BUS 348 Lecture Notes - Lecture 11: Marketing Mix, Order Processing, Inventory Control
23 Jun 2018
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BUS 348
Lecture 11
Distribution Strategy
Types of Distribution Channels and Wholesale Intermediaries
oPhysical distribution refers to activities that move finished goods from manufacturers to
final customers
oA channel of distribution is a series of firms or individuals that facilitates the movement
of a product to a final customer.
A channel of distribution consists of, at a minimum, a producer (or
manufacturer/creator of a product or service), and a customer
This is the simplest form of distribution, called a direct channel.
Indirect channels contain 1 or more channel intermediaries who facilitate the
movement of goods between the producer and the consumer or end user. Agents,
wholesalers, distributors, and retailers are all examples of channel intermediaries.
Functions of Distribution Channels
oChannels, consisting of two or more players, often can accomplish certain distribution
functions more effectively and efficiently than can a single organization. These benefits can
be categorized in the following ways:
Channels make desired products available when (time utility), where (place
utility), and in the sizes and quantities that customers desire (ownership utility).
Distribution channels provide a number of logistics or physical distribution
functions that increase the efficiency of the flow of goods from producer to customer.
Similarly, distribution channels create efficiencies because they reduce the
number of transactions necessary for goods to flow from many different
manufacturers to large numbers of customers
Distribution Channel Functions
oBreaking bulk - purchase large quantities of goods from producers but sell only one or a
few at a time to many different customers
oCreating assortments - provide variety of products in one location, so customers can
conveniently buy many different items from one seller
oTransportation and storage - occurs when retailers and other channel members move
the goods from the production point to other locations where they can hold them until
consumers want them
oFacilitating functions - make the purchase process easier for customers and
manufacturers (e.g., offering credit to buyers)
oRisk taking - chance retailers take on the loss of a product when they buy a product
from a manufacturer because the product sits on the shelf because no customers want it
oCommunication and transaction - when channel members develop and execute both
promotional and other types of communication among members of the channel
Evolution of Distribution Functions
oIf intermediaries fail to provide unique value, they are at risk of disintermediation.
New technology can render channel members obsolete.
oThe Internet has evened the playing field for small firms with limited resources by
making it possible for them to reach a national, if not international audience. While this is
great news for entrepreneurs, e-commerce has radically impacted distribution strategies for
a variety of goods and services.
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oGoods that are sold over the Internet allow manufacturers to reduce costs by
eliminating many of the intermediaries traditionally found in offline channels of distribution,
an outcome which has been called disintermediation. For example, airlines no longer need
traditional travel agencies to book flights for consumers—consumers book their own flights
either through online mega travel agencies such as Expedia, or directly from the airline’s
website, eliminating the commission fee paid to booking agents. Additional forms of cost
reduction come from fewer employees, and less need for “brick and mortar” company
owned stores (and all of the costs that go with them).
Online Distribution
The Internet is radically changing how companies coordinate among members of a supply
chain to make it more effective in ways that consumers never see.
oThese firms develop better ways to implement knowledge management, which refers
to a comprehensive approach that collects, organizes, stores, and retrieves a firm’s
information assets. Those assets include databases and company documents as well as the
practical knowledge of employees whose past experience may be relevant to solve a new
problem.
oIn the world of B2B, this process probably occurs via an intranet, which is an internal
corporate communication network that uses Internet technology to link company
departments, employees, and databases. But it can also be used to facilitate sharing of
knowledge among channel partners since it is a secure and password-protected platform.
oHowever, the Internet as a distribution channel is not without potential problems. One
of the more vexing issues with Internet distribution is the potential for online distribution
piracy, which is the theft and unauthorized repurposing of intellectual property via the
Internet. For instance, unauthorized downloads of music continue to pose a major challenge
to the “recording” industry—to the point where the whole nature of the industry has turned
topsy-turvy in search of a new business model that works.
Typical Consumer Channels
o
oAs previously explained, consumer channels of distributions can take a variety of forms,
including direct from the producer to the consumer, or one which includes one or more
wholesalers and retailers. Don’t let the fact that specific retailers are mentioned on this slide
fool you—Dillard’s is just one example of the type of retailer that would carry the Liz
Claiborne’s fashions. Macy’s and other higher end retailers would also be involved in the
distribution process.
oDirect channels often allow producers to serve customers better and at a lower cost.
Sometimes this is the only option because using intermediaries may inflate the final price to
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Types of distribution channels and wholesale intermediaries o. Physical distribution refers to activities that move finished goods from manufacturers to final customers: a channel of distribution is a series of firms or individuals that facilitates the movement of a product to a final customer. A channel of distribution consists of, at a minimum, a producer (or manufacturer/creator of a product or service), and a customer. This is the simplest form of distribution, called a direct channel. Indirect channels contain 1 or more channel intermediaries who facilitate the movement of goods between the producer and the consumer or end user. Agents, wholesalers, distributors, and retailers are all examples of channel intermediaries. Channels, consisting of two or more players, often can accomplish certain distribution functions more effectively and efficiently than can a single organization. These benefits can be categorized in the following ways:
