Selecting Channel of Distribution

Distribution Channels

A distribution channel is a set of independent organizations involved in the process of making a product or service available to the consumer or business user Used to move the customer towards the product.

Channel Functions
1. Information

2. Promotion
3. Contact 4. Matching 5. Negotiation 6. Physical Distribution 7. Financing 8. Risk taking.
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Marketing Intermediaries

Middlemen independent link between producers and consumers. i.e. intermediaries Merchant middleman actually buys goods and takes title/ownership Agent business unit that negotiates purchases and sales but does not take ownership Wholesaler a merchant who primarily stores and handles goods in large quantities Retailer merchant middleman who sells to final consumers Broker middleman who serves as a go-between for the buyer and seller.
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Marketing Intermediaries Contd..

Manufacturers agent an agent who operates by contract serving a geographic territory Distributor wholesale middleman in lines with selective or exclusive distribution Jobber a middleman who buys from manufacturers and sells to retailers. (A wholesaler) Facilitating agent a firm that performs distribution tasks other than buying, selling and transferring title might include financing, shipping, warehousing

Why Use Marketing Intermediaries?

Because it has been seen that selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales..

Role of Intermediaries
Greater efficiency in making goods available to target markets. Intermediaries provide

Contacts Experience Specialization Scale of operation

Match supply and demand.

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Distribution Channel Functions

Distribution Channel
Information Promotion Contact Matching Negotiation Physical Financing

Key Functions
Gathering and distributing marketing research about the environment Developing and spreading persuasive communications about an offer Finding and communicating with prospective buyers Shaping and fitting the offer to the buyers need Agreeing on price and terms of the offer so ownership or possession can be transferred Distribution: transporting and storing goods Acquiring and using funds to cover the costs of channel work Assuming financial risks such as the inability to sell inventory at full margin
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Risk Taking

Number of Channel Levels

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. 0-level channel

Producer
1-level channel Producer 2-level channel Producer Retailer

Consumer

Consumer Consumer Consumer

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Wholesaler Wholesaler
Jobber

Retailer

3-level channel Producer

Retailer

Conventional Distribution Channel vs. Vertical Marketing Systems

Conventional marketing channel

Manufacturer

Wholesaler

Retailer

Retailer

Consumer

Consumer
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Wholesaler

Vertical marketing channel

Manufacturer

Wholesalers

Buy from manufacturers in bulk They create value for suppliers and retailers by handling their function efficiently and effectively They seek producers of major brands for which sales and profits are greatest

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Store Retailing

Mass merchandisers carry a broad assortment of goods and compete based on selection and price Specialty stores handle deep assortments in a limited number of product categories Convenience stores are retailers whose primary advantage is location..

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Non-Store Retailing

Catalogs Direct mail Vending machines Television home shopping Direct sales E-commerce..

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Channel Considerations

1. 2. 3. 4.

Selecting a channel of distribution can depend on one of these factors . . . Distribution coverage required Degree of control desired Total distribution cost Channel flexibility

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Factors Influencing Channel Choice

(Channel Considerations)
Various Channel Considerations are:1.
2. 3. 4. 5. 6. 7.

Product Characteristics Consumer Characteristics Middlemen Considerations Company Characteristics Market Characteristics Environmental Factors Other Factors..
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1. Product Characteristics
It Includes:

Unit value of goods Product Features-Weight, size, Volume, Perishable Technical Features Product Standardization..

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2. Consumer Characteristics
It refers to

Buying habits Size and Location of Market Order Size Number of Customers Geographical Dispersion Frequency of Purchase..

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3. Middlemen Characteristics
It includes

Service render by the middlemen Cooperation in implementing promotional activities Availability of Suitable Middlemen Cost of Retaining Distribution policy of the firm His market exposure Reputation in the market.

