Chapter Ten

Distribution Strategy

Key Words / Outline Marketing intermediaries, Direct marketing, Indirect channels , Intensive distribution, Selective distribution, Exclusive distribution, Total distribution cost, Channel flexibility, Relationship marketing , Administered system, Contractual system, Corporate system, Mass merchandisers, Catalogs and direct mails, Vending machines

McGraw-Hill/Irwin Marketing Management, 8e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Channels of Distribution

• A channel of distribution is the combination of

institutions

through which a

seller markets products

to the user or

ultimate consumer 10 - 3

Marketing Intermediaries

•

Middleman –

independent link between producers and consumers •

Merchant middleman –

actually buys goods and takes title/ownership •

Agent –

business unit that negotiates purchases and sales but does not take ownership •

Wholesaler –

a merchant who primarily stores and handles goods in large quantities • •

Retailer –

merchant middleman who sells to final consumers

Broker –

and seller middleman who serves as a go-between for the buyer

10 - 4

Marketing Intermediaries

• • • •

Manufacturer’s agent –

an agent who operates by contract serving a geographic territory

Distributor –

wholesale middleman in lines with selective or exclusive distribution

Jobber –

to retailers a middleman who buys from manufacturers and sells

Facilitating agent –

a firm that performs distribution tasks other than buying, selling and transferring

10 - 5

Channel Functions

•

Transactional functions

-

Buying:

Purchasing products for resale or as an agent for supply of a product

Selling

: Contacting potential customers, promoting orders and soliciting orders -

Risk taking

: Assuming business risks in the ownership of inventory that can become obsolete or deteriorate •

Logistical functions

-

Assorting

: Creating product assortments from several sources to serve customers

10 - 6

Channel Functions

• -

Storing

: Assembling and protecting products at a convenient location to offer better customer service

Sorting

: Purchasing in large quantities and breaking into smaller amounts desired by the customer

Transporting

: Physically moving products to customers

Facilitating functions

-

Financing

: Extending credit to customers

Grading:

Inspecting, testing and judging products and assigning them quality grades

Marketing Information/Research

: Providing information to customers and suppliers, including competitive conditions and trends

10 - 7

Channel Distribution – Consumer Goods

10 - 8

Channel Distribution – Organizational Goods

10 - 9

General Considerations – Channel Planning

• • • • • •

Customer characteristics: Numbers, location, purchasing pattern Product characteristics: type, installation &maintenance Intermediary characteristics: availability, competitive product sold, Financial conditions Competitor characteristics: Company characteristics: number, Size &market share Size & market share, finical conditions Environmental characteristics: economic conditions, technology change culture differences ,legal regulation 10 - 10

Distribution Alternatives

•

Channel selection may depend upon the nature of market coverage desired

-

Intensive distribution

: Using as many wholesalers and retailers as possible

Selective distribution

: Using only the best available per geographic area

Exclusive distribution

: Selected intermediaries are given exclusive rights within a particular territory

10 - 11

Distribution Alternatives

• • •

Degree of control desired:

The degree of control achieved by the seller is proportionate to the directness of channel

Total distribution costs:

A channel of distribution should be viewed as a total system composed of interdependent subsystems and the objective of the system should be to optimize total system performance

Channel flexibility:

changing conditions Ability of the manufacturer to adapt to

10 - 12

Relationship Marketing

• Popularly defined as “marketing with conscious aim to develop and manage

long term

and/or trusting

relationships

with

customers distributors, suppliers or other parties

in the marketing environment”

10 - 13

Vertical Marketing System

• • • •

Vertical marketing systems:

Are channels in which members are more

dependent on one another

and develop long-term relationships in order to improve efficiency and effectiveness

Administered systems –

highly dependent on close relationships between channel members

Contractual systems –

relationships governed by contracts to perform specific functions producer and distributor

Corporate systems –

single ownership of two or more levels of a channel. when manufacturer purchase wholesaler or retailer

10 - 14

Vertical Marketing System

10 - 15

Wholesalers

• • • Merchants primarily involved in

buying, taking title to, storing and physically handling goods

The create value for suppliers and retailers by handling their function efficiently and effectively They seek producers of profits are greatest

major brands

for which sales and

10 - 16

Benefits of Wholesalers to Channel Members

•

Benefits for manufacturers

Reach out to

diverse geographic

markets cost effectively -

Information supply

about retailers and various end users -

Reduction of costs

through greater efficiency and effectiveness in distribution functions •

Benefits for retailers

Provide potentially

profitable products

otherwise unavailable for resale in retail area

10 - 17

Benefits of Wholesalers to Channel Members

• Provide

information about industries

, manufacturers and other retailers Reduce

costs by providing

different manufacturers an assortment of goods from

Benefits for end users

Increase

the product alternatives

available in the local market

Reduce retail prices by the

contributed to the channel efficiency and effectiveness

Improve product selection by providing information

retailers about the best products to offer to end users to

10 - 18

Store Retailing

• • •

Mass merchandisers

carry a broad assortment of goods and compete

based on selection and price Specialty stores

handle deep assortments in a of product categories

limited number Convenience stores

location are retailers whose primary advantage is

10 - 19

Non-store Retailing

• • • • •

Catalogs and direct mail Vending machines Television home shopping Direct sales E-commerce 10 - 20

Electronic Exchange - Advantages

• • • • •

Cost effective Good visual presentation and full description of products Global presence of products Products offered on 24/7 basis One-on-one interaction with customers 10 - 21

Electronic Exchange – Disadvantages

• • • • •

Strong price competition Website advertising expensive for small e-marketers Limits the markets to customers who are willing to by the products electronically Products not as good for selling touch and feel as opposed to look and buy unless branded Often less effective and efficient in business to consumer markets than in business to business markets 10 - 22