Ch 8/9 Objectives
• Recognize the importance of marketing channels and
distribution
• Understand marketing channels in terms of creating
time, place, and possession utilities
• Understand some of the complexity of physical
distribution
What is a Distribution Channel?
• A distribution channel consists of the set of people
and firms involved in transfer of title to a product as
it moves from producer to ultimate consumer or
business user.
• Every firm wants to have a distribution channel that
meets customer's needs and also provides a
competitive advantage.
Common Marketing Channels for Consumer Products
Producer
Direct
Channel
Producer
Retailer
Channel
Producer
Wholesaler
Channel
Wholesalers
Consumers
Retailers
Retailers
Consumers
Consumers
Determining Intensity of Distribution
• A firm must decide on the appropriate
intensity of distribution for its product.
• Intensity is actually a continuum, but three
categories are normally used:
– Intensive
– Selective
– Exclusive
Intensity-of- Distribution Continuum
INTENSIVE
Distribution
through every
reasonable
outlet in a
market
SELECTIVE
Distribution
through multiple,
but not all,
reasonable
outlets in a
market
EXCLUSIVE
Distribution
through a single
wholesaling
middleman
and/or retailer
in a market
Terms Used for Marketing Intermediaries
TERM
DESCRIPTION
Middleman
Any intermediary between manufacturer and enduser markets
Agent or
Broker
Any intermediary with legal authority to act on
behalf of the manufacturer
Wholesaler
An intermediary who sells to other intermediaries,
usually to retailers; usually applies to consumer
markets
Retailer
An intermediary who sells to consumers
How Intermediaries Minimize Transactions
IBM
Lynne
IBM
Lynne
Apple
Troy
Apple
Troy
Computer City
®
HP
Compaq
Todd
Compaq
Todd
HewlettPackard
Diane
HewlettPackard
Diane
Contacts with no intermediaries
Contacts with one intermediaries
4 producer x 4 buyers=16 contacts
4 producer + 4 buyers=8 contacts
Marketing Channel Functions Performed by Intermediaries
Transactional Function
Logistical Function
-Buying. Purchasing products for resale or as an agent
for supply of a product
-Selling. Contracting potential customers, promoting
products, and soliciting orders
-Risk Taking. Assuming business risks in the ownership
of inventory that can become obsolete or deteriorate.
Facilitating Function
Look through this on your own!
Channel Terms:
• Disintermediation
• What is Disintermediation?
Terms:
• Disintermediation:
“The removal of organizations or business process layers
responsible for certain intermediary steps in a given
value chain”
• Show channel “delayering” graphs
Rationale for Middlemen
• You can eliminate the middleman, but you can’t
eliminate the middleman’s function
• Benefit both Producers and Retailers
“Direct” Distribution
• What is it?
• For what types of products does it seem to work?
• Doesn’t work for all products...
“2-Step” Dist. Is Extremely Efficient!!!
PRODUCERS
A
B
C
D
WHOLESALING MIDDLEMAN
1
2
3
4
RETAILERS
5
6
Marketing Channel Management...
Formulating
channel strategy
Design
channel structure
Select channel
members
Motivate channel
members
Coordinate with
marketing mix
Evaluate member
performance
Set distribution
objectives
Specify tasks to be
performed by the
channel
Consider alternative
structures
Choose optimal
structure
Channel Conflict
Conflict in Marketing Channels
1. Vertical Conflict
2. Horizontal Conflict
Don’t worry about this distinction…
Conflict is conflict.
Channel Conflict: An Internet Example:
• Go to the clinique web site:
– www.clinique.com
Vertical Marketing Systems
• Vertical marketing systems are professionally
managed and centrally coordinated marketing
channels designed to achieve channel
economies and maximum marketing impact.
• Major types of vertical marketing systems:
– corporate
– contractual
– administered
Look at this stuff on your own...
Definition of a Supply Chain
A Supply Chain is . . . .
a sequence of firms that perform
activities required to create and
deliver a good or service to
consumers or industrial users.
The Supply Chain
• A supply chain differs from a marketing
channel in terms of membership.
• A supply chain includes suppliers
who provide raw material inputs to a
manufacturer as well as the wholesalers
and retailers who deliver finished goods.
PP17-2 The Automotive Supply Chain
Supplier Network
Raw materials
steel
aluminum
rubber
auto manufacturer
marketing channel
components
subassembly
assembly
transmission
suspension
GMC
Cadillac/Chevy
brakes
chassis
Ford
Lincoln/Mercury
seats
engine
Chrysler
Dodge/Plymouth
Dealer network
consumer
Types Of Wholesaling Intermediaries
Merchant Wholesalers
Merchant
Wholesalers
Full Service
Limited Service
•
General Wholesalers
•
Cash And Carry Wholesalers
•
Limited Line Wholesalers
•
Truck Jobbers
•
Specialty Line Wholesalers
•
Drop Shippers
•
Industrial Distributors
•
Mail-order Wholesalers
•
Rack Jobbers