INTERMEDIERIES

Copyright 2005 Pearson Education Canada Inc.

Sales and Distribution Management

Important Terminology
Marketing (distribution) channel: set of interdependent
Copyright 2005 Pearson Education Canada Inc.

organizations involved in making a product available for use or consumption; from the producer down

Supply chain: includes upstream

supplier partners, as well downstream channel partners Make and sell view as

Value-delivery

network: all

those who partner with each other to improve the performance of the supply chain system; including the company, suppliers, distributors, and even, customers Sense and respond view Sales and Distribution Management

Using Marketing Intermediaries

Intermediaries reduce the number of contacts needed to cover a market Add value by transforming assortments made by producers into assortments desired by consumers Help to complete transactions: Information Promotion Contact Matching Negotiation Fulfill completed transactions: Physical distribution Financing Risk taking Sales and Distribution Management

Copyright 2005 Pearson Education Canada Inc.

Consumer Marketing Channels

Channel level: layer of intermediaries that performs some work in
Copyright 2005 Pearson Education Canada Inc.

bringing the product and its ownership closer to the final buyer Direct: no intermediary levels Indirect: containing one or more intermediary levels

Flows between levels:

Physical Ownership Payment Information Promotion

Sales and Distribution Management

Channel Behaviour
While distribution channels are made up of companies, they are still run by people, trying to get along with other people Channel conflict: disagreements between marketing channel members on goals and roles-who should do what and for what rewards Horizontal conflict: between firms on the same channel level (dealers complaining of undue competition) Vertical conflict: between firms on different levels of the channel (Air Canada and agents) Some conflict encourages healthy competition which produces innovation and better performance Too much conflict becomes dysfunctional

Copyright 2005 Pearson Education Canada Inc.

Sales and Distribution Management

Types of Marketing Channels

Conventional distribution channel:
Copyright 2005 Pearson Education Canada Inc.

One or more independent producers, wholesalers, and retailers Each seeking to maximize its own profits How they go about doing this will differ

Vertical marketing system (VMS):

Producers, wholesalers, and retailers Act as a unified system One channel member owns, has contracts with, or has so much power that they all cooperate Benefits should include greater control, less conflict, and economies of scale due to the size of the system Sales and Distribution Management

Types of Marketing Channels (continued)

Horizontal marketing system:
Copyright 2005 Pearson Education Canada Inc.

Airline industry alliances Two or more companies at one level join together to follow a new marketing opportunity May be temporary or permanent

Sales and Distribution Management

Types of Marketing Channels (continued)

Multichannel distribution system: a single firm sets up two
Copyright 2005 Pearson Education Canada Inc.

or more marketing channels to reach one or more customer segments Allows for reaching customers from different directions Examples ; IBM

Changing Channel Organization - Disintermediation:

Displacement of traditional resellers by new types of intermediaries or by selling direct; a potential downside to multichannel systems (Airline companies, financial institutions) But - Someone needs to perform the distribution function and value added activities that consumers are looking for The most efficient should do the job Sales and Distribution Management

Setting Channel Objectives

Channel objectives influenced by:
Copyright 2005 Pearson Education Canada Inc.

To determine the type of channel system it wants Nature of the company (size/financial position, experience0 and its products (ensure expediency of delivery) Competition (going direct and not through the same intermediaries as competitors - Betonel) Marketing environment

Identifying major alternatives:

Types of intermediaries Number of intermediaries Responsibilities of each channel member

Types of intermediaries:
Company sales force Manufacturers agency Industrial distributors

Sales and Distribution Management

Number of Intermediaries
Also known as intensity of distribution Intensity chosen should match how consumers buy the product

Copyright 2005 Pearson Education Canada Inc.

Intensive distribution

As many outlets as possible

Convenience goods

Selective distribution

More than one, but not all outlets

Shopping goods

Exclusive distribution

One outlet per market area

Specialty goods

Sales and Distribution Management

Channel Management Decisions

Selecting channel members: companies will vary in their ability to attract qualified intermediaries Criteria: Channel member history, reputation, financial position, location, cooperativeness, future growth potential, other product lines carried, and facility

Copyright 2005 Pearson Education Canada Inc.

Managing & motivating: Partner relationship management (for long-term relationship) Programs, contests, sales incentives (trips for best retailers) Cooperative advertising (common advertising) Product/sales training (ensures quality of sales people)

Evaluating channel members:

Performance standards for sales, market share, customer service levels, inventory carried, and participation in company programs

Sales and Distribution Management

Public Policy and Distribution Decisions

Exclusive dealing: sellers cannot demand exclusivity for their
Copyright 2005 Pearson Education Canada Inc.

product from resellers if it can be proven that it will lessen competition or create a monopoly

Exclusive territories: sellers may grant exclusive territories, but

may have trouble demanding that resellers deal only within that exclusive territory

Tying agreements:
Demanding that resellers buy and/or stock all products within a product line, as a condition of doing business Not illegal but a source of much channel conflict

Sales and Distribution Management

Public Policy and Distribution Decisions

Dealers rights: producers are free to select dealers, but are
Copyright 2005 Pearson Education Canada Inc.

limited in their ability to terminate dealers; they must show cause, and cannot drop dealers who refuse to participate in doubtful legal arrangements

Sources of supply: ethical concerns

over supply sources from countries with human rights violations or use the proceeds to fund armed conflict

Purchasing and shelving policies:

The payment of monies for the right to be a supplier (bribery) Slotting allowances: payments to retailers for shelf space Payments to retailers to force them to sell the sellers products (generics) Sales and Distribution Management

Supply Chain Management

Marketing
Copyright 2005 Pearson Education Canada Inc.

(physical distribution): planning, implementing, and controlling the physical flow of materials, final goods and related information

logistics

Supply chain management (a more complete view of distribution): managing upstream and downstream value-added
flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers

Sales and Distribution Management

Supply Chain Management (continued)

Goal: provide a targeted level of customer service at the least cost
Copyright 2005 Pearson Education Canada Inc.

Providing customer service costs money; maximizing service levels at the lowest cost does not go together

Major logistics functions:

Warehousing: deciding how many and what type of storage and distribution centres are needed to move the products
Distribution centre: a large, highly automated warehouse designed to receive goods from suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible

Sales and Distribution Management

Supply Chain Management (continued)

Major logistics functions:
Copyright 2005 Pearson Education Canada Inc.

Inventory management: the challenge is to balance customer needs with the cost of carrying inventory; ideally the company carries just enough inventory to meet the demands of customers Transportation: speed costs money, how fast do you need it? Size and weight will determine the possible choices, but cost and urgency will likely influence the ultimate choice Choice of rail, trucks, water, pipeline, air, and the Internet

Sales and Distribution Management