Introduction to Marketing

Channels
Distribution Channel Design
and Management
 Distribution’s Function

The major purpose of marketing is to

satisfy human needs by delivering products
of various types to buyers when and where
they want them and at a reasonable cost.
The “when and where” is the function of
Distribution
 Physical Distribution
The process of
 planning, implementing, and controlling
 the efficient, effective flow and storage
 of goods, services, and related information
 from point of origin to point of consumption
 for the purpose of conforming to customer's

requirements.
Physical distribution cost can represent 20%
or more of the selling price of a product.
 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.
 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 from consumers.
 Distribution

P C
R O
O N
D S
U DISTRIBUTION U
C M
E E
R R
 Distribution
Distribution Channel
Channel
Functions
Functions
Information
Information

Transfer
Transfer Communication
Communication
Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering

Risk
Risk Taking
Taking Financing
Financing
Typical Channels of Distribution

ANUFACTURE ONSUME
R R

GENT

ETAILER

HOLESALER
Business-to-Business Channels

Direct

Wholesaler

Agent
Business-to-Business Channel
Trends

Infomediaries & Vertical Exchange

 Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel
Manufacturer
Manufacturer

Wholesaler
Wholesaler

Retailer Retailer

Consumer Consumer
Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
aa Few
Few Dominant
Dominant Members
Members

Contractual
Contractual
Contractual
Contractual Agreement
Agreement Among
Among
Channel
Channel Members
Members
 Vertical Marketing Systems

Corporate systems - total ownership

• Contractual - legal relationships

• Administered - strong leadership

 Planning the Channel of
Distribution
Determining the structure
 Marketing mix strategy

 Organizational resources

 External environmental factors

 Market characteristics

 Consumer preferences and behavior

 The nature and availability of Intermediaries

 Other environmental factors

Customers’ Desired Service
Levels
Lot size
Waiting time
Spatial convenience
Product variety
Service backup
Steps in Distribution Planning
Choosing a Distribution System

Intensive
Intensive
Distribution
Distribution

Exclusive
Exclusive Distribution
Distribution
Distribution
Distribution Intensity
Intensity

Selective
Selective
Distribution
Distribution
 Intensive
Intensive Distribution
Distribution

Producer

Seeks
Seeks to
to obtain
obtain Retailer Retailer Retailer
maximum
maximum product
product
exposure Retailer Retailer Retailer
exposure atat the
the
retail
retail level
level Retailer Retailer Retailer

Retailer Retailer Retailer

Retailer Retailer Retailer
 Selective Distribution

Producer

Product
Product is is sold
sold Retailer Retailer Retailer
in
in aa limited
limited
number
number of of Retailer Retailer Retailer
outlets
outlets
 Exclusive Distribution

Producer
Product
Product is
is sold
sold in
in
only
only one
one outlet
outlet in
in
Retailer
aa given
given area
area
 Developing Distribution
Tactics

Selecting
Selecting Channel
Channel Partners
Partners

Managing
Managing the
the Channel
Channel of
of Distribution
Distribution
Channel
ChannelLeader
LeaderPower
Power

Reward
Reward or
or
Economic
Economic Legitimate
Legitimate Coercive
Coercive
Power
Power Power
Power Power
Power

Distribution
Distribution Channels
Channels &
& the
the Marketing
Marketing Mix
Mix
 Physical Distribution
Inventory
Inventory Order
Control OrderProcessing
Processing
Control Received
Received
When
Whento
toorder
order Processed
How Processed
Howmuch
muchto
toorder
order Shipped
Shipped

