Chapter 13 – Marketing Channels: Distribution Strategy
The Importance of Distribution – If firms are unable to secure appropriate distribution channels,
that reach prospective customers, their products and services are unlikely to meet their revenue targets.
Good distribution strategy integrated with other marketing elements can result in increased
revenue=profit!!
Convincing intermediaries, such as wholesalers are retailers, to carry new products can prove to
be difficult
Dozens of new products released daily, fight for shelf space is fierce and involves paying listing
fees
Distributions channels, Supply chains and Logistics are Related – Distribution channel
management usually under direction of marketing department where logistics traditionally under
directions of operations.
Distribution channel – The institutions that transfer ownership of and move goods from the
point of production to the point of consumption. (Coffee farmers-exporter-starbucks-consumer)
o It consist of all the institutions and marketing activities in the marketing process
Supply chain Management – Refers to a set of approaches and techniques firms employ to
efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores and
transportation intermediaries into a seamless value chain in which merchandise is produced and
distributed in the right quantities, to the right locations at the right time.
o Simplified supply chain entails a company who manufactures a product, who sells it to a
wholesaler or retailer who sells to ultimate consumer
Wholesaler – Firms engaged in , buying, taking title too, often storing and
physically handling goods in large quantities, then reselling the goods to
retailers or industrial or business users
Retailer – Firms that sell products directly to the ultimate consumer (walmart)
Logistics Management – The integration of two or more activities for the purpose of planning,
implementing, and controlling the efficient flow of raw materials, in process inventory, and
finished goods from the point of origin to the point of consumption
o Activities like customer service, demand forecasting, distribution communications etc.
Designing Distribution Channels - composed of various entities that are buying such as
retailers/wholesalers, selling such as manufacturers or helping to facilitate in exchange such as
transportation companies
Each member performs a specialized role, members can be replaced or walk away at anytime if
they are unable to perform their specific task
Refer to exhibit 13.2 for functions performed by intermediaries
Distribution Channel Structure – Every company must design a distribution strategy for how it will
get its good to the ultimate consumer for purchase and consumption
Direct Distribution – Allows manufacturers to deal directly to consumers.
o Dell computers etc. are sold directly to consumers through website, over the phone etc.
o Some companies forced because they cannot afford shelf space at major retailers
Indirect Distribution – One or more intermediaries work with manufacturers to provide goods
and services to consumers. o Wholesalers often used when company does not buy sufficient quantities
o May choose push or pull strategies in development of distribution structure
Push –manufacturer focuses its promotional efforts, or sales promotions on
channel members to convince them to carry the products, essentially pushing
merchandise through the channel
Pull – sometimes retailers reluctant to stock goods. Pull strategy focuses
promotional efforts on ultimate consumer to try to drive demand for the
product and in turn convincing retailers to carry the goods.
Multichannel Distribution – Some manufacturers like Sony might sell directly to consumers
through their website or branded stores in large cities (direct) or through intermediaries such as
future shop in smaller cities(indirect)
Customer Expectations – From retail perspective it is important to know from which
manufacturer its customers like products from. Manufacturers in contrast need to know where
their targeted consumers expect to find their products.
o Companies need to stay aware of the changes in what and where their customers buy
and change distribution strategies accordingly
Channel Members – Generally, the larger and more sophisticated the channel member, the less
likely they are to use intermediaries.
o Small firm would use group of independent sales people
o Large firms will use its own sales force
Distribution Intensity – The number of supply chain members to use at each level of the supply chain..
A marketing channel is the set of institutions that transfer the ownership and move goods form the
point of production to the point of consumption. Typically divided into three levels
Intensive Distribution – Strategy designed to get products into as many outlets as possible
o Most consumer packaged goods firms such as Pepsi and P&G rely on intensive
distribution.
o The more exposure these products get the more sales they generate
Exclusive Distribution- Strategy of granting exclusive rights to sell to one or very few retail
customers so no other customers can sell a particular brand
o Luxury items such as Rolex, BMW etc. have exclusive dealers.
Exclusive Geographic territories – geographic territories granted to one or very
few retailers using an exclusive distribution strategy so that no other firms in
those locations can sell a specific product.
Selective Distribution -Lies between selective and intensive, uses a few retailers in an given
territory
o Helps seller maintain a particular image and control the flow of merchandise into an
area
Managing Distribution Channel – For a channel to run efficiently, the participating members
must co-operate. Often times however, channel members have conflicting goals
Channel Conflict – results when Supply chain members are not in agreement about their goals,
roles or rewards.
Companies can manage distribution channels through strong relationships and good
communication/negotiation. Managing Channels through Vertical Marketing System – An independent distribution
channel has several members (manufactures, wholesalers, retailers etc.). Each attempts to maximize
their own profit even at the expense of other members of the channel.
Channels that are more closely aligned, whether by contract or ownership, share common goals
and are less prone to conflict.
Vertical Marketing System – A supply chain in which the members act as a unified system of which
there are three types.
Administered (based on the size of the company)– su
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