distribution channel and design management

7/28/2019 Distribution Channel and Design Management

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Distribution Channel Design

and Management


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Distributions Function

The major purpose of marketing is to satisfyhuman needs by delivering products of varioustypes to buyers when and where they want themand at a reasonable cost.

The when and whereis the function ofDistribution


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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 theirgreater efficiency in making goods available totarget markets.

Offer the firm more than it can achieve on itsown through the intermediaries: Contacts,

Experience,

Specialization,

Scale of operation.

Purpose: match supply from producers todemand from consumers.


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Distribution

PR

ODUCER

CO

NSUM

ER

DISTRIBUTION


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Distribution Channel Functions

Ordering

Payments

CommunicationTransfer

Negotiation

FinancingRisk Taking

PhysicalDistribution

Information


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Typical Channels of Distribution

ANUFACTURER ONSUMER

HOLESALER

ETAILER

GENT


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Business-to-Business Channels

Direct

Wholesaler

Agent


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Business-to-Business Channel Trends

Infomediaries & Vertical Exchange


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Conventional Distribution Channel vs.

Vertical Marketing Systems

Verticalmarketingchannel

Manufacturer

Retailer

Conventionalmarketingchannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wholesaler


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Types of Vertical Marketing SystemsCorporate

Common Ownership at DifferentLevels of the Channel

ContractualContractual Agreement Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members


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Vertical Marketing Systems

Corporate systems - total ownership

Administered - strong leadership

Contractual - legal relationships


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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


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Customers Desired Service

Levels Lot size

Waiting time

Spatial convenience

Product variety

Service backup


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Steps in Distribution Planning


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Intensive

Distribution

Exclusive

Distribution

Selective

Distribution

Distribution

Intensity

Choosing a Distribution System


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Intensive Distribution

Seeks to obtain

maximum product

exposure at the

retail level

Producer

Retailer RetailerRetailer

Retailer

Retailer Retailer

Retailer

Retailer

Retailer Retailer Retailer

Retailer



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Selective Distribution

Product is sold

in a limited

number ofoutlets

Producer

Retailer RetailerRetailer



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Product is sold inonly one outlet in

a given area

Producer

Retailer

Exclusive Distribution


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Developing Distribution Tactics

Selecting Channel Partners

Reward orCoercive

Power

LegitimatePower

EconomicPower

Managing the Channel of Distribution

Channel Leader Power

Distribution Channels & the Marketing Mix


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Materials HandlingMoving Products Into,

Within, and

Out of Warehouses

WarehousingNumber Needed

Where

What Type

InventoryControl

When to orderHow much to order

Order ProcessingReceived

ProcessedShipped

PhysicalDistributionFunctionsTransportation

Rail, Water, Trucks,Air, Pipeline,

Internet

Physical Distribution


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RailCost-effective for shipping bulk products,

piggy-back, fishyback, birdyback.

WaterLow cost for shipping bulky, low-value,

non perishable goods, slowest form.

TruckMost important carrier for consumer

goods, flexible.

AirHigh cost, ideal when speed is needed or

distant markets have to be reached

PipelineCarry petroleum based products,

very low cost, requires little energy.

Transportation Modes

InternetWeb sites have products available, used

especially for services.


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Channel Relationships

Cooperation

Conflict

Power Coercive

Expert

Legitimate


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Decision Making Framework

Prospects

of

Destructive

Conflict

Importance of threatened

channel in terms of current or

potential volume or profitability

High Low

High (FIRE) Act to avert or address

conflict

Allow threatened

channel to

decline

Low(Smoke) Look for opportunitiesto reassure threatened

channel and leverage

your power

Do nothing

Ch l C fli t Id tif i


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Channel Conflict: Identifying

Threats

First, are the channels really attempting toserve 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?


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Managing Channel Conflict

WHEN TWO OR MORE CHANNELS

TARGET THE SAME CUSTOMER

SEGMENT

Differentiate the Channel offer

Define Exclusive Territories

Enhance or Change the ChannelsValue


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CHANNEL ECONOMICS DETERIORATE Change the channels economic formula:(Grant rebates if an intermediary fulfill certainrequirements; Adjust margins between productsto 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 existingchannel by introducing a new channel

Foster consolidation among intermediaries in adeclining channel


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THREATENED CHANNEL STOP

PERFORMING OR RETALIATE AGAINST

THE SUPPLIER

Leverage Power (eg. Strong Brand) againstthe channel to prevent retaliation

Migrate volume to winning channel

Back off


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Other Distribution Management

Issues Reverse distribution

One Coca ColaDistributor

One thousandretailers

OK

Difficult

Ethical, Political, &

Legal

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