Sales Distribution

Channel.

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 A channel of distribution
comprises a set of institutions
which perform all of the
activities utilized to move a
product and its title from
production to consumption

Bucklin - Theory of Distribution Channel Structure

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 Physical distribution is…
Organizing and moving products through
the channels

Logistics = ordering, transporting,

storing, handling and inventory control

The 3rd largest expense for most

businesses

 (#1 Materials #2 Labor) 3

Explain how channel members add
value
 Right PLACE
 Right TIME

 Place UTILITY
 Location – having the product where customers can buy it

 Time UTILITY
 Having the product available when the customer
wants/needs it

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Channel members add value to a
product by performing certain
channel activities expertly
Marketing
Packaging
Financing
Storage
Delivery
Merchandising
Personal selling

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Adding Value through Distribution

 Intermediaries provide value to producers

because they often have expertise in certain
areas that producers do not have.

 Intermediaries are experts in displaying,

merchandising, and providing convenient
shopping locations and hours for customers.

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 CHANNEL FUNCTIONS
• Information
• Promotion
• Contact
• Matching
• Negotiation
• physical distribution
• Financing
• Risk taking

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 CHANNEL FUNCTIONS (cont.)
• Providing marketing information:
– Companies rely on market research to
determine their target markets’ needs and
wants
– Ex: small business producing handmade
greeting cards

• Promoting products:
– Can be expensive
– Retailers often take a large portion of
promotion responsibilities
• Ex: local supermarkets/discount stores
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CHANNEL FUNCTIONS (cont.)
• Contact
• Matching
• Negotiating with the customers:
– Different prices are paid by the wholesaler, retailer and
consumers based on negotiation
• Physical distribution
• Financing and risk taking:
– Moving products through a channel costs money
– When channel members work together to finance activities
and to assume financial risks, channels will be more effective

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 Today’s system of exchange

Promotion
Contact

Negotiation

Transporting and storing

Producers

Users
Financing

Packaging
Money
Goods

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 Explain key channel tasks
• Marketing
• Packaging
• Financing
• Storage
• Delivery
• Merchandising
• Personal selling

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 Explain key channel tasks
(cont.)
• Providing marketing information
– Rely on market research to determine their target
markets’ needs and wants
• Promoting products
– Costs and responsibilities can be shared
• Negotiating with customers
– Offering to deliver and install products
• Reducing discrepancies
– Selling large quantities of products to wholesalers and
retailers
• Financing and risk-taking
– Work together to finance activities to become more
effective 12
 Tasks of Intermediaries -
Wholesalers
• Break down ‘bulk’
• Buys from producers and sell small quantities to
retailers
• Provides storage facilities
• Reduces contact cost between producer and
consumer
• Wholesaler takes some of the marketing
responsibility e.g sales force, promotions

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 Tasks of Intermediaries -
Retailer
• Much stronger personal relationship with
the consumer
• Hold a variety of products
• Offer consumers credit
• Promote and merchandise products
• Price the final product
• Build retailer ‘brand’ in the high street

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 Tasks of Intermediaries -
Internet
• Sell to a geographically disperse market
• Able to target and focus on specific segments
• Relatively low set-up costs
• Use of e-commerce technology (for payment,
shopping software, etc)
• Paradigm shift in commerce and consumption

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Tasks of a Logistics Manager
• plans the flow of materials in a
manufacturing organization (beginning
with raw materials and ending with
delivery of finished products to channel
intermediaries or end customers) and
coordinates the work of departments
involved in the process, such as
procurement, transportation,
manufacturing, finance, legal, and
marketing.
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Describe when a channel will
be most effective
The channel must be properly
managed
Recognize the importance of their task
and make informed decisions
Each member is assigned tasks it can
do best

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Describe when a channel will be most
effective (cont.)
Channel members share a common
goal
Commitment to quality of the product
Satisfying the target market’s needs
and wants
All members cooperate to attain overall
channel goals

 If the channel is not effective, conflict occurs…..

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Distinguish between
horizontal and vertical conflict

 Horizontal Conflict: occurs between

channel members at the same level

Good, old-fashioned business competition

Ex: two retailers selling pet supplies

compete to sell to the same target market
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Distinguish between
horizontal and vertical conflict (cont.)

Vertical Conflict: occurs between

channel members at different levels
within the same channel

Producers and wholesalers, wholesalers

& retailers, or producers and retailers

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CHANNEL MANAGEMENT
DECISIONS

Channel strategy is not

formulated in a vacuum
Channel strategy and product strategy

Channel strategy and price strategy

Channel strategy and promotion strategy 21

 Describe channel management
decisions
Decisions about a product’s physical movement and transfer of
ownership from producer to consumer.

