Marketing
Chapter 14
Managing
Distribution Channels
Gilbert A. Churchill, Jr.
J. Paul Peter
Slide
14-1
Channel of Distribution
Source
Definition
Lamb, Hair,
A set of interdependent organizations that facilitate
and McDaniel the transfer of ownership as products move from
producer to business user or consumer
Pelton,
Strutton, and
Lumpkin
An array of exchange relationships that create
customer value in the acquisition, consumption, and
disposition of products and services
An organized network (system) of agencies and
Churchill and institutions that perform all the functions required to
Peter
link producers with end users to accomplish the
marketing task
Slide
14-2
Figure
14.1
How Intermediaries Improve
Channel Efficiency
Sales Contacts without an Intermediary
Sales Contacts with an Intermediary
Bike
Shop
Intermediary
Manufacturers of
Bicycle Helmets
Bike
Riders
Manufacturers of
Bicycle Helmets
Bike
Riders
Slide
14-3
Essential Channel Functions
Transactional Functions
Contacting and Promoting
Negotiating
Risk Taking
Logistical Functions
Physical Distribution
Sorting
Sorting out
Accumulation
Allocation
Assorting
Facilitating Functions
Research
Financing
Slide
14-4
Figure
14.2
Common Channels for
Consumer Goods
Direct Channel
Consumer
Producer
Indirect Channels
Retailers
Consumer
Wholesalers
Retailers
Consumer
Wholesalers
Retailers
Consumer
Producer
Producer
Producer
Agents
Slide
14-5
Common Channels for Consumer
Goods - Examples
Corky’s
Bar-B-Q
Consumer
Safeway
Consumer
Interstate
Beverage
Corporation
Soft Drink
Retailers
Consumer
Wholesale
Florists
Retail
Florists
Consumer
Frito Lay
Snapple
Small
Houseplant
Grower
Willow
Rum
Slide
14-6
Figure
14.3
Common Channels for
Organizational Goods
Direct Channel
Organizational
buyer
Producer
Indirect Channels
Producer
Distributors
Producer
Organizational
buyer
Agents
Producer
Agents
Organizational
buyer
Distributors
Organizational
buyer
Slide
14-7
Alternative Channel of Distribution
Type
Definition
Example
Multiple/dual
channel
a manufacturer distributing the
same product to target market
through two or more channels
Penn. tennis Balls, Cdico
caller Id equipment
Nontraditional
channel
channels used to differentiate itself
from the competition
Internet, infomercial
Strategic alliance
channel
using one manufacturer’s already
established channel to reach
customers
Blockbuster and CocaCola
Reverse/backward
channel
products move in the opposite
direction to traditional channels
Recycling (plastics,
batteries), product recalls
Slide
14-8
Figure
14.5
Types of Vertical Marketing Systems
Vertical
Marketing
Systems (VMSs)
Administered
VMSs
Corporate
VMSs
Wholesalers
Sponsored
Cooperatives
Contractual
VMSs
Retailer
Sponsored
Cooperatives
Franchising
Slide
14-9
Three Categories of Contractual
Vertical Marketing Systems
McDonalds
Franchises
Retailer
Wholesaler
Sponsored
Sponsored
Cooperatives Cooperatives
True-Value
Hardware
Independent
Grocers
Alliance (IGA)
Slide
14-10a
Figure
14.6
Factors to Evaluate for Selecting a
Distribution Channel
Customer
Characteristics
Product
Characteristics
Number
Geographic Dispersion
Channel Preferences
Buying Behavior
Use of Technology
Cost per Unit
Pershability
Bulkiness
Standardization
Need for Installation
and Maintenance
Intermediary
Characteristics
Availability
Willingness to Carry
Product
Market Serviced
Distribution Functions
Performed
Potential for Conflict
and Cooperation
Other Product Offerings
Financial Condition
Strengths and Weaknesses
Slide
14-10b
Figure
14.6
Factors to Evaluate for Selecting a
Distribution Channel
Competitor
Characteristics
Number and Size
Distribution Strategies
Financial Conditions
Sizes of Product Lines,
Product Mixes
Objectives, Strategies
and Budgets
Strengths and
Weaknesses
Environmental
Characteristics
Economic
Conditions
Political Issues
Laws, Regulations
and Ethics
Cultural and Social
Changes
Technological
Changes
Organization
Characteristics
Size and Market Share
Financial Condition
Size of Product Lines,
Product Mix
Ability to Perform
Distribution Functions
Objectives, Strategies
and Budgets
Channel Experience
Strengths and Weaknesses
Slide
14-11
Table
14.2
Levels of Market Coverage
Level
Objective
Number of
Intermediaries
in Trading Area
Examples
Exclusive
Work with a single
intermediary for a
product that requires
special resources or
positioning; distribute
luxury goods effectively.
One
Electronic Liquid
Fillers packaging
systems; Rolex
watches
Selective
Work closely with
intermediaries who meet
certain criteria; distribute
shopping goods
effectively.
Several
Bose speakers;
Compaq computer
systems
Intensive
Support mass selling;
distribute convenience
goods effectively.
Many
Classic Coke;
disposable writing
pens
Slide
14-12
Channel Leadership
Information
Expert
Reward
Channel
Power
Captain
Referent
Coercive
Legitimate
Slide
14-13
Table
14.8
Channel Options for Global Markets
Domestic
Manufacturers
Least
Control
License
Foreign
Manufacturers
Global
Markets
License
Domestic
Foreign
Exporters
Manufacturers
Global
Markets
Global
Intermediaries
Global
Markets
Most
Control
Global
Branches
Global
Markets
Global
Markets
Slide
14-14
Legal, Political and Ethical Issues
Exclusive Dealing
A restriction imposed by a supplier on a customer
forbidding the customer from purchasing some
type of product from any other supplier.
Closed Sale Territories
A producer specifies a geographic area and
assigns one intermediary to serve it.
Tying Contracts
An agreement under which a marketer sells a
particular product only if the buyer also purchases
another specific product.
Full Line Forcing
A type of tying arrangement in which an
intermediary that wants to carry a particular
product must buy the entire line.
Gray Market
The situation in which foreign distributors sell
foreign versions of U.S. products in the United
States.
Slotting Allowances
A fee paid by a manufacturer for space in a retail
store.