Chapter 10
CHANNEL CONCEPTS:
DISTRIBUTING THE
PRODUCT
10-
1
• Role of distribution channels
• Methods used in organizing
channels
• Management of underlying
behavioral dimensions
present in most channels
• Elements of a channel
strategy
• Tasks assigned to various
channel institutions
10-
2
• Primary purpose: creation of time
and place utility
• Extremely complex process, often
the only element of marketing
where cost savings still possible
• Channel selection is a dynamic part
of marketing planning
• Channel needs to be managed to
work
• Composed of individuals and
groups with unique traits that may
conflict, may need to be motivated
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3
• Exchange: sale of the product to
various members of the
distribution channel
• Physical distribution: moves
products through the exchange
channel, simultaneously with title
and ownership
• Key role: satisfying customer’s
and achieving profit for the firm
• Customer satisfaction:
maximizing time and place utility
to the organization’s suppliers,
intermediate and final customers
10-
4
• Barter to industrial specialization in
goods products to service products
• Marketing channel: sets of
interdependent organizations
involved in the process of making a
product/service available for
use/consumption; providing a
payment mechanism for the
provider
• Institutions: some under
producer’s control, some not; but
all must be recognized, selected,
integrated into efficient
arrangement
• Process: continuous
management, monitoring,
reappraisal
• Objectives: make an acceptable
profit
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5
• Multiple linkages that tie
channel members and
other agencies together
• Product
• Negotiation
• Ownership
• Information
• Promotion
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6
Movement of the physical
product from the
manufacturer through all
the parties who take
physical possession of
the product until it
reaches the ultimate
consumer e.g.,
transportation company
to public warehouse to
supermarkets
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7
Institutions
associated with
the actual
exchange
process e.g.,
bottlers and beer
distributors to
supermarkets
10-
8
Shows the
movement of title
through the
channel e.g.,
from bottlers and
beer distributors
to supermarkets
10-
9
Identifies the
individuals who
participate in the
flow of information
either up or down
the channel e.g.,
from transportation
company to public
warehouse to
bottlers and
distributors to
supermarkets
10-
10
Flow of persuasive
communication in the
form of advertising,
personal selling,
sales promotion and
public relations e.g.,
from advertising
agency to bottlers
and beer distributors
to supermarkets
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11
• Producer of the product –
craftsman, manufacturer,
farmer or other extractive
industry producer
• User of the product –
individual, household,
business buyer, institution,
government
• Certain middlemen at the
wholesale or retail level
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12
• Transactional: buying,
selling, risk assumption
• Logistical: assembly,
storage, sorting,
transportation
• Facilitating: postpurchase service and
maintenance, financing,
information
dissemination, channel
coordination or
leadership
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13
• While channel institutions can be eliminated or substituted,
the functions of those institutions cannot be eliminated
• All institutional members are part of many channel
transactions at any given point in time
• Satisfaction of transactions is based on routinization
benefits
• When available middlemen are incompetent, unavailable or
the producer feels he can perform the task better, the best
channel arrangement is direct, from the producer to the
ultimate user
• Service marketers face the problem of delivering their
product in the form, at the place and time their customer
demands, solutions: banks- ATMs
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14
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Members and non-members
Members perform negotiation functions, participate in
negotiation and/or ownership; non-members do not
Producer and manufacturer
Retailing: department stores, chain stores, supermarkets,
discount houses, warehouse retailing, franchises, planned
shopping centers/malls
Non-store
Retailing: home-selling, automated vending, mail order, online
marketing, catalog marketing, kiosks
Wholesaling: independent, part of vertical marketing system
15
10-
• Firms extract, grow or
make products; vary in
size from one-person
operation to those that
employ several
thousands people,
generate billions in
sales
• Channel members can
be useful in designing,
packaging, pricing,
promoting of the
product through the
most effective channels
10-
16
• All activities needed to
market consumer
goods, services to the
ultimate consumer who
are motivated to buy
for individual/family
needs e.g., computer
at Circuit City
• Sales also made
through means other
than stores
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17
• Department stores: wide
product mixes e.g., hardware,
clothing, each product in
different sections in the store
e.g., Sears
• Chain stores: large size
enable buying of a wide variety
of items in large quantity
