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
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Risk taking: ownership of inventory that can become outdated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
Gather information: share competitive intelligence about customers or other
Financing: extend credit and other financial services to consumers.
Designing Distribution Channels
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.
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
Combination of both direct and indirect distribution channels.
Selling through many different resources.
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
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: 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: 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