What

What is is aa Distribution
Distribution
Channel?
Channel?
➤ A set of interdependent organizations (intermediaries)
involved in the process of making a product or service
available for use or consumption by the consumer or
business user.

➤ Channel decisions are among the most important

decisions that management faces and will directly
affect every other marketing decision.
 Why
Why are
are Marketing
Marketing Intermediaries
Intermediaries
Used?
Used?
➤ Greater efficiency in making goods available to
target markets.
➤ Offer the firm more than it can achieve on it’s own
through the intermediaries:
➤ Contacts
➤ Experience
➤ Specialization
➤ Scale of operation
➤ Match supply and demand.
 How a Distributor Reduces the
Number of Channel Transactions

1
2
3

4 A. Number of contacts
5 without a distributor
6 MxC=3X3=9

7
8
9

= Manufacturer = Customer
 How a Distributor Reduces the
Number of Channel Transactions

1
B. Number of contacts
4 with a distributor
MxC=3+3=6
Store
2 5

6
3

= Manufacturer = Customer = Distributor

 Distribution
Distribution Channel
Channel
Functions
Functions
Information
Information
Transfer
Transfer Communication
Communication

Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering

Risk
Risk Taking
Taking Financing
Financing
 Consumer
Consumer Marketing
Marketing Channels
Channels

0-level channel
Manufacturer
Manufacturer Consumer
Consumer

1-level channel
Manufacturer
Manufacturer Retailer
Retailer → Consumer
Consumer

2-level channel
Mfg
Mfg → Wholesaler
Wholesaler Retailer
Retailer → Consumer
Consumer

3-level channel
Mfg
Mfg → Wholesaler
Wholesaler→ Jobber
Jobber → Retailer
Retailer → Consumer
Consumer
 Industrial Marketing Channels

Business users
Manufacturer

Industrial
distributors

Manufacturer’s
representative

Manufacturer’s
sales branch
Hybrid Marketing Channels
 Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Identifying Major Alternatives

Intensive Selective Exclusive

Distribution Distribution Distribution

Evaluating the Major Alternatives

Designing International Distribution Channels

Analyzing Consumer Service
Needs
➤ Customers’ Desired Service Levels
➤Lotsize
➤Waiting time
➤Spatial convenience
➤Product variety
➤Service backup
 Establish Objectives and constraints
➤ Reduce channels costs with desired service
level
➤ Factors
➤Product characteristics
➤ Perishable
- direct; bulky – less travel distance,
customized products, products that need maintenance
➤High unit value of the products
➤ Understand strength and weaknesses
different intermediaries
 Identify major channel alternatives
➤ Types of intermediaries
➤ No. of possible options
➤ Agents / merchants
➤ No. of intermediaries
➤ Exclusive distribution
➤ Selective distribution
➤ Intensive distribution
➤ Terms and conditions
➤ Price policy – list, discounts, allowances
➤ Conditions for sale – payment terms, guarantees
➤ Territorial rights
 Evaluate the alternatives

➤ Economic criteria
➤ Control and adaptive criteria
 Break-Even Cost Chart

Manufacturer’s
sales agency

Company
Selling sales force
costs
(dollars)

SB
Level of sales (dollars)
Channel
Channel Management
Management Decisions
Decisions

Selecting
Selecting

FEEDBACK
Training
Training

Motivating
Motivating

Evaluating
Evaluating
➤ Selection Criteria
➤ No of years in business, other lines carried, growth and
profit records, financial strength, cooperativeness, and
service reputation
➤ Dept stores - Location, future growth potential, type of
customers
➤ Training
➤ End users view the intermediaries as company
➤ Motivating
➤ Margins, advertising allowances, display allowances,
sales contests
➤ Evaluating
➤ Sales quota attainment, avg inventory levels, treatment of
damaged goods, cooperation in promotions
 Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel

Manufacturer Manufacturer

Wholesaler
Wholesaler

Retailer
Retailer

Consumer
Consumer
 Channel
Channel Dynamics
Dynamics
Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems

Corporate
Corporate
Common
CommonOwnership
Ownership atatDifferent
Different
Levels
Levelsof
of the
theChannel
Channel

Administered
Administered
Leadership
Leadershipis
isAssumed
Assumed bybyOne
Oneor
or
aaFew
FewDominant
DominantMembers
Members

Contractual
Contractual
Contractual
ContractualAgreement
Agreement Among
Among
Channel
ChannelMembers
Members
ACE
ACEHardware
Hardware
 Causes of Channel Conflict

➤ Incompatibility
➤ Difference
in Perception
➤ Dependence
 Legal & Ethical Issues in
Channel Relations
➤ Exclusive Dealing
➤ Exclusive Territories
➤ Tying Agreements
➤ Dealers’ Rights
 Changing Channel
Organization

A Major Trend is Toward

Disintermediation Which Means that
Product and Service Producers are
Bypassing Intermediaries and Going
Directly to Final Buyers or That New
Types of Channel Intermediaries are
Emerging to Displace Traditional Ones.