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Chapter 12

Chapter 12 - Marketing Channels

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Dave Ashberry

Chapter 12 – Marketing Channels: Distribution Strategy  Place: getting the right products to the right place in the right quantity  Adds value for customers because they get products to customers efficiently and at low cost THE IMPORTANCE OF DISTRIBUTION  Unless they secure appropriate distribution channels, org will not meet revenue targets  Convincing intermediaries to carry a new product is more difficult than it seems  The fight for shelf space is fierce; involves paying listing fees  A well integrated distribution strategy can result in increased revenues Distribution Channels, Supply Chain, and Logistics are Related  Distribution channel – the set of institutions that transfer the ownership of and move goods from the point of production to the point of consumption; it consists of all the institutions and marketing activities in the marketing process  Supply Chain Mgmt – techniques employed 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 o Focuses on the relationships among members of the supply chain and distribution channel and the need to coordinate efforts to provide customers with the best value  Wholesalers – buy products from manufacturers and resell them to retailers  Retailers – sell products directly to consumers  Logistics Mgmt – element of S.C.M. that concentrates on the movement and control of physical products; integrates activities involved in 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  Close partnerships, or one-time arrangements  Retailers, wholesalers, transportation companies  Each channel member performs a specialize role  Must reduce the number of marketplace contacts resulting in more efficient systems  Exhibit 12.2 page 396 – Functions performed by intermediaries DESIGNING DISTRIBUTION CHANNELS Distribution Channel Structure  Every company must develop a distribution strategy for how it will sell goods to consumers  Manufacturers deal directly with consumers Direct Distribution  Some firms forced to use direct b/c unable to secure shelf space in retail outlets or can’t pay the high listing fee or the direct distribution is the only way they want to sell their products (e.g. Avon)  One or more intermediaries work with organization to provide P/S to consumers  Use of wholesalers is common for low-cost/low-unit value items (e.g. Ford, Coca-Cola)  PUSH strategy  manufacturer focuses on promotional efforts on channel members to convince Indirect Distribution them to carry the product; product is pushed through the channel system  PULL strategy promotional efforts directed at consumers in order to build demand for products, which convinces retailers to carry them; pulls retailers in  Better able to reach business and consumer customers by using a combination of direct and indirect Multichannel strategies (e.g. Cadbury, Frito Lay, Sony) Distribution  Engage in sales to deliver products to customers while others pursue direct marketing  Must consider where the end customer expects to find the product, and some retailer characteristics Customer Expectations  Need to know where consumers expect to find products and where their consumers want to find products  Companies need to keep an eye on changes in where customers buy and make adjustments accordingly Channel Member Characteristics  The larger and more sophisticated the channel member the less likely they will use intermediaries  Larger firms find that doing distribution functions themselves means they can gain more control, be more efficient, and save money Distribution Intensity  The number of channel members to use at each level of the supply chain  Intensive o To get products into as many outlets as possible o The more exposure, through grocery stores, restaurants, vending machines, and etc. the more products sold o Nationally branded products (e.g. PepsiCo, P&G) strive for and often achieve intensive distribution  Exclusive o Granting exclusive rights to sell to one or very few retail customers so no other customers can sell a particular brand o Exclusive geographic territory (e.g. Estee Lauder) o If their product is sold at too many retailers it may weaker their image or dilute their brand  Selective o Uses a few selected customers in a territory o Maintains image and controls the flow of merchandise into an area; shopping goods manufacturers use this MANAGING DISTRIBUTION CHANNELS  Participating members must cooperate and resolve any conflicting goals  Channel conflict – results when supply chain members are not in agreement about their goals, roles, or rewards; can be resolved through negotiations; If not , then relationships fall apart, and firms go their separate ways  Can control the channel member by developing strong relationships with supply chain members or use vertical marketing Managing Channels through Vertical Marketing Systems  Conflict can be more pronounced when channel members are independent entities  Channels that share common goals are less prone to conflict  Vertical Marketing System  supply chain in which m
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