Physical
Distribution
Transportation Functions Warehousing
Warehousing
Rail, Water, Number
NumberNeeded
Needed
Trucks, Air, Where
Where
Pipeline, Internet What
WhatType
Type
Materials
MaterialsHandling
Handling
Moving
MovingProducts
ProductsInto,
Into,
Within,
Within,and
and
Out
Outof
ofWarehouses
Warehouses
 Logistics Management
The efficient management of the flow of
materials inbound-through and outbound of
an organization.
Two primary product flows:
 Physical supply (materials management): Flows that
provide raw materials, components, and supplies to
the production process.
 Physical distribution management: Flows that
deliver the completed product to customers and
channel intermediaries.
 Materials Physical
manageme distribution
nt management

Supplie Manufacturer Customer

r

Inbound Outbound
Logistics Logistics

Logistics Management
 Study Area Map

Supply chain management

(a series of connected logistics flows)

Logistics management

Materials management Physical

distribution
Incoming transportation Traffic
management
Receiving Shipping
Purchasing Customer service
Incoming warehousing Finished goods
Inventory control
 Functions of Traffic Management

Mode and carrier selection

Routing
Claims processing
Operation of private transportation
 Transportation Modes
Rail
Rail
Cost-effective
Cost-effectivefor
forshipping
shippingbulk
bulkproducts,
products,
piggy-back,
piggy-back,fishyback,
fishyback,birdyback.
birdyback.
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value,
low-value,
non
non perishable goods, slowestform.
perishable goods, slowest form.
Truck
Truck
Most
Mostimportant
importantcarrier
carrierfor
forconsumer
consumer
goods, flexible.
goods, flexible.
Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededor
or
distant markets have to be reached
distant markets have to be reached
Pipeline
Pipeline
Carry
Carrypetroleum
petroleumbased
basedproducts,
products,
very
very low cost, requires littleenergy.
low cost, requires little energy.
Internet
Internet
Web
Websites
siteshave
haveproducts
productsavailable,
available,used
used
especially for services.
especially for services.
Major Advantages by Transportation
Mode
Motor • Rail • Water
 Speed of – Mass movement of – Very low unit
delivery goods cost of
 Diversity of – Low unit cost of movement
equipment movement – Movement of
 Flexibility – Dependability low-unit-value
 Frequency of – Long-haul moving commodities
movement – Wide coverage to – Long-haul
 Transfer of major markets and movement
goods to suppliers – Mass
other – Many auxillary movement of
carriers services (i.e., bulk
 Convenient switching) commodities
to both – Transfer of goods to
shipper other carriers
and receiver – Specialized
equipment
(continued
Major Advantages by Transportation
Mode

• Pipeline • Air • Intermodal

– Lowest unit cost – Frequent – Cost savings
service to major – Lower loss and
of movement markets damage claims
– Mass movement – Large capability due to
– Overnight containerization
of liquid or gas service – Service
products – Most rapid extended to
– Long-haul speed of any more shippers
moving carrier and receivers
– Large capacity – Reduced
– Most handling and
storage costs
dependable
mode
 Controllable Elements in a
Logistics System
Customer service
Logistics communications
Warehousing
Packaging
Production planning
Order processing
Transportation
Inventory control
Materials Handling
Plant and warehouse location
 Channel Relationships

