution
This represents a compromise between intensive and selective distribution.
The manufacturer is looking for adequate market coverage, but still hopes to
select supportive dealers
Types of intermediaries- Consumer Products

• Direct Channel

In this channel, producers sell their goods and services


directly to the consumers. There is no middleman present
between the producers and consumers.

The producers may sell directly to consumers through door-


to-door salesmen and through their own retail stores.

For example, Bata India Ltd, HPCL, Liberty Shoes Limited has
their own retail shops to sell their products to consumers.
• Indirect Channel
If the producer is producing goods on a large scale, it may not be possible
for him to sell goods directly to consumers. As such, he sells goods
through middlemen.

These middlemen may be wholesalers or retailers. A wholesaler is a person


who buys goods in large quantities from producers; where as a retailer is
one who buys goods from wholesalers and producers and sells to ultimate
consumers as per their requirement.

The involvement of various middlemen in the process of distribution


constitute the indirect channel of distribution. Let

Producer Wholesaler Retailer Consumer


Wholesale Intermediaries
• Wholesale transactions are all transactions except the transaction with the
ultimate consumer.Classification of a wholesaler or retailer is determined by the
purchaser, not by the price.

• If over 50% of sales is with other intermediaries then the intermediary is a


wholesaler. If over 50% of sales is with the consumer, then the intermediary is
a retailer.

• Firms can engage in wholesaling activities without being wholesalers.

Types of Wholesale Intermediaries

• Merchant intermediaries
--buy products and resell them.
Functional intermediaries
--do not take title, they expedite exchanges among producers and
resellers, compensated by fees and/or commission.
Agents and Brokers

• Negotiate purchases, expedite sales but do not take title.


Functional middlemen, that bring buyers and sellers together.
Compensated with commission.Agents represent buyers and sellers on a
permanent basis.

Brokers represent buyers and sellers on a temporary basis.


• 10.4% of wholesalers total sales volume.

Vertical Marketing Systems


• The traditional view of channels focuses on buyers and sellers in direct contact.
IE don't look beyond the next level.

• The systems view focuses on a framework for the whole distribution system.
• A Vertical Marketing System (VMS) is a marketing channel that a single channel
member coordinates.

• The channel member manages channel activities to achieve efficient, low cost
distribution aimed at satisfying the target market customers. There are three
types of Vertical Marketing Systems, Corporate, Administered and Contractual.
• Corporate VMS
More than one stage of the distribution channel under one ownership, IE
supermarket chains that own processing plants and large retailers that purchase
wholesaling and production facilities.

• Administered VMS
Channel members are independent with a high level of
interorganizational management by informal coordination.

Agree to adopt uniform accounting policies etc., and promotional


activities.
One Channel member dominates, has a channel leader.Examples:

• Wal Mart
• Toys R Us
• Kellog
• Pepsi
• Coke
Contractual VMS
• Most popular VMS, interorganizational relationships
formalized through contracts that spell out each members
rights and obligations.

• IE McDonald's and KFC. Franchise organizations 1/3 retail


sales and 500,000 outlets.

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