discounts; prices lower than
small competitors; convenient
locations; increased market
share e.g., Pizza Hut
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18
• Large, self-service stores
with central checkout
facilities; extensive line of
food items, often nonfood
products e.g., Safeway
• Mass-merchandising, lowcost distribution methods
• Availability of large
assortments of a variety of
goods like food, household
cleaning, maintenance
products at a minimal price
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19
• Cut-rate retailers e.g.,
Walmart
• Emphasis on price as the
main sales appeal
• Merchandise assortments
are broad including hard and
soft goods, but limited to
most popular items, colors
and sizes
• Large self-service operations
with long hours, free parking,
relatively simple fixtures
10-
20
Warehouse:
• Relatively new type
• Catalog showrooms
largest type e.g.,
Costco
10-
Franchise:
• Response to
competition from
large chain stores
• Only sell the
products of the
franchiser
• Operate the
business to some
extent as the
manufacturer
wishes
• e.g., dealer of
Chevrolet
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10-
Wide assortment of products, many alternatives in one
location
Regional : larger centers that have one or more major
department stores as major tenants
Community: moderately sized with junior department
stores
Neighborhood: small with the key store a supermarket
Local clusters: shopping districts grown over time
around key intersections, courthouses
String street locations: along major traffic routes
Isolated locations: freestanding sites not necessarily in
heavy traffic areas; use promotion to attract shoppers
22
• In-home selling:
pre-select
prospects, cold
calls e.g., Avon
• Demonstration
party: one
customer acts as
host and invites
friends e.g.,
Tupperware
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23
• Mail order: product
description through flyer,
catalog convenience, larger
geographic coverage,
limited service e.g., CD Now
• Catalog: companies mail
one or more product
catalogs to select addresses
that have a high likelihood of
placing an order e.g., J.C.
Penny’s
• Kiosks: “customer-order
placing machines” located
at airports, stores e.g.,
Florsheim Shoe Company
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24
Coin-operated, selfservice machines,
variety of products,
services at
convenient
locations e.g.,
banking
transactions
10-
25
• Commercial online channels: both
retailer and consumer need
computer and modem; companies
set up online information and
marketing services that can be
assessed by those who have signed
up and paid a monthly fee
• Internet: global web that allows
instantaneous and decentralized
global communication; users can
send e-mails, exchange views, shop
for products, access real-time news;
marketers can use e-mails,
participate in forums, newsgroups,
bulletin boards, place ads online,
create electronic storefront
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26
• All activities required to
market goods, services
to businesses,
institutions, industrial
users motivated to buy
for resale or to produce
and market other
goods, services e.g., a
bank buying computer
for data processing
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27
• Warehousing: receiving, storing, packaging
• Inventory control and order processing: track
physical inventory, manage its composition and
level, process transactions
• Transportation: arranging physical movement
of goods
• Information: supplying information about
markets to producers and about products and
suppliers to buyers
• Selling: personal contact with buyers
• Planning, financing, developing marketing
mix
1028
• Full-service merchandise: general, limited-line
• Limited service merchant: cash and carry, rack
jobbers, drop shippers, mail orders
• Agents and brokers: agents – buying agents,
selling agents, commission merchants,
manufacturer’s agents; brokers – real estate,
food, other products
• Manufacturer’s sales
• Facilitator: warehouses, finance companies,
transportation companies, trade marts
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29
• Take title to the
merchandise;
assume the risk
involved in an
independent
operation; buy and
resell products; offer
a complete range of
services
• Same as full but
offer a limited range
of services
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30
• Do not take title to the
merchandise; bring buyers
and sellers together;
negotiate the terms of the
transactions
• Agents merchants represent
either the buyer or seller,
usually on a permanent basis
• Brokers bring parties
together on a temporary
basis
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31
• Owned directly by the manufacturers;
performs wholesaling functions for the
manufacturer
• Perform some specialized functions such
as financing or warehousing; to facilitate
the wholesale transactions; may be
independent or owned by producer or
buyer
10-
32
• Provide the bridge between
production activities and
markets that are spatially
and temporally separated
• Process of strategically
managing the movement
and storage of materials,
parts, finished inventory
from suppliers, between
enterprise facilities, and to
customers
• Valuable marketing tool to
stimulate consumer
demand
10-
33
• Defining the physical
distribution (P.D.)
