Chapter 11
Distribution Strategies
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–1
Role of distribution
• The aim of the third ‘P’ of the marketing mix is for
customers to have convenient and effective
access to goods and services.
• A distribution channel is a set of people and firms
involved in carrying out the distribution function.
• A channel involves:
–
–
–
–
A producer.
Ultimate consumers.
Business users.
Intermediaries.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–2
Intermediaries
• A business that helps producers to get their
products into the marketplace.
• They take title to the merchandise as it moves from
producer to customer, or they actively assist in the
transfer of ownership.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–3
Intermediaries
• The role of an intermediary includes:
–
–
–
–
–
–
Negotiations between buyers and sellers.
Assisting in transfer of ownership.
May take physical possession of goods.
May store products in a warehouse.
Acting as the transport and merchandise agent.
Aiding in the creation of utilities
(time, place, possession, form).
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–4
Typical activities of intermediaries/middlemen
Insert Fig 11.1 page 331
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–5
Designing and selecting
distribution channels
Insert Fig 11.2 page 332
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–6
Designing and selecting
distribution channels
• Channel strategy should be consistent with overall
marketing objectives and with the rest of the
marketing mix.
• Suitable channel should be determined.
• Marketers need to decide whether intermediaries
will be used and, if so, which types of
intermediaries.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–7
Direct versus indirect
distribution channels
• When looking at direct versus indirect, it often
comes down to cost versus control.
• Direct distribution allows producer to retain
complete control.
• Producer will have to fund and organise all of the
infrastructure and operations of the channel.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–8
Direct versus indirect
distribution channels
• Direct distribution
• Using a channel consisting only of
producer and final customer, with no
intermediary providing assistance.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–9
Direct versus indirect
distribution channels
• Indirect distribution
•
A channel involving a producer, final customer and at
least one level of intermediary is known as indirect
distribution.
•
The members can be chosen from either one or
multiple levels of intermediaries or channel members.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–10
Major channels of distribution
• Insert Fig 11.3 page 333 part ‘A’ Producers of
consumer goods
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–11
Major channels of distribution
•Insert Fig 11.3 page 333 part ‘B’ Producers of
business goods
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–12
Major channels of distribution
•Insert Fig 11.3 page 333 part ‘C’
Producers of services
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–13
Multiple channels of distribution
• Multiple or dual distribution channel
• Used to reach two or more target markets.
• Avoid total dependence on a single
arrangement.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–14
Vertical marketing systems
• A ‘VMS’ is a distribution channel in which the
various channel members are tightly coordinated in
order to achieve operating efficiencies and
marketing effectiveness.
• VMS characteristics:
–
Ownership of levels.
– Contracts members of channel.
– Market power of members.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–15
Other types of VMS
• Corporate systems
–
Production and distribution owned by same company.
• Administered systems
–
Economic power of a channel member.
• Contractual systems
–
Contractual arrangement between a variety of channel
members (independent).
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–16
Choosing the right channel members
• Market considerations
–
Type of market, number of potential customers, location of
customers, order size.
• Product considerations
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Unit value, perishability, technical nature of product.
• Intermediary considerations
–
Can they provide the service, are they available, do they
want to be involved?
• Company considerations
–
Financial resources, management’s ability, desire for
channel control, services we can provide.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–17
Distribution intensity
Insert Fig 11.4 page 339
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–18
Distribution intensity
•
Intensive distribution
–
Normally used for convenience goods.
– Objective to have products in as many outlets as possible.
•
Selective distribution
–
–
•
Most appropriate for shopping goods.
A select number of distributors chosen.
Exclusive distribution
–
Usually applies to specialty products.
– Limited distribution outlets.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–19
Channel conflict
• Horizontal conflict
• Conflict occurs between similar firms on the same
level of distribution.
• E.g. hardware store versus hardware store.
• Vertical conflict
• Conflict between firms at different levels in the
same channel.
• E.g. producer versus wholesaler.
• Most common type of channel conflict (intermediaries).
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–20
Legal considerations of
channel management
• Middleman selection
• Manufacturers choice as long as there is no intent
to create a monopoly.
• Exclusive dealing
• Normally not illegal except for control of market
situations.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–21
Legal considerations of
channel management
•
•
•
•
Tying contracts
Usually prohibited except for special circumstances, such as
franchise agreement to purchase from selected suppliers.
Exclusive territories
Traditionally, the strategy of exclusive (or closed) sales
territories has been used by manufacturers in assigning
market areas to retail or wholesale intermediaries.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides Prepared by: Joe Rosagrata
11–22