Cooperation

• Conflict

• Power
– Coercive
– Expert
– Legitimate
Decision Making Framework

Prospects Importance of threatened

of channel in terms of current or
Destructive potential volume or profitability
Conflict
High Low
High (FIRE) Act to avert or address Allow threatened
conflict channel to
decline
Low Look for opportunities Do nothing
(Smoke) to reassure threatened
channel and leverage
your power
Channel Conflict: Identifying
Threats
First, are the channels really attempting
to serve the same end users?
Second, do channels mistakenly believe
they are competing when in fact they are
benefiting from each other's actions?
Third, is the deteriorating profitability
of a griping player genuinely the result
of another channel's encroachment?
Fourth, will a channel's decline
necessarily harm a manufacturer's
profits?
 Managing Channel
Conflict
WHEN TWO OR MORE CHANNELS
TARGET THE SAME CUSTOMER
SEGMENT
Differentiate the Channel
offer
Define Exclusive Territories
Enhance or Change the
Channels Value
 Managing Channel
Conflict
CHANNEL ECONOMICS DETERIORATE
Change the channels economic formula:
(Grant rebates if an intermediary fulfill certain
requirements; Adjust margins between
products to support different channel
economics; and Treat channels fairly to create
level playing field)
Create Segment Specific Programs (certain
services not available via direct channels)
Complement value proposition of the existing
channel by introducing a new channel
Foster consolidation among intermediaries in
a declining channel
 Managing Channel
Conflict
THREATENED CHANNEL STOP
PERFORMING OR RETALIATE
AGAINST THE SUPPLIER
Leverage Power (eg. Strong Brand)
against the channel to prevent
retaliation
Migrate volume to winning channel
Back off
Other Distribution Management Issues

Reverse distribution

One Coca Cola

Distributor
Difficult
• Ethical, Political, &
OK
Legal

One thousand
retailers
 Distribution
Management and
Strategy
 Physical Distribution
The process of
 planning, implementing, and controlling
 the efficient, effective flow and storage
 of goods, services, and related information
 from point of origin to point of consumption
 for the purpose of conforming to customer's

requirements.
Physical distribution cost can represent 20%
or more of the selling price of a product.
 Logistics Management
The efficient management of the flow of
materials inbound-through and outbound of
an organization.
Two primary product flows:
 Physical supply (materials management): Flows that
provide raw materials, components, and supplies to
the production process.
 Physical distribution management: Flows that
deliver the completed product to customers and
channel intermediaries.
 Materials Physical
manageme distribution
nt management

Supplie Manufacturer Customer

r

Inbound Outbound
Logistics Logistics

Logistics Management
 Study Area Map

Supply chain management

(a series of connected logistics flows)

Logistics management

Materials management Physical

distribution
Incoming transportation Traffic
management
Receiving Shipping
Purchasing Customer service
Incoming warehousing Finished goods
Inventory control
 Functions of Traffic Management

Mode and carrier selection

Routing
Claims processing
Operation of private transportation
Many of the imported goods you purchase were
shipped in 20-foot (TEU) or 40-foot (FEU) steel
containers
Large cranes load the containers onto
ships.
(Image courtesy of the Port of
Charleston)
Larger container ships can hold
4,000 to 6,000 containers.
(Image courtesy of Maersk
Sealand)
 After unloading from ships, containers can be
loaded onto a flatbed rail car, or truck flatbed,
for additional intermodal shipping.
(Image courtesy of CSX
Corp.)
Alternatively, a container can be attached to a
set of wheels for motor transport
(as an 18-wheeler trailer).
Major Advantages by Transportation
Mode
Motor • Rail • Water
 Speed of – Mass movement of – Very low unit
delivery goods cost of
 Diversity of – Low unit cost of movement
equipment movement – Movement of
 Flexibility – Dependability low-unit-value
 Frequency of – Long-haul moving commodities
movement – Wide coverage to – Long-haul
 Transfer of major markets and movement
goods to suppliers – Mass
other – Many auxillary movement of
carriers services (i.e., bulk
 Convenient switching) commodities
to both – Transfer of goods to
shipper other carriers
and receiver – Specialized
equipment
(continued
Major Advantages by Transportation
Mode

• Pipeline • Air • Intermodal

– Lowest unit cost – Frequent – Cost savings
service to major – Lower loss and
of movement markets damage claims
– Mass movement – Large capability due to
– Overnight containerization
of liquid or gas service – Service
products – Most rapid extended to
– Long-haul speed of any more shippers
moving carrier and receivers
– Large capacity – Reduced
– Most handling and
storage costs
dependable
mode
 Controllable Elements in a
Logistics System
Customer service
Logistics communications
Warehousing
Packaging
Production planning
Order processing
Transportation
Inventory control
Materials Handling
Plant and warehouse location