standards that channel
members want
• Making sure the
proposed P.D. program
designed by an
organization meets the
standard of channel
members
• Selling channel members
on P.D. programs
• Monitoring the results of
P.D. once it has been
implemented
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34
• Conventional
channels
• Vertical Marketing
systems
• Horizontal channel
systems
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35
• Group of independent
businesses, each
motivated by profit,
having little concern
about any other
member of the
distribution sequence
• No all-inclusive goals
• Assignment of tasks
and evaluation process
are totally informal; can
create deficiencies
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36
• Solution to problems of
conventional networks
• When a member (usually
the manufacturer)
assumes a leadership role
and attempts to coordinate
the efforts of the channel
so that mutually beneficial
goals like better profits,
product exposure, can be
attained
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37
• Administered: informally guided by goals and programs
developed by one or a limited number of firms in the
existing channel; channel captain: administrative skills
and power of one individual may be the driving force of
the channel e.g., Xerox; problems of polarization
• Contractual: members formalize relationship; provides
additional control; spells out marketing functions
• Corporate: members on different levels are owned and
operated by one organization; forward (own various
intermediaries e.g., Dannon Yogurt) or backward (retailer
who takes over wholesaling and manufacturing e.g.,
Sears) integration
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38
• When two or more
companies do not have the
capital, technical or
production know-how to
effectively market their
products alone
• Establish temporary or
quasi-permanent
relationship in order to work
with each other to create
the channel mechanism
needed to reach their target
10markets
39
• Analyze the customer
• Establish objectives
• Specify distribution
tasks
• Evaluate and select
channel alternatives
• Evaluating channel
member performance
• 10-Correct or modify
40
• Whom to sell the
merchandise immediately?
• Who is the ultimate buyer and
user?
• Discover buying
specifications of the ultimate
user e.g., comparison of
prices, willingness to bear
with inconvenience
• Helps to decide on the type of
wholesaler or retailer through
which a product should be
sold
• Discover buying
specifications of resellers
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41
• Growth in sales: reach new
markets, and/or increase
sales in existing one
• Maintenance or
improvement of market
share: educate or assist
members in their efforts to
increase the amount of
product they handle
• Achieve a pattern of
distribution: structure to
achieve certain time, place,
form, information utilities
• Create an efficient channel:
improve performance by
modifying flow mechanisms
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42
• Fully identify tasks, define
how tasks can change with
situation, assign costs
• Provide delivery within a
specific period of time
• Offer adequate storage space
• Provide credit to other
intermediaries
• Facilitate a product return
network
• Provide readily available
inventory (quantity, type)
• Provide for absorption of size
and grade obsolescence
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43
Bases:
• Number of levels: two
to several
• Intensity of the levels:
actual number of
components
• Types of intermediaries
at each level
• Application of selection
criterion to channel
alternatives
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44
• Exclusive: single/few outlets; high dealer loyalty, sales
support; greater control; limits potential sales volume;
success dependent on the ability of single intermediary
e.g., Ethan Allen
• Intensive: maximum number of intermediaries;
increased sales, recognition, impulse purchasing; low
price, margin, small order sizes; difficult to stimulate
and control large number of intermediaries e.g.,
Candies
• Selective: intermediary strategy, outlets number
dependent on market potential, density of population,
dispersion of sales, competitor’s policies; some
strengths and weaknesses of the other two; difficult to
determine optimal number of intermediaries e.g.,
1045
Baskin Robbins
• Passive to active; very negative,
based on fear and punishment, to
very positive, based on
encouragement and reward
• Manufacturer: if control of the
product (merchandising, repair) is
critical and if the design and redesign
of the channel is best done by the
manufacturer
• Wholesaler: where the
manufacturers and retailers have
remained small in size, large in
number, relatively scattered
geographically, are weak in finance,
marketing expertise
• Retailer: when product development
and demand stimulation are relatively
unimportant, personal attention to the
customer is important
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46
• Sales popular criteria:
current vs. historical;
comparison with other
members; comparison of
member’s sales with
predetermined quotas
• Maintenance of adequate
inventory
• Selling capabilities
• Attitudes of intermediaries
toward product
• Competition from other
intermediary, from other
product line carried by
manufacturer’s own channel
members
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47
• Role: clearly defining role/tasks
prescriptions of various
participants and communicating
them in order to achieve desired
results
• Communication: sending and
receiving information relevant to
operation; detect behavioral
problems that inhibit effective
flow of information and resolve
them
• Conflict: personal and direct;
often confrontational; manage by
establishing mechanisms to
detect, appraise the effect of and
resolve conflict
• Power: willingness to use force
in a relationship; means of
influencing/controlling behavior
of the other party
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48