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Chapter 12

Management and Organizational Studies 2320A/B Chapter Notes - Chapter 12: Data Warehouse, Franchising, Electronic Data Interchange

Management and Organizational Studies
Course Code
MOS 2320A/B
Angela White

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Chapter 12- Distribution Channels
The importance of distribution channels
Distribution channels, supply chain, and logistics are related
Distribution channelthe set of instructions that transfer the ownership of and
move goods from the point of production to the point of consumption
Supply chain managementthe set of approaches and techniques !rms employ
to e"ciently and e#ectively 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 rights time, while minimizing system wide costs
while satisfying the service levels their customers require
Wholesalers !rms that buy products from manufacturers and resell them to
Retailerssell products directly to consumers
Logistics managementthe integration of two or more activities to plan,
implement, and control the e"cient (ow of raw materials, in process inventors,
and !nished goods from the point of origin to the point of consumption
oIncludes customer service, demand forecasting, distribution
communications, inventory control, materials handling, order processing,
parts and service support, plant and warehouse site selection,
procurement, packaging, return goods handling, salvage and scrap
disposal, tra"c and transportation, and warehousing and storage
Designing distribution channels
Channel structure
Direct distribution
oAllows manufacturers to deal directly with consumers
Indirect distribution
oOne or more intermediaries work with manufacturers to provide goods and
services to consumers
Multichannel distribution
oEx. Sony may sell directly to its branded stores, or sell indirectly through
retailers such as best buy
Push Verses Pull Distribution Strategies
Push marketing strategydesigned to increase demand by focusing on
wholesales, distributors, or salespeople, who push the product to consumers via
distribution channels
Pull marketing strategydesigned to get consumers to pull the product into the
supply chain by demanding retailers carry it
If channel members are reluctant to stock new product, manufacturers may use
a pull strategy
In this case, promotional e#orts are directed at consumers to build demand for
products that, in turn, may convince retailers to carry them
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Distribution Intensity
Distribution intensity the number of channel members to use at each level of
the supply chain
Intensive distributionstrategy designed to get products into as many outlets as
Exclusive distributionpolicy by granting exclusive geographic territories to one
or very few retail customers so no other customers in the territory can sell a
particular brand
Selective distributioncombination of intensive and exclusive where there are a
few selected customers in a territory
Distribution channels add value
When products are designed and manufactured, how and when the critical
components reach the factory must be co-ordinated with production
The sales department must coordinate its delivery promises with the factory or
distribution centers
Distribution centera facility for the receipt, storage, and redistribution of the
goods to company stores or customers, may be operated by retailers,
manufacturers, or distribution specialists
Advertising and promotion must be coordinated with those departments that
control inventory and transportation
Distribution channels are composed of various entities that are buying, such as
retailers or wholesalers; selling, such as manufacturers or wholesalers; or
helping facilitate the exchange, such as transportation companies
Distribution channels perform a variety of
transactional, logistical, and
facilitating functions
While channel functions may shift from one intermediary or channel member to
another, its important to recognize that they cannot be eliminated
Managing distribution channels
When channel members are not in agreement about their goals, roles, or
rewards channel con(ict results
Developing strong relationships with supply chain partners
Or they can coordinate channel by using a vertical marketing system
Marketing channels through vertical marketing systems
oCon(ict is more pronounced when the channel members are independent
oEx. Zara depends on Tessuto for fabric, Tusseto depends on zara to buy a
good portion of its output
oVertical marketing systema supply chain in which members act as a
uni!ed system; there are three times:
administrated, contractual, and
the more formal the vertical marketing system, the less likely con(ict
with occur
administrated vertical marketing systemno common ownership and
no contractual relationships, but the dominant channel member
controls the relationship
contractual vertical marketing systemindependent !rms at di#erent
levels of supply chain join together through contracts to obtain
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