Chapter Objectives
1. Introduce you to the Supply Chain
2. Describe the roles that Distribution Channels
play in marketing strategy.
3. Describe the various types of distribution
channels available to marketers.
4. Outline the major channel strategy decisions.
5. Identify and compare the major components of
logistics, the physical distribution system.
6. Compare the major transportation alternatives
on the basis of speed, dependability, cost,
frequency of shipments, availability & flexibility.
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Figure 15.3
Hewlett Packard’s Supply Chain
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Links in the Supply Chain
Supply chain links
The supplier network provides raw
materials and parts to the manufacturer
Firm manufactures a product
Products are distributed via the
Distribution Channel for resale to buyers
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Distribution Overview
Distribution – moving goods and services
from producers to consumers
Distribution channel (aka “marketing
channel”) - system of marketing institutions
that controls the physical flow of goods and
services, along with ownership title, from
producers to consumers or business users
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Q. What distribution
channels would you use for
this product?
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Distribution Channel Functions
Channels perform 5important functions:
1. They serve as an intermediary to bring together large
companies with often small buyers (consumers)
2. They physically transport and store goods
3. They provide setup, repair, and maintenance services for
products carried
4. They standardize payment terms, delivery schedules,
prices, and purchase lots
5. They facilitate the exchange process by cutting the # of
contacts necessary (for consumers & manufacturers) –
see slide 6
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Figure 15.4
Reducing Transactions via Intermediaries
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Channel Strategy Decisions
1. Direct Selling vs.
Using Intermediaries
Direct Selling:
The producer does
business directly with the
final user, establishing a
“contract”
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Distributing Direct
Internet channels allow for
global expansion (Salami.com)
and mass customization
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Vermont Teddy Bear
Direct Selling vs. Using Intermediaries
Using Marketing Intermediaries: companies that
operate between producers and consumers or
business users (aka “middlemen”)
 Wholesaler: Marketing intermediary that
takes title to goods and then distributes these
goods to another wholesaler or a retailer
(aka “jobber” or “distributor”)
 Retailer: Marketing intermediary that takes
title to goods and then distributes these goods
to the consumer
 Broker/Agent: Marketing intermediary that
doesn’t take title to goods
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Types of Distribution Channels
Consumer Goods
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Figure 15.5, Part B
Different Types of Distribution Channels
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Figure 15.5, Part C
Different Types of Distribution Channels
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Channel Strategy Decisions
2. Determining Distribution Intensity
Distribution intensity: the # of intermediaries
through which a manufacturer distributes its
goods
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 Intensive
distribution:
channel policy in
which a manufacturer
of a product uses as
many retailers as
possible.
 Wrigley’s uses an
Intensive distribution
strategy for its
products
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 Selective distribution: channel policy in
which a firm chooses only a limited number of
retailers to handle its product line
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 Exclusive
distribution:
channel policy in
which a firm grants
exclusive rights to a
single wholesaler or
retailer to sell its
products in a
particular geographic
area
 This Redken hair care
product made only
available at its NYC
outlet
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Channel Strategy Decisions
3. Determining Who Should Perform
Channel Functions
Each function needs to be performed by either
the producer or an intermediary, such as:
Warehousing
Transporting
Financing
Customer service
*The goal is to transfer costs to the other
company while ensuring your goals are being
met!
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Traditional Channels are Changing
The new youth-oriented Scion gets delivered faster
because Toyota’s streamlined distribution system
lets buyers customize the car online
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Logistics
 A company’s Logistics (physical distribution)
system contains the following elements:
1. Transportation
2. Warehousing
3. Inventory Control
4. Order Processing
5. Protective packaging and materials handling
6. Customer Service
 The goal is to achieve specified customer
service levels while minimizing the total costs of
distribution
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 Logistics Expenditures
Warehousing 22%
Transportation
42%
Customer Service/Order
Processing 6%
Administrative Costs 5%
Inventory Control
25%
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1. Transportation
Major Modes
Railroads – largest mode. Most efficient way to
move bulky commodities long distances
Motor Carriers – Versatile and relatively fast
Water Carriers – slow, but cheap. Most
international goods
Pipelines – natural gas and oil products
Air Freight – fast, but expensive
Intermodal coordination – combination of two or
more modes
Internet: services such as banking, news, and
entertainment
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UPS: Offering a form of
intermodal coordination
between motor carriers and air
carriers when speed is needed.
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FedEx – another intermodal
coordinator.
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Comparison of Major Modes of Transport
Mode
Speed
Dependability in
Meeting
Schedules
Frequency
of
Shipments
Availability in
Different
Locations
Flexibility
in
Handling
Cost
Rail
Average
Average
Low
Low
High
Average
Water
Very slow
Average
Very low
Limited
Very high
Very low
Truck
Fast
High
High
Very
extensive
Average
High
Pipeline
Slow
High
High
Very
limited
Very low
Low
Air
Very fast
High
Average
Average
Low
Very high
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2. Warehousing
 Storage Warehouse: warehouse that holds
goods for moderate to long periods prior to
shipment, usually to buffer seasonal demand
 Distribution Warehouse: facility designed to
assemble and then redistribute goods in a way
that facilitates rapid movement to purchasers
(usually holds goods <24 hours)
Locating Warehouses:
Cost factors – size, land, labor, shipping
Customer service factors – delivery time
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3. Inventory Control Systems
“There’s only a one unit difference between too
much inventory and not enough”
 Some firms attempt to keep inventory levels under
control by implementing just-in-time production
(JIT).
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4. Order Processing
Major Activities
1. Conducting a credit check
2. Keeping a record of the sale
3. Making the right accounting entries
4. Locating orders, shipping them, and adjusting
inventory records
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5. Protective Packaging & Materials
Handling
Materials Handling: set of activities that move
products within plants, warehouses, and
transportation terminals
Unitizing: process of combining individual materials
into large loads for easy handling (using pallets &
strapping or shrink-wrapping usually)
Containerization: process of combining several
unitized loads into a single, well-protected load
= lower costs and less damage
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6. Customer Service
 Customer Service Standards - Statement of
goals and acceptable performance for the quality
of service that a firm expects to deliver to its
customers.
* Conclusion - Companies must find ways to
meet Customer Service Standards while
orchestrating the other 5 physical distribution
methods at the lowest possible cost
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