DISTRIBUTION

CHANNELS
MARKETING CHANNEL
 “A set of interdependent
organizations that help make a
product or service available for use
or consumption by consumer or
business user.”
 Dell revolutionized its industry by selling its PC
directly to consumers.
 Amazon.com pioneered the sales of books and
wide range of other goods via the internet
NATURE & IMPORTANCE OF MARKETING
CHANNELS

 Channel choices affect other decisions in the

marketing mix
 Pricing, Marketing communications
 A strong distribution system can be a competitive
advantage
 Channel decisions involve long-term
commitments to other firms

13 - 3
NATURE & IMPORTANCE OF MARKETING
CHANNELS

 How Channel Members Add Value

 Intermediaries require fewer contacts to move the

product to the final purchaser.

 Intermediaries help match product assortment demand

with supply.

 Intermediaries help bridge major time, place, and

possession gaps that separate products from those who
would use them.

13 - 4
NUMBER OF CHANNEL LEVELS
 Channel Level- A layer of intermediaries that
performs some work in bringing the product and
its ownership closer to the final buyer.

Channel Levels

Direct marketing Indirect marketing

channel channel
A CONSUMER MARKETING CHANNELS

Producer Producer Producer

Wholesaler

Retailer Retailer

Consumer
Consumer Consumer
BUSINESS MARKET CHANNELS

Producer Producer Producer

Manufacturer’s
representatives
or sales branch

Business Business
Distributer Distributer

Business
Business Business Customer
Customer Customer
KEY FUNCTIONS PERFORMED BY
CHANNEL MEMBERS

Information Negotiation

13 - 8
 

 Promotion  Physical Distribution

 Contact  Financing

 Matching  Risk taking

CHANNEL DESIGN DECISIONS
 Step 1: Analyzing Consumer Needs
 Cost and feasibility of meeting needs must be considered
 Step 2: Setting Channel Objectives
 Set channel objectives in terms of targeted level of customer service
 Many factors influence channel objectives

 Step 3: Identifying Major Alternatives

 Types of intermediaries
 Company sales force, manufacturer’s agency, industrial distributors
 Number of marketing intermediaries
 Intensive, selective, and exclusive distribution
 Responsibilities of channel members
 Step 4: Evaluating Major Alternatives
 Economic criteria (Is the channel cheap)
 Control issues (how much can the firm control him)
 Adaptive criteria (can he change)

13 - 9
CHANNEL MANAGEMENT DECISIONS

 Selecting Channel Members

 Identify characteristics that distinguish the best channel
members
 Managing and Motivating Channel Members
 Partner relationship management (PRM) is key
 Evaluating Channel Members
 Performance should be checked against standards
 Channel members should be rewarded or replaced as
dictated by performance

13 - 10
VERTICAL MARKETING SYSTEM
 A distribution channel structure in which
producers , wholesaler, retailer act as a unified
system. One channel member owns the others,
has contracts with them, or has so much power
that hey all cooperate.
HORIZONTAL MARKETING SYSTEM
A channel arrangement in which two or
more companies at one level join together
to follow a new marketing opportunity

 Wal-Mart + McDonald’s
 Coca cola + Nestle
MULTICHANNEL DISTRIBUTION
 Also called hybrid marketing channels
 Occurs when a firm uses two or more marketing channels
 Changing Channel Organization (changing and chopping
channel members)
 Disintermediation ( removing some layers altogether)

Producer

Distributor

Retailer Dealer

Consumer Consumer Business Business

segment1 segment2 segment1 segment2
CHANNEL CONFLICT
 Channel conflict is a situation in which channel
partners have to compete against one another or
the vendor's internal sales department.
 Channel conflict can cost a company and its
partners money as partners try to undercut one
another. It can also lower morale within the
channel and cause some partners to consider
other vendors.
TYPE OF CHANNEL CONFLICTS
 Vertical channel conflicts,
 Horizontal channel conflicts,

 Multilevel channel conflicts

CAUSES OF CONFLICT
 Goal Incompatibility
 Unclear Roles and Rights

 Difference in Perception

 Degree of Dependence
RETAILER & WHOLESALER
DEFINITIONS
 Retailing
 All activities involved in selling goods or services
directly to final consumers for their personal,
nonbusiness use.
 Retailer
 Business whose sales come primarily from retailing.