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4. Company Characteristics

Reputation of the Firm Financial Situation Past Channel Experience Current marketing Policies Company Product Mix Status of the Company - Old/New

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5. Market Characteristics

Market Size Nature of the Market Stable/Volatile Size of Consumer order Competitors Practices Frequency of Customers Orders

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6. Environmental Factors

Stage of the Economy Inflation/Deflation Taxation Policies Political Influences Cultural Influences

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7. Other Factors

Government Attitude Competitors Policy International Trends Market Developments Market Coverage Geographical

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Franchising
Advantages
Franchisor
1. Capital for growth 2. Faster growth 3. Additional management 4. Additional income 1. Lower potential profits 2. Controlling service quality 3. Controlling firm image

Disadvantages

Franchisee 1. Lower risk 1. Franchisee fees 2. Established brand name 2. Lack of freedom 3. Successful business plan 3. Controlled by franchisor 4. Expert assistance
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Channel Behavior

Channel members are dependent upon one another and must work together for the channel to operate successfully Members should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals

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How Conflict Emerges

Cause

When a channel member perceives that another members actions hamper the attainment of his or her goals

Behavioral trademarks

Direct, personal, and opponent-centered behavior

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Reasons of Channel Conflict

Non-clarity of role Resource Scarcities Perceptual Differences Expectational Differences Decision Domain Disagreements Goal Incompatibilities Profit/Sales/Customer Satisfaction Communication Gaps
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Conflict & Channel Efficiency

Does conflict decrease efficiency? Can conflict increase efficiency?

How does conflict affect channel efficiency?

Does conflict have any affect?

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Effects of Channel Conflicts

1.

2.
3.

Negative Effect No Effect or Positive Effect .

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Effects of Channel Conflict

1. Negative Effect: Reduced Efficiency

As the level of conflict increases,

Channel efficiency declines

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Effects of Channel Conflict

2.No Effect: Efficiency Remains Constant

Exists in channels characterized by high level of dependency among members Channel efficiency is not affected

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Effects of Channel Conflict

3. Positive Effect: Efficiency Increased

Conflict might drive for either or both members to reappraise their policies Channel efficiency increases

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Channel Conflict

Horizontal conflict is conflict between firms at the same level of the channel

i.e. retailer to retailer

Vertical conflict, which is more common, refers to conflicts between different levels of the same channel

i.e. retailer to wholesaler

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Managing Channel Conflict

Detecting conflict Appraising the effect of conflict

Managing Conflict

Resolving conflict

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Detecting Channel Conflict

Regularly survey other members perceptions of firms performance

OR

Perform marketing channel audit

OR

Form distributors advisory councils or channel members committees

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Communication Processes

Five Behavioral Problems in Channel Communications

1. Differences in goals between manufacturers & their retailers

2. Differences in the kinds of language they use to convey information

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Communication Processes

Behavioral Problems in Channel Communications

3. Perceptual differences among members

4. Secretive behavior

5. Inadequate frequency of communication

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Power in Marketing Channels

Power Defined:

The capacity of one channel member to get another channel member to do something that he otherwise would not have done.
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Bases of Power for Channel Control

Reward Power
Coercive Power
1st Place

Legitimate Power
Referent Power

Expert Power.

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Types of Power
Nature
Reward Power

Function
Extent to which an entity can control the dispensing of rewards or benefits.

Coercive Power Legitimate Power

Power derived through the ability to punish.

influence we have because of our formal position or role Individual power based on a high level of identification with, admiration of, or respect for the power holder.

Referent Power

Expert

Power derived through advanced knowledge or experience in a particular subject.

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Logistics
Involves entire supply chain Increasing importance of logistics effective logistics is becoming a key to winning and keeping customers. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. information technology has created opportunities for major gains in distribution efficiency.
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Goals of Logistics system

Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels

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Logistics Functions

Order Processing Warehousing Inventory Management Transportation Design system to minimize costs of attaining objectives.

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Transportation Modes
Nations largest carrier, cost-effective for shipping bulk products, piggyback

Rail

Truck
Flexible in routing & time schedules, efficient for short-hauls of high value goods

Water
Low cost for shipping bulky, low-value goods, slowest form

Pipeline
Ship petroleum, natural gas, and chemicals from sources to markets

Air
High cost, ideal when speed is needed or to ship high-value, low-bulk items
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