• FIRST - Setting channel objectives

– Determine what the company is trying to achieve
– Meet the needs and wants of their target market
– Give their product a competitive edge

• SECOND - Channel members:

– Selection
– Management
– Motivation
– Evaluation 22
 1. Selecting Channel Members
Determine the types of members the belong
in the channel, as well as the channel
length (total number of channel members)
– Usually based on the nature of the product
– Factors to consider:
• Create product value that others cannot or are not
willing to provide
• Channel the product to its desired market
• Have a pricing and promotion strategy compatible
with the product’s needs
• Offer customer service compatible with the
products needs
• Be willing and able to work cooperatively with other
members within the product’s channel
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1. Selecting Channel Members (cont.)
Involves determining the characteristics that
distinguish the better ones by evaluating channel
members
• Do they: Provide value? Perform a function?
Expect an economic return ?
• Years in business
• Lines carried
• Profit record
• Policies, strategies, & image
• Experience & track record

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1. Selecting Channel Members (cont.)
Selecting intermediaries that are sales agents
involves evaluating

• Number and character of other lines carried

• Size and quality of sales force

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1. Selecting Channel Members (cont.)
• Market segment - must know the specific segment
and target customer

• Selecting intermediates that are retail stores that

want exclusive or selective distribution involves
evaluating
• Store’s customers

• Store locations

• Growth potential
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 2. Managing Channel Members

• Determining channel responsibilities

• Members must work together appropriately
and perform the tasks they are best suited for

• The company must sell not only through the

intermediaries but also to/with them

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 2. Managing Channel Members (cont.)

• Partner relationship management (PRM) and

supply chain management (SCM) software are
used to
• Forge long-term partnerships with channel
members
• Recruit, train, organize, manage, motivate, and
evaluate channel members

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 3. Motivating Channel Members
• Develop a cooperative/collaborative and balanced relationship
with the partner
• Understand the partner’s customers – their needs, wants, and
demands
• Understand the partner’s business – operationally and
financially and what’s really important to them
• Look at the partner’s needs in terms of customer support,
technical support, and training
• Establish clear and agreed upon expectations and goals
• Develop recognition programs focusing on the partner’s
contributions
• Build internal support systems and dedicate resources to the
partner

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3. Motivating Channel Members (cont.)

– Motivation can be positive or

negative
• Sanctions may be imposed on
middlemen not performing well
• Chargebacks – financial penalties
assessed for a variety of problems
• Incentives may be offered for reaching
performance goals

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 4. Evaluating Channel Members

Produces must evaluate intermediaries performance

against such standards as:

• Sales quota attainment

• Average inventory levels

• Customer delivery time

• Treatment of damaged and lost goods

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• Cooperation in promotional and training programs.
4. Evaluating Channel Members (cont.)

Should constantly evaluate the

channel:

• What is working?

• What is not working?

• What can be improved?

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 4. Evaluating Channel Members (cont.)

Risks & Dangers of Distribution Decisions

• Transaction costs both apparent & hidden

• Risks include loss in transit, destruction,

negligence, non-payment and so on.

• So, careful choice & evaluation of each &

every channel partner is a necessity.
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Distribution Decisions - Major
Considerations…

– Multiple channels

– Control vs. costs

– Intensity of distribution desired

– Involvement in e-commerce

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 1. Multiple Channels
• Some products meet the needs of both
industrial and consumer markets.
• J & J Snack Foods sells its pretzels, drinks
and cookies using multiple channels to:
– Supermarkets
– Movie Theaters
– Stadiums
– Schools
– Hospitals
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 2. Control vs. Costs
• All manufacturers and producers must
weigh the control they want to keep over
the distribution of their products against
the costs and profitability.
– Direct sales force – company employees are
expensive with payroll, benefits, expenses;
may set sales quotas and easily monitor
performance
– Agents – work independently, running their
own businesses; less expensive = less
control; agents sell product lines that make
them more money 36
Management’s Desire for
Control of Distribution
• In general, the shorter the channel structure, the
higher the degree of control, and vice versa.

• The lower the intensity of distribution, the higher

the degree of control, and vice versa.

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 3. Distribution Intensity
• = how widely a product will be distributed;
marketers want to achieve the ideal market
exposure; determining distribution patterns.
Achieve ideal market exposure (make
their product available without over
exposing and losing money)
To achieve market exposure, marketers
must determine distribution
intensity 38
 Distribution Intensity
– Exclusive Distribution

– Selective Distribution

– Intensive Distribution

– Integrated Distribution

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 Intensity of Channel Structure
• Channel intensity: the number of intermediaries at
each level of the marketing channel.

Intensive Selective Exclusive

All Possible Relatively Few Just One

Intermediaries Intermediaries Intermediary

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 Intensive Distribution
• = the use of all suitable outlets to sell a product.

• The objective is complete market coverage and the

ultimate goal is to sell to as many customers as possible,
wherever they choose to shop.

• Ex. Motor oil is sold in quick-lube shops, farm stores,

auto parts retailers, supermarkets, drugstores, hardware
stores, warehouse clubs, and other mass
merchandisers.