14 - 18
TYPES OF RETAILERS

 Specialty Stores
 Department Stores

14 - 19
 Supermarkets

 Discount Stores
 Convenience
Stores
CLASSIFICATIONS OF RETAILERS

 Self-service retailers
 Amount of service  Customers are willing to self-

14 - 20
 Product lines serve to save money
 Discount stores
 Relative prices
 Limited-service retailers
 Organizational approach  Most department stores
 Full-service retailers
 Salespeople assist customers
in every aspect of shopping
experience
 High-end department stores
 Specialty stores
CLASSIFICATIONS OF RETAILERS
 Specialty stores
 Narrow product lines with deep

14 - 21
assortments
 Amount of service  Department stores
 Product lines  Wide variety of product lines

 Supermarkets
 Relative prices
 Convenience stores
 Organizational approach  Limited line

 Superstores
 Food, nonfood, and services

 Category killers
 Giant specialty stores
CLASSIFICATIONS OF RETAILERS
 Discount stores
 Amount of service  Low margins are offset by high

14 - 22
 Product lines volume

 Off-price retailers
 Relative prices
 Factory outlets
 Organizational approach  Levi Strauss, Reebok

 Warehouse clubs
 Mega Mart for Allensolley
seconds
CLASSIFICATIONS OF RETAILERS

 Amount of service  Corporate chain stores (Spaces

by Welspun)

14 - 23
 Product lines  Commonly owned / controlled

 Relative prices  Voluntary chains (Food Bazzar)

 Wholesaler-sponsored groups
 Organizational approach of independent retailers
 Retailer cooperatives
(Operation flood for milk )
 Groups of independent retailers
who buy in bulk
 Franchise organizations
(MacDonald Chain for burgers)
 Based on something unique
RETAILER MARKETING DECISIONS

 Target marketing and positioning

 Product assortment, service mix, store’s atmosphere
 Price
 Promotion
 Place (location)
WHOLESALING
 All activities involved in selling
goods and services to those buying
for resale or business use.

 Wholesaler- A firm engaged primarily in wholesaling

activity.
FUNCTIONS OF WHOLESALER
 Selling and promoting
 Buying and assortment building

 Bulk breaking

 Warehousing

 Transportation

 Financing

 Risk bearing

 Market information

 Management services and advices

TYPES OF WHOLESALERS
 Merchant Wholesalers
 Brokers and Agents
 Manufacturers’ and
retailers’ branches and
offices
 Full-service wholesalers
14 - 27
 Wholesale merchants
 Industrial distributors
 Limited-service wholesalers
 Cash-and-carry wholesalers
 Truck wholesalers (jobbers)
 Mail-order wholesalers (handle
only mail order jobs - Fedex)
TYPES OF WHOLESALERS

 Merchant Wholesalers  Brokers

14 - 28
 Bring buyers and sellers
 Brokers and Agents together and assist in
 Manufacturers’ and negotiation

retailers’ branches and  Agents

offices  Manufacturers’ agents
 Selling agents
 Purchasing agents
 Commission merchants
TYPES OF WHOLESALERS

 Sales branches and offices

 Merchant Wholesalers

14 - 29
 Branches carry inventory:

 Brokers and Agents lumber, auto equipment, parts

 Offices do not carry inventory:
 Manufacturers’ and dry goods
retailers’ branches and  Purchasing officers
offices  Perform roles similar to brokers
and agents, however these
individuals are employees of
the organization
WHOLESALING
 Wholesaler Marketing Decisions
 Target market and positioning
 Targeting may be made on the basis of size of customer, type of
retailer, need for service.

 Marketing mix decisions

 Product and service assortment: inventory, line
 Pricing: usual markup on COG is 20%
 Promotion: largely disorganized and unplanned
 Place: location, facilities
TRENDS IN WHOLESALING

 Price competition is still intense

 Successful wholesalers must add value by

increasing efficiency and effectiveness

 The distinction between large retailers and

wholesalers continues to blur

 More services will be provided to retailers

 Many wholesalers are going global

14 - 31