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Chapter 12

ADM2320 Chapter 12

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Marzena Cedzynski

Chapter 12 Marketing Channels: Distribution Strategy The Importance of Distribution Distribution Channels, Supply Chain, and Logistics are Related  Distribution channel: the institutions that transfer the ownership of and move goods from the point of production to the point of consumption.  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, and at the right time.  Wholesalers: those firms engaged in buying, taking title II, often storing, and it physically handling goods in large quantities, and then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.  Retailers: sell products directly to consumers.  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. Distribution Channels Add Value Functions Performed by Intermediaries Transactional Function  Buying: purchase goods for resale to other intermediaries or consumers  Risk taking: ownership of inventory that can become outdated  Promotion: promote products to attract consumers  Selling: transact with potential customers Logistical Function  Physical distribution: transport goods to point of purchase  Storing: maintain inventory and protect goods Facilitating Function  Gather information: share competitive intelligence about customers or other channel members  Financing: extend credit and other financial services to consumers. Designing Distribution Channels Channel Structure Direct Distribution  Allows manufacturers to deal directly with consumers.  Some companies may be forced to distribute their goods directly because they are unable to secure shelf space in retail outlets. Indirect Distribution  One or more intermediaries work with manufactures to provide goods and services to consumers.  When developing its distribution strategy, a company may choose to use a push strategy or a pull strategy: o With a push strategy, a manufacturer focuses its promotional efforts on channel members to convince them to carry its product. o With a pull strategy, promotional efforts are directed at consumers to build demand for products that, in turn, may convince retailers to carry them. Multichannel Distribution  Combination of both direct and indirect distribution channels.  Selling through many different resources. Customer Expectations  For retailers, it is important to know from which manufacturers its customers want to buy.  Manufacturers need to know where their target market customers expect to find their products. Channel Member Characteristics  Generally, the larger and more sophisticated the channel member, the less likely that it will use intermediaries.  Larger firms often find that by performing the distribution functions themselves, they can gain more control, be more efficient, and save more money. Distribution Intensity  Distribution intensity: the number of channel members to use at each level of the supply chain. Intensive Distribution  Intensive distribution: a strategy designed to get products into as many outlets as possible.  The more exposure these products get, the more they sell Exclusive Distribution  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.  Exclusive geographic territories: territories granted to one or very few retail customers by a manufacturer using an exclusive distribution strategy; no other customers can sell a particular brand in these territories. Selective Distribution  Selective distribution: lies between the intensive and the exclusive distribution strategies; uses a few selected customers in a territory.  Retailers still have a strong incentive to sell the products but not to the same extent as if they had an exclusive territory. Managing Distribution Channels  Channel conflict: results when supply chain members are not in agreement about their goals, roles, or rewards. Managing Channels Through Vertical Marketing Systems  In an independent distribution channel, the several independent members each attempt to satisfy their own objectives and maximize their own profits.  Vertical marketing system: a supply chain in which the members act as a unified system; there are three types: administrated, contractual, and
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