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 Selective Distribution
• = a limited number of outlets in a given geographical area
are used to sell the product.

• Very important to select channel members that maintain

the image of the product & are good credit risks,
aggressive marketers & good inventory planners.

• Ex. Armani & Lucky Brand sell their clothing only through
top department stores that appeal to the affluent
customers who buy its merchandise. It does not sell in a
chain megastore or a variety store.
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 Exclusive Distribution
• = protected territories for distribution of a product in
a given geographic area; business maintains tight
control over a product

• Ex. Franchisor legally requires a franchisee to sell

only the franchisor’s products

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 Integrated Distribution
Manufacturer acts as wholesaler and retailer
for its own products.

• EX. Sherwin-Williams Paint, Merle Norman

• Ex. The Gap or Ann Taylor sells its clothing in

company-owned retail stores.

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 Dual distribution
• A manufacturer may sell its products
through multiple outlets at the same time:

– Toll-free phone system

– Company website
– Multiple retailers

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 4. Involvement in E-commerce
• = means by which products are sold to
customers and industrial buyers through the
Internet.
• Consumers have also become accustomed to
buying products online.
• one-stop shopping and substantial savings for
industrial buyers.
• E-marketplaces provide smaller businesses with
the exposure that they could not get elsewhere

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 Channel Design Decisions
• Channel design/structure = form or shape
that a marketing channel takes to perform
the tasks necessary to make products
available to consumers.

• Includes ALL the parties involved

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Channel Design Decisions (cont.)
• Analyzing consumer needs

• Setting Channel Objectives

• Identifying Major Alternatives

– Types of intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
– Number of intermediaries
– Responsibilities of intermediaries

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3 Dimensions of Channel Design

1.Length of the channel

2.Intensity of various levels

(Exclusive, Selective, Intensive)

3.Types of intermediaries involved

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 Length of Channel
• Channel length = number of levels in a distribution
channel.

2 level 3 level 4 level 5 level

Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

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 Channel Design (cont.)
• Efficient movement of finished product
from the end of the production line to
customers.
• Coordinate the execution of distribution
plans
• So as to provide good customer service at
acceptable cost.

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 Determinants of Channel Structure
1. The distribution tasks that need to be performed

2. The economics of performing distribution tasks

3. Management’s desire for control of distribution

4. Transaction Efficiency (refers to the effort to reduce

the number of transactions between producers
&consumers).

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REVIEW Channel Structure/Design
1. Setting distribution objectives
 Meeting customer needs is the ultimate goal

2. Specifying distribution tasks

 who does what along the supply chain (channel of distribution)

3. Considering alternative channel structures

 Three dimensions:
• Length/Intensity/Types of intermediaries

4. Choosing optimal channel structures

 each participant in the marketing channel focuses on performing
those activities at which it is most efficient. This results in much
greater efficiency and higher output.

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Discuss the relationship between
the product being distributed
and the pattern of distribution it
uses
• Consumer Good
• Consumer Service
• Industrial Good
• Industrial Service

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OBJECTIVE TWO:
Explain the relationship between
customer service and channel
management

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 Explain how customer service
facilitates order processing
• Ensures timely delivery of products
• Effective communication is important
– Order processing
• Correct shipping information
• Correct products
• Handling complaints
• Reducing the probability of complaints
• Nice and friendly people

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Identify actions that customer service
can take to facilitate order processing

• EX. In retail selling, bag the merchandise with

care. Products such as glassware may require
individual wrapping before bagging.Work quickly
to bag your customer’s merchandise and
complete the payment process.
• EX. In business-to-business sales, complete the
paperwork quickly and leave a business card.

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 Call Customer Online
Center Order

Warehouse

Actions to
Facilitate
Order Inventory
Processing Check

No, Customer Items Yes, Item Packed

Notified of for Shipment
Backorder in
Stock?
Accounts
Receivable
Processes
Payment
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Item Shipped
 Describe the role of customer
service in following up on orders
• Following up with your customers after the
sale is an important part of providing good
customer service.
• Should customer have questions or
problems it is your duty to make sure they
have a positive experience with your
company.

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Use of Technology in Distribution

 Some businesses have the capacity to

distribute most or all of their products
through the internet
e-commerce: Products are sold to customers
and industrial buyers through the Internet.
e-marketplace
 Satellite tracking = a dispatcher has
current knowledge of a delivery truck’s
location and destination
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Use of Technology in Distribution (cont.)

 Tracking of package
Bar coding on package
Package scanned at transition points in
distribution chain
Customer uses internet to follow package along
distribution chain; e-mail may be used
Global distribution: in some countries the postal
service is not reliable; package tracking
facilitates global trade

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Use of Technology in Distribution (cont.)

 Problems

Cost of technology

Changing technology = updating equipment

Need for compatible systems within and

between businesses & countries

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