Student Notes Pages
Marketing
Chapter 14: Channels and Distribution
Introduction
Marketing
• Products must be brought to within reach
of consumers
• Products “flow” from producer to buyer
via series of independent but dependent
participants
• Physical distribution: logistics
• Associated with:
Second SA Edition
Charles W. Lamb, Jr.
Joseph F. Hair, Jr.
Carl McDaniel
Christo Boshoff
Nic S. Terblanche
Chapter 10:
Marketing Channels and
the Role of Intermediaries
10-1
– change of ownership and risk
– financing and payment
– communication
Channel Functions
Needs Filled by Marketing Channels
Specialisation and
Division of Labour
Channels
Fulfil
Three
Important
Functions
10-2
Three Basic
Categories of Channel
Functions
Overcoming
Discrepancies
Transactional
Functions
Providing Contact
Efficiency
Logistical
Functions
Facilitating
Functions
10-3
Essential Channel Functions
10-4
Marketing Channels for Consumer
Products
Transactional Functions
Producer
Contacting and Promoting
Negotiating
Direct
Channel
Risk Taking
Producer
Retailer
Channel
Producer
Wholesaler
Channel
Producer
Agent/Broker
Channel
Agents or
Brokers
Logistical Functions
Physical Distribution
Sorting
Sorting out
Accumulation
Allocation
Assorting
Wholesalers
Wholesalers
Retailers
Retailers
Retailers
Consumers
Consumers
Consumers
Facilitating Functions
Research
Financing
Consumers
10-5
© 1997 South-Western College Publishing
10-6
Student Notes Pages
Marketing
Chapter 14: Channels and Distribution
Major Channels for Industrial
Products
Producer
Direct
Channel
Producer
Industrial
Distributor
Producer
Agent/
Broker
Industrial
Distributor
Industrial
User
Producer
Agent/Broker
Industrial
Distributor
Agents or
Brokers
Industrial
User
Alternative Marketing Channel
Arrangements
Producer
Direct
Channel
• Multiple channels
• Non-traditional channels
• Strategic channel alliances
• Reverse channels
Agents or
Brokers
Industrial
Distributor
Industrial
User
Industrial
User
Government
Buyers
10-7
Factors Affecting Channel Choice
10-8
Levels of Distribution Intensity
Fewer
Outlets
Exclusive
Distribution
• Market Factors
Selective
Distribution
• Product Factors
• Producer Factors
Intensive
Distribution
10-9
Potential Channel Conflict
More
Outlets
10-10
Setting the Level of Physical
Distribution Service
• Members of a channel of distribution often
pursue conflicting objectives – see Table
10.3
– Example: manufacturer wants an exclusive
image for brand, retailer wants low price to
stimulate sales
• Some deal with channel conflict
using:
Product
Availability
How many orders are reliably,
completely filled?
Timelines in Order
Processing and Delivery
How long is a product “in the
pipeline”?
Acceptable Distribution
Quality
Are the correct items shipped,
in the right quantities?
How many were damaged in
transit?
– forward integration
– backward integration
10-11
© 1997 South-Western College Publishing
10-12
Student Notes Pages
Marketing
Chapter 14: Channels and Distribution
Physical Distribution and Logistics
Physical Distribution Subsystems
Warehousing
Subsystem
• Physical distribution: stocking and
transporting of raw materials, parts and
final products
• Logistics is a broader concept to include
procurement – buying of raw materials and
component parts
Materials-Handling
Subsystem
Physical
Distribution
System
Inventory Control
Subsystem
Order-Processing
Subsystem
Transportation
Subsystem
10-13
10-14
Modes of Distribution
JustJust-InIn-Time Inventory Management
Highest
Benefits of JIT
Reduced inventory levels
Lowest
Risks of JIT
Too rapid implementation
Shorter lead times
Cutting inventory only
Improved supplier relations
Increased delivery costs
Lower production and
storeroom costs
“Supplier shock”
Employee stress
Relative
Cost
Air
Truck
Rail
Pipe
Water
Transit
Time
Water
Rail
Pipe
Truck
Air
Reliability
Pipe
Truck
Rail
Air
Water
Capability
Water
Rail
Truck
Air
Pipe
Accessibility
Truck
Rail
Air
Water
Pipe
Traceability
Air
Truck
Rail
Water
Pipe
Better quality supplies
Less paperwork
Potential bottlenecks caused by
supplier delays
10-15
Retail and Warehousing
Intermediaries
Classification of Retail Operations
Ownership
• Retailing – selling to final consumers for
consumption
• Wholesalers – intermediaries between
manufacturers and final consumers
• Both of them:
–
–
–
–
–
–
10-16
Variables
Used to
Classify
Retail
Operations
Overcome the discrepancy of quantity
Overcome the discrepancy of assortment
Overcome spatial separation
Overcome the separation in value
Create information utility
Create possession utility
Merchandise sold
Location
Market Area
10-17
© 1997 South-Western College Publishing
10-18
Student Notes Pages
Marketing
Chapter 14: Channels and Distribution
Types of Retail Operations
Types of Discount Stores
Department
Store
Warehouse
Club
Full-Line Discounters
Mass
Merchandiser
Discount Speciality Stores
Factory
Shop
Types of
Retail Stores
Warehouse Clubs
Speciality
Store
Off-Price Discount Retailers
Off-Price
Retailer
Factory Shops
Supermarket
Discount
Store
Convenience
Store
10-19
Franchising
10-20
Types of Franchises
• Salient features:
•
•
•
•
– the functions and responsibilities of both
parties
– objective: enhance the effectiveness of the
whole system
– the promotion of a consistent image
– mutual support
– financial arrangements
– the reduction of risk
Original trademark holder è retailer
Manufacturer è retailer
Manufacturer è wholesaler
Wholesaler è retailer
10-21
Advantages of Franchising
10-22
NonNon-shop Retailing
Automatic Vending
• Chance for an entrepreneur to start a business
with relatively little capital
• The product/service is already well established in
the market
• Franchisor provides technical support, training
and managerial assistance
• Consistent quality standards throughout the
system
• Bulk purchasing benefits
Direct Retailing
Door-to-Door
Party Plan
Direct Marketing
10-23
© 1997 South-Western College Publishing
Direct Mail
Catalogues
Mail Order
Telemarketing
Electronic Retailing
Shop-at-Home Networks
Online Retailing
10-24
Student Notes Pages
Marketing
Chapter 14: Channels and Distribution
Wholesaling Intermediaries
Factors Suggesting Type of Wholesaler
to Use
Wholesaling
Intermediaries
Manufacturer
Merchant
Wholesaler
Full-Service
Wholesaler
Agents and
Brokers
Limited-Service
Wholesaler
Factor
Merchant
wholesalers
Agents or brokers
Nature of product
Standard
Non-standard, custom
Technicality of product
Complex
Simple
Product’s gross margin
High
Low
Frequency of ordering
Frequent
Infrequent
Time between order
and receipt of shipment
Buyer desires
Buyer satisfied with
shorter lead time long lead time
Number of customers
Many
Few
Concentration
of customers
Dispersed
Concentrated
Retailer
Customers
10-25
Source: Reprinted by permission of the publisher from “Products and Markets Served by Distributors and Agents,” by Donald M. Jackson and Michael F. D’Amico, pp. 27–33.
In Industrial Marketing Management, February 1989. Copyright 1989 by Elsevier Science Inc.
© 1997 South-Western College Publishing
10-26