Distribution Channels and Logistics Management
Chapter 12
Issues Concerning Distribution Channels
What is the Nature Of Distribution Channels?
How do Channel Firms Interact and Organize to do the Work of the Channel?
What Problems do Companies Face in Designing and Managing Their Channels?
What Role Does Physical Distribution Play in Attracting and Satisfying Customers?
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?
è The use of intermediaries results from their greater efficiency in making goods available to target markets.
è Offer the firm more than it can achieve on it’s own through the intermediaries:
è Purpose:
CD example
How a Marketing Intermediary Reduces the Number of Channel Transactions
Distribution Channel Functions
These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers.
Number of Channel Levels (Fig. 12.2)
Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.
Dual Distribution
Channel Behavior & Conflict
è The channel will be most effective when:
è When this doesn’t happen, conflict occurs:
n Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer.
n Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.
Conventional Marketing Channel Vs. a Vertical Marketing System(Fig. 12.3)
Types of Vertical Marketing Systems
Corporate Systems
è Involves single ownership of two or more levels of a channel
n Vertical integration - one channel member acquires control of one or more other members, usually by purchasing them.
n Total vertical integration - one organization controls all marketing channel functions.
n - Manufacturer purchases distributor or retailer
n - Wholesaler or retailer purchases channel members above them.
Contractual Systems
è Involve independent production and distribution companies entering into formal contracts to perform designated marketing functions.
Administered Systems
è Characterized by a higher degree of interorganizational planning and management usually resulting from the existence of a strong channel leader.
Innovations in Marketing Systems
Horizontal Marketing System
Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.
Hybrid Marketing System
A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.
Changing Channel Organization
A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones.
Impact of the Internet
Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Evaluating the Major Alternatives
Designing International Distribution Channels
Channel Management Decisions
Selecting Channel Members
Motivating Channel Members
Evaluating Channel Members