How a Distributor Reduces the

Number of Channel Transactions

1
2
3
4
5
6

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

7
8
9
= Manufacturer

= Customer

How a Distributor Reduces the

Number of Channel Transactions

1
Store

3
= Manufacturer

B. Number of contacts
with a distributor
M+C=3+3=6

4
5

= Customer

= Distributor

Marketing channels defined..

Set of interdependent organizations that ease the
transfer of ownership as products move from producer to
business user or consumer
Channel of distribution comprises a set of institutions
which perform all of the activities utilized to move a
product from production to consumption
All the organizations through which a product must pass
between its point of production & consumption
Direct flow of goods whole-seller & retailer
Indirect flow middlemen

Channels for Consumer Products

Direct
Channel

Retailer
Channel

Wholesaler
Channel

Agent/Broker
Channel

Producer

Producer

Producer

Producer
Agents or
Brokers

Consumers

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers

Consumers

Consumers

Channels for
Business-to-Business Products
Agent/Broker
Industrial
Channel

Direct
Channel

Direct
Channel

Industrial
Distributor

Agent/Broker
Channel

Producer

Producer

Producer

Producer

Producer

Agents or
Brokers

Agents or
Brokers
Industrial
Distributor

Industrial
Distributor
Industrial
User

Govt.
Buyer

Industrial
User

Industrial
User

Industrial
User

What work is performed by Marketing

Channels ?
Channel functions
Channel flows
Channel Design Decisions
Channel Management Decisions
Channel dynamics

Key Functions performed by channel

members
a) Market Research gather market information
b) Promotion contribution to local, national &
personal selling efforts
c) Selling establish profitable contacts for sale
of goods
d) Matching assembling of suitable products
according to customer requirements
e) Negotiation reaching an agreement on final
prices

Key Functions performed by channel

members (contd.)..
f) Physical distribution transporting & storing
g) Financing acquiring & using funds to cover
distribution costs
h) Risk taking assuming some commercial
risks. Eg.: crediting, accounting, service
delivery, returns

Channel flows
Channel members are connected via a variety of
flows
physical flow
information flow
payment flow
promotion flow
flow of ownership

Five Marketing Flows in the Marketing Channel

How channel flows move ????

Forward flow company to customer
Physical, Title & Promotion
Backward flow customers to company
Payment flow

Channel Design Decisions

Channel operations work in accordance with
local opportunities & conditions
Push Vs pull strategy

Push channel strategy : to induce intermediaries

for product promotion
Pull channel strategy : to induce via customers
to ask intermediaries for product promotion

Channel Design Decisions (contd.)..

Designing a channel system involves four steps:
Step 1: Analyzing customer needs
Step 2: Establishing channel objectives
Step 3: Identifying major channel alternatives
Step 4: Evaluating major channel alternatives

Channel Design Decisions (contd.)

Step 1: Analyzing customer needs

Lot size
Waiting time fast delivery channel
Spatial convenience easy availability of
intermediaries
Product variety greater product assortments
Service backup greater service leads greater
channel work

Analyzing cost & feasibility

Channel Design Decisions (contd.)

Step 2: Establishing channel objectives
Nature of product perishable, bulky goods, installation
goods, high voltage products
Evaluate strengths & weaknesses of each intermediary
To consider nations economic & legal constraints
Set channel objectives in line with target market needs
& customer service

Channel Design Decisions (contd.)

Step 3: Identifying major channel alternatives
Types of Intermediaries
company sales force, manufacturers agency, industrial
distributors - geographic expansion
Number of Intermediaries
Terms & responsibilities of channel members
Price Policy
Conditions of Sale
Distributors territorial Rights

Channel Design Decisions (contd.)

Step 4: Evaluating major channel alternatives
Economic Criteria to gain channel advantage
Control & adaptive criteria

Economic Criteria : The Value-Adds versus Costs of Different Channels

Channel-Design Decisions (contd.).

Control and Adaptive Criteria

Figure 17.5:
Break-even
Cost Chart

Distribution Channel Functions

Information
Information
Transfer
Transfer
Payments
Payments
Physical
Physical
Distribution
Distribution
Risk
Risk Taking
Taking

Communication
Communication
Negotiation
Negotiation
Ordering
Ordering
Financing
Financing

Consumer Marketing Channels

0-level channel

Manufacturer
Manufacturer

Consumer
Consumer

1-level channel

Manufacturer
Manufacturer

Retailer
Retailer

Consumer
Consumer

Retailer
Retailer

Consumer
Consumer

Retailer
Retailer

Consumer
Consumer

2-level channel
Mfg
Mfg

Wholesaler
Wholesaler

3-level channel
Mfg
Mfg

Wholesaler
Wholesaler

Jobber
Jobber

Industrial
distributors

Manufacturers
representative
Manufacturers
sales branch

Consumer

Manufacturer

Industrial Marketing Channels

Channel Management Decisions

Motivating
Motivating
Evaluating
Evaluating

FEEDBACK

Training
Training

FEEDBACK

Selecting
Selecting

Supply Chain
A Supply Chain is a network of facilities
and distribution options that performs the
functions of procurement of materials;
transformation of these material into
intermediate and finished products; and
distribution of these finished products to
customers.

Supply Chain
A Supply Chain essentially has 3 main
parts:
The Supply
Manufacturing
Distribution

Logistics
Logistics is the art and science of
managing and controlling the flow of
goods, energy, information and other
resources.
It involves planning the infrastructure to
meet demand, then implementing &
controlling the physical flows of
materials and final goods from points of
origin to points of use, to meet customer
requirements at a profit.

Logistics
Steady state flow systems are usually
optimized for one of several goals:
Avoid shortages
Minimize transportation costs
Minimum procurement time / minimum
total storage
** Logistics flow is particularly important in
JIT manufacturing in which great
emphasis is placed on minimizing
inventory.

Goals of the 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

Logistics Systems
Order
Order Processing
Processing

Costs
Costs

Submitted
Submitted
Processed
Processed
Shipped
Shipped

Minimize
MinimizeCosts
Costsof
of
Attaining
AttainingLogistics
Logistics
Objectives
Objectives

Logistics
Transportation

Functions

Warehousing
Warehousing
Storage
Storage
Distribution
Distribution

Water, Truck,
Rail, Pipeline & Air

Inventory
Inventory

When
Whento
toorder
order
How
Howmuch
muchto
toorder
order
Just-in-time
Just-in-time

Transportation Modes
Rail
Rail

Nations
Nationslargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback

Truck
Truck

Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods

Water
Water

Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form

Pipeline
Pipeline

Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets

Air
Air

High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items

Checklist for Choosing

Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.

Rating Transportation Modes

Speed

Dependability

Capability

Availability
(No. of
Geographic
Points
Served)

Cost

(Door-todoor
delivery
time)

(Meeting
Schedules
on Time)

(Ability to
Handle
Various
Products)

Rail

Water

Truck

Pipeline

Air

(Per
TonMile)

Source: See Carl M. Guelzo; Introduction to Logistics Management Englewood Cliffs, NJ:
Prentice Hall, 1986), p. 46.