Marketing Channels &
Distribution
The Importance of Marketing Channels
• Intermediaries make distribution and selling
processes more efficient.
• Intermediaries offers supply chain partners
more than they could achieve on their own.
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Market Exposure
Technical Knowledge/Information Sharing
Operational Specialization
Scale of operation
Channel Efficiency: How Intermediaries Reduce the Number of
Channel Transactions
Other Key Channel Functions
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Matching Needs with Products
Physical distribution & Logistics
Financing
Risk taking
Consumer and Business Marketing Channels
Channel Cooperation & Conflict
• Channels are most effective when:
– Each member performs the tasks it does best.
– Channel members cooperate to attain overall channel goals.
• Channel Conflict
– Horizontal Conflict: conflict among firms at the same level of
the channel (e.g., retailer to retailer).
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Example: Two retailers compete to carry a supplier’s “exclusive” product.
– Vertical Conflict: conflict between different levels of the same
channel (e.g., wholesaler to retailer).
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Example: Manufacturer competes with retailer in selling product to target market.
• Some conflict can be healthy competition.
Channel Conflict: Goodyear
Goodyear’s conflicts
with its independent
dealers have decimated
the firm’s replacement
tire sales.
Channel Conflict Example
Branded goods using the
Wolfgang Puck, T.G. I.
Friday’s, Taco Bell,
Emeril’s, and Starbuck’s
names are now being sold
in grocery stores.
Look at the items at right.
Which stands the greatest
risk of causing channel
conflict? Why?
Vertical Marketing System
• When producers,
wholesalers, and retailers
act as a unified system.
• Can happen through
– Outright ownership of channel
member
– Contracts
– “Channel power”
Franchise Organizations
• Powerful force in U.S. Retail (40%+
of all sales)
• Franchise Structures
• Compensation Arrangements
• Advantages
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Brand Name Recognition
Standardized Processes and Procedures
Avoids startup hassles – safer bet
Quick access to capital and huge expansion
potential
• Disadvantages
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Over-saturation and territorial issues
Marketing fund disputes
Quality (vs. Company-owned)
Little room for “entrepreneurial creativity”
Channel Innovations
• Horizontal Marketing System
– Two or more companies at one channel level join together
to achieve a marketing goal.
• Joint Ventures
• Alliances and Partnerships
• Co-Marketing, Co-Distribution and Co-Branding
• Multichannel Distribution System
– Reaching customer segments through multiple marketing
channels. (i.e. hybrid system)
• Example: You can buy Starbucks coffee from Starbucks’ stores or
from the Supermarket
• Problems with MDSs?
Disintermediation
Occurs when producers sidestep
intermediaries and sell directly to final
buyers, or when radically new types of
channel intermediaries displace
traditional ones.
The Internet has made the disintermediation of
many traditional retailers possible.
Disintermediation Example
Calyx & Corolla sells
fresh flowers and
plants direct to
consumers over the
phone and via the
Web, drastically
reducing the time it
takes flowers to reach
consumers via
conventional retail
channels.
(Non-) Disintermediation Example
Black & Decker chose to avoid disintermediation by not using the
Internet to sell their products. Instead B&D directs consumers to stores
that carry its products.
Outsourcing Distribution
• Company sales force vs. Manufacturer’s Rep
– Company sales force
• Employed directly by the firm in outside or inside sales
capacity.
– Manufacturer’s agency/representative
• Independent firms whose sales people handle several
companies’ products simultaneously
Primarily a question of size and life cycle stage.
Distribution Strategy Alternatives
• How many intermediaries?
– Intensive distribution
• Stock product in as many outlets as possible.
– Exclusive distribution
• Granting a limited number of outlets the exclusive right
to sell product.
– Selective distribution
• Somewhere in between Intensive and Exclusive
Distribution.
Does the company always get to choose?
Selective Distribution
Maytag uses selective distribution like
many furniture and appliance
manufacturers.
The “Where to Buy” page on their Web
site assists buyers in finding stores that
carry the Maytag brand.
International Channel Decisions
• Every country has its own unique distribution system
that has evolved over time.
• Examples
– Japan:
• complex, multi-layered distribution systems
• hard for Western firms to penetrate.
– India and China:
• inefficient distribution systems despite their enormous size.
• “separate countries” within a country
• Poorer but improving transportation infrastructures
Public Policy and Distribution
• Exclusive distribution &
dealing (“upstream” or
“downstream”)
• Exclusive territorial
agreements (franchising)
• Tying agreements (illegal)
If Xerox required every business who
bought or leased their copiers to also
buy their brand of paper, it would be
a tying agreement.
Marketing Logistics
• Definition: The physical flow of goods,
services, and related information from points
of origin to points of consumption.
• Includes:
– Inbound distribution
– Outbound distribution
– Reverse distribution
Inventory Management
• Must strike a balance
between
– too much and too little
inventory
– buffers and shortages
– carrying costs and
ordering/setup costs
• Just-in-time inventory
systems
• RFID or Smart Tag technology
RFID technology promises to
automate the entire distribution
chain, resulting in significant cost
savings.
RFID – The Wave of the Future?
Key benefits
• fewer stock-outs
• reduced logistics labor costs
• more accurate inventory
information
• more efficient flow of goods
• happier customers
Retailers may soon mandate
supplier use of RFID.
Transportation
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Trucks
Railroads
Ships
Pipelines
Air
Internet
Intermodal
transportation
Intermodal Transportation
Intermodal transportation combines two or more modes of transportation.
Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water
and rail; Airship = air and water.
Third-Party Logistics
Most small and medium
size companies outsource
transportation to UPS or
other logistics providers.