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Chapter Goals
To gain an understanding of: The nature and importance of intermediaries What a distribution channel is and does The decisions involved in designing a channel of distribution Major channels used to distribute consumer goods, business goods, and services Vertical marketing systems Intensity of distribution Choice of intermediaries and conflict management Legal considerations and channel arrangements
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service to the customer as conveniently as possible; it deals with access and availability intermediaries perform many of the distribution functions on behalf of suppliers merchant intermediaries actually take title to physical products that they distribute agents do not ever own the products, but they arrange the transfer of title
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Distribution Channels
The role of distribution entails:
Arranging for its sale and transfer of title Promoting the product Storing the product Assuming some risk during distribution.
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I N T E R M E D I A R Y
PURCHASING AGENT FOR BUYERS Anticipates wants Subdivides large quantities of a product Stores products Transports products Creates assortments Provides financing Makes products readily available Guarantees products Shares risks
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will use a number of intermediaries: producerconsumer (direct) producerretailerconsumer producerwholesalerretailer consumer produceragentretailerconsumer produceragentwholesaleretailerco nsumer when would each of these be considered?
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different types of channels are widely used. Business goods are normally distributed through four major types of channels. There are only two common channels of distribution for services. Some producers are not content to use only a single distribution channel and use multiple channels (a.k.a dual distribution) Multiple channels can aggravate middlemen and cause conflicts in the channels.
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Consumer Channels
PRODUCERS OF CONSUMER GOODS
Agents
Merchant wholesalers
Agents
Merchant wholesalers
Retailers
Retailers
Retailers
Retailers
ULTIMATE CONSUMERS
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Business Channels
PRODUCERS OF BUSINESS GOODS
Agents
Agents
BUSINESS USERS
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Service Channels
PRODUCERS OF SERVICES
Agents
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channels to reach specific markets or segments dual distribution is used, for example, to reach business and consumer markets, or to carry different groups of products or may be used to reach different segments of the sellers market; different sizes of buyers or different regions of the country some companies operate their own stores
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coordinated distribution channel designed to improve operating efficiency and marketing effectiveness. Corporate VMS: One firm owns other firms in channel or the entire channel-- Goodyear, Roots. Contractual VMS: Independents work together for much greater effectiveness: IGA, IDA. Administered VMS: Relies on economic power of one channel member-- Rolex, Kraft General Foods..
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Intensity of Distribution
SELECTIVE Distribution through multiple, but not all, reasonable outlets in a market
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concentration, potential customers, order size. Product Considerations: Consider unit value, perishability, technical nature of product. Intermediaries Considerations: Services offered, availability, attitude, dominance. Company Considerations: Desire for channel control, management, money and services seller can provide to support sales.
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interfere with each others objectives. Horizontal conflict involves firms on same level-grocery store vs. drug store. Vertical conflict involves firms at different levels producer versus wholesaler producer versus retailer Channel Power is the ability to influence or determine behaviour of others in channel. Based on expertise, rewards and sanctions.
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Producer/Retailer Conflict
Small suppliers complaints about large department stores:
Onerous logistical demands. Pressure to cut prices. Demands to give the stores exclusivity. Forcing suppliers to contribute advertising and promotional dollars to the stores. Requiring suppliers to invest in elaborate computerized inventory systems.
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More Complaints
Small suppliers complaints about discounters: Being asked to supply their goods on consignment. Being asked to deal directly with the retailers headquarters and to give to the retailer an amount equal to the commission that would have gone to manufacturers agents. Responses from smaller suppliers: Quit doing business with big retailers whose demands are too strict and outlandish. Become a retailer. Merge with another manufacturer.
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Legal Considerations
Dealer Selection: Refusing to sell to some
firms. Can be done carefully. Exclusive Dealing involves shutting out competitors, giving most business to one firm. Tying Contracts involves providing one item on condition other lines be carried as well. Exclusive Territories can create monopolies.
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An export merchant in the manufacturer's country that buys goods and exports them. An export agent located in either the manufacturer's or the destination country. A companys sales branches. Contracting, via: Licensing: Right to use production process, patents, trademarks, or other assets. Franchising. Contract manufacturing: having a foreign-based manufacturer produce the product
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Joint venture or partnership with a foreign company. Strategic alliance. Wholly-owned subsidiaries. Multinational corporation, in which the foreign and domestic operations are integrated and are not separately identified.
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mortar) a major factor-- where is it heading? Direct Response TV sales are growing in popularity, especially for time-starved shoppers The worlds largest bookstore is on the Internet! (Amazon.com)
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