Chapter 12 – Distribution Channels

- Place: the third P

- Good distribution is critical to marketing success
- A well though-out distribution strategy is critical when attempting to convince retailers to
carry their products
- A novel channel can be a source of competitive advantage.

Distribution Channel – the institutions that transfer the ownership

of goods and move goods form the point of production to the point
of consumption. Usually under marketing department responsibility.
Supply Chain Management – a management system that controls
and coordinates the movement of goods and information between
each facility and activity of production.
Wholesalers – buy products from manufacturers and resell them to:
Retailers – sell products directly to consumers.
Logistics Management – the integration of two or more activities for the purpose of planning,
implementing, and controlling the efficient flow of RM, WIP, and FG from the point of origin to the
point of consumption. Activities may include: customer service, demand forecasting, distribution
communications, inventory control, etc.

Distribution Centres – a facility for the receipt, storage, and redistribution of goods to company stores
or customers; may be operated by retailers, manufacturers, of distribution specialists.
Distribution centres are an important component in adding value (each party in the SC adds value):
- Buying: retailers of wholesalers
- Selling: manufacturers or wholesalers
- Facilitation of exchange: transportation companies

Functions Performed by Intermediaries (main goal being: reduce the number of marketplace contacts,
resulting in more efficient systems)
Transactional
- Buying – purchase goods for resale to other intermediaries or consumers
- Risk taking – own inventory that can be outdated
- Promotion – promote products to attract consumers
- Selling – transact with potential customers
Logistical
- Physical Distribution – transport goods to point of purchase
- Risk Taking – maintain inventory and protect goods
Facilitating
- Gathering Info – share competitive intelligence about customers or other channel members
- Financing – extend credit and other financial services to consumers

Channel Conflict – when channel members are not in agreement about their goals, roles, or rewards,
channel conflict results
Horizontal Conflict – conflict at the same level of the SC
Vertical Conflict – conflict between different levels of the SC. More formal, less conflict.
To avoid vertical channel conflicts: open, honest communication. Conflict is more likely in
independent channels rather than vertical.

Vertical Marketing System – a SC in which the members act as a unified system.

Three types or phases of vertical marketing systems:
1. Administered – a SC in which there is no common ownership and no contractual relationship,
but the dominant channel member controls the channel relationship. Occurs when one
member has the means to exert this control. If either party is unhappy, they can simply walk
away.
2. Contractual - a system in which independent firms at different levels of the SC join together
through contracts to obtain economies of scale and coordination and to reduce conflict.
- Franchise – most common type, a contractual agreement between a franchisor and a
franchisee that allows the franchisee to operate a retail outlet, using the name and format
developed and supported by the franchisor. A franchise system combines the benefits of
entrepreneurial with vertical marketing
3. Corporate – a system in which the parent company has complete control and can dictate the
priorities and objectives of the SC; it may own facilities such as manufacturing, warehouses,
retail outlets, and design studios.

Channel Structure/Types of Distribution Systems

- Direct distribution – no intermediaries between the manufacturer and consumer
- Indirect distribution – 1 or more intermediaries. Typically, only 1 with large retailers.
- Multichannel distribution – combo of both direct and indirect, many do this today.

Successful strategic relationships (partnering relationships) depend on…

1. Mutual trust
2. Open communication
3. Common goals
4. Credible commitments

Push vs. Pull Distribution Strategies: (know these well)

Push – manufacturers focus on promotion, trying to push the product on to customers.
Pull – promotional efforts are directed at consumers to build demand for products that, in turn, may
convince retailers to carry them.

Distribution Intensity – the number of channel members to use at each level or the SC
Intensive – designed to get products into as many outlets as possible
Exclusive - granting exclusive rights to sell to one or very few retail customers so no other customers
can sell a particular brand.
Selective – lies between the intensive and exclusive, uses a few selected customers in a territory.

Electronic Data Interchange (EDI)

- Computer-to-computer exchange of business documents form retailer to vendor and back
- Advanced shipping notice – and electronic document that the supplier sends to the retailor in
advance of a shipment to tell the retailer exactly what to expect in the shipment.
 - Three main benefits of EDI to SC members: reduces cycle times, communication is improved,
and easy data analysis

Vendor-managed Inventory
- An approach for improving marking channel efficiency in which the manufacturer is
responsible for maintain the retailer’s inventory levels in each of its stores.

The Distribution (or Fulfillment) Centre

Inbound Transportation
- In-bound transportation involve the co-ordination of deliveries
- Dispatcher: a person who is responsible to co-ordinate all the deliveries
- If deliveries are missed or are not on time, costs will increase

Types of Distribution centres:

- Traditional
- Cross-docking
- Combination

Floor-ready merchandise
- Ready to be placed on the selling floor
- Create price & ID labels
- Suppliers sometimes ship floor-ready

Shipping to stores
- A complex process for multistore chains
- Sophisticated computer systems are used

JIT (or QR) - inventory management system aimed to reduce waste within the organization by
producing only what is needed when it is needed.
- Reduced lead time
- Increased product availability and lower inventory investment