Transcript Lecture 12

Channels of Distribution
Chapter Twelve
Key Learning Points
The functions of channels of distribution
Key factors affecting the choice among
alternative channel structures
Channel options
Managing channels of distribution and
resolving channel member conflict
Special topics in channels of distribution
Channel decisions in high-tech and
global contexts
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“Customers must have access
to your product or service to be
able to purchase it. The purpose
of a system of distribution
channels is to provide an
efficient means of getting your
products to customers and
customers to your products.”
- Russell S. Winer
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Importance of Channels of
Distribution
Channels imply physical distribution,
also called logistics.
Distribution applies to services as well
as products.
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Figure 12.1
The Value-Added Chain of
Distribution Channels
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Illustration
Purchased in 1993 for $1.7 billion
by Quaker Oats, Snapple was sold
in 1997 to Triarc Beverages for
$300 million.
In 2000, Triarc sold Snapple for $1
billion to Cadbury Schweppes.
Distribution issues are at the heart
of Snapple’s widely fluctuating
value.
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Importance of Channels of
Distribution
Major Types of Marketing Intermediaries
Middleman
Merchant
middleman
Agent
Wholesaler
Retailer
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Broker
Manufacturers’
agent
Distributor
Jobber
Facilitating agent
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Figure 12.2, Part A
Alternate Channel System for
Consumer Products
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Figure 12.2, Part B
Alternate Channel System for
Industrial Products
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Figure 12.3
Channel System for a Manufacturer of
Food Service Disposables
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Channel Dynamics
Channel structures must adapt to
changes in the environment.
Structural changes can impact the
entire industry.
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Channel Functions
Functions and Services
Performed by Channel Members
Marketing research
Communications
Contact
Matching/customizing
Negotiation
Physical distribution
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Financing
Risk taking
Service
Relationship
management
Product assembly
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Table 12.2
Channel Function Analysis
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Table 12.3
Customer Wants and Needs Driving the
Saturn Distribution System
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Factors Affecting the
Channel System
Customer behavior
Competitors
Marketing strategy
Resources
Changes in technology
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Channel Options
Direct and indirect channels
Direct channels
Indirect channels
Strengths and weaknesses
Channel option considerations
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Channel Options
Instances When
Direct Channels Are Preferable
Information needs are high.
Customization is important.
Quality assurance matters.
Purchase orders are large.
Transportation and storage
are complex.
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Channel Options
Instances When
Indirect Channels Are Preferable
One-stop shopping for many
products is important.
Availability is important.
After-sales service is important.
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Channel Options
Factors Influencing Choice of
Direct or Indirect Channels
Profitability
Level of
intermediary
commitment
Customer loyalty
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Likelihood that the
channel member
will compete with
your product
Disintermediation
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Discussion
Disintermediation is becoming
more common in many industries.
Name some examples of products
or services that are now selling
directly to consumers and
bypassing traditional channel
members such as retailers.
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Figure 12.4
Multiple Channels
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Figure 12.6
Hybrid Channel Design
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Figure 12.7
Hybrid Channel Design
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Channel Power and
Management
Factors Influencing Channel
Member Power
Sales volume of
channel member
Product
differentiated
Channel switching
costs
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Channel may integrate
backwards or become
a competitor
Quality of channel
information about
market conditions
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Channel Power and
Management
Channel power:
Mega-retailers and category killers:
Use information-intensive
operations
Cut out intermediaries
Channel power can lead to hardball
tactics.
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Figure 12.9
Levels of Conflict between
Manufacturers & Channel Members
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Channel Power and
Management
Sources of channel conflict:
Goal divergence
Domain dissensus
Differing perceptions of reality
Misuse of power
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Channel Power and
Management
Conflict resolution methods:
Demarcating product lines
Jointly developing solutions
Increasing push and pull activities
Developing financial arrangements
Charging higher prices in the direct channel
Using channel power
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Channel Power and
Management
Use of Channel Power in
Conflict Resolution
Threats
Promises
Legalistic
pleas
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Requests
Recommendations
Information
exchange
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Table 12.4
OEM vs. Branded Marketing
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Channel Issues in
High-Tech Marketing
High-tech marketing:
Original equipment manufacturers
Value-added resellers (VARs)
Differences between OEMs and VARs
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Global Channel Issues
Cultural, economic, and regulatory
issues impact global channels.
Western Europe
Russia and former Soviet Bloc
countries
Japan
China and other Asian markets
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“The gray market is where
trademarked goods are sold
through channels of distribution
that are not authorized by the
holder of the trademark. It is
common that gray markets
develop across country lines.
This phenomenon is often
called parallel importing.”
- Russell S. Winer
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Discussion Questions
Counterfeit products are not the same as gray
market goods. Counterfeit products are low-quality
trademark infringing “knock-off” versions of
branded products created by firms other than the
brand manufacturer (typically in foreign markets).
1. What are the repercussions of counterfeit
branding to customers, channel members,
and the legitimate brand manufacturer?
2. Are people who purchase counterfeit brands
realistically members of the true brand’s
target market? Why or why not?
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Special Topics in
Channels of Distribution
Supermarket issues
Retailers have gained power.
Category management is important.
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“The need to be efficient has
driven category management
and created two concepts
initially introduced in the United
States in the early 1990’s:
efficient consumer response
(ECR) and continuous
replenishment program (CRP).”
- Russell S. Winer
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Special Topics
Strategies for intermediaries
Disintermediation threatens
intermediaries.
Many intermediaries continue to
survive and even thrive.
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Executive Summary
The distribution system is part of the
value chain.
Many channel structures exist.
Channel structure is determined by
many factors.
Channel members perform many
functions.
A common decision sequence is
followed.
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Executive Summary
Hybrid channel systems have different
channel types.
Channel power is important.
Channel management involves two key
factors.
Conflict can be resolved in multiple
ways.
New channel opportunities are arising.
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