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Chapter 12

Chapter 12 BU352.docx

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Dave Ashberry

BU352 Chapter 12 – Marketing Channels: Distribution Strategy Week 8 The Importance of Distribution -All goods and services organizations, need a well-thought out distribution strategy – even organizations that physically make money -A good distribution strategy is key to the successful launch of a new product -Although increased sales and access to more consumers if often desirable, that’s not always the case 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 -The term distribution channel and supply chain are interchangeable -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 -A simplified supply chain would be one in which manufacturers make products and sell them to intermediaries such as retailers and wholesalers -The more intermediaries that are involved in the supply chain, the greater the complexity and number of transactions involved for a company to reach consumers -Supply chain management 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 -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 -Firms have come to realize there is tremendous opportunity in coordinating marketing and logistics activities not only within a firm, but also throughout the supply chain Distribution Channels Add Value -Each channel members performs a specialized role -Distribution channels perform a variety of transactional, logistical, and facilitating functions -One important role played by intermediaries is to reduce the number of marketplace contacts, resulting in more efficient systems Designing Distribution Channels Channel Structure -When a firm is just starting out or entering a new market, it doesn’t typically have the option of designing the “best” distribution channel structure – that is, choosing from whom it buys or to whom it sells Direct Distribution -Allow manufacturers to deal directly with consumers Indirect Distribution -One or more intermediaries work with manufacturers to provide goods and services to consumers -When developing its distribution strategy, a company may choose to use a push or pull strategy – with a push strategy, a manufacturer focuses its promotional efforts on channel members to convince them to carry its products – pushed the product through distribution channels to end consumers -With a pull strategy, promotional efforts are directed at consumers to build demand for products that, in turn, may convince retailers to carry them BU352 Chapter 12 – Marketing Channels: Distribution Strategy Week 8 Multichannel Distribution -Reaches both consumers and business customers by using a combination of both direct and indirect distribution channels Customer Expectations -A key part of any strategy is to determine customer expectations -From a retailers perspective, 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 and those of their competitors Channel Member Characteristics -The large and more sophisticated the channel member, the less likely that it will use intermediaries 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 Exclusive Distribution -Exclusive distribution – strategy of granting exclusive rights to sell to one or very few retail customers so no other customers can see 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 -In cases of limited supply or when a firm is just starting out, providing an exclusive territory to one customer helps ensure enough inventory to offer the customer an adequate selection Selective Distribution -Selective distribution – lies between the intensive and exclusive distribution strategies; uses a few selected customers in a territory -Helps a seller maintain a particular image and control the flow of merchandise into an area, so many shopping goods manufacturers use it Managing Distribution Channels -If a distribution channel is to run efficiently, the participating members must cooperate -Channel conflict- results when supply chain members are not in agreement about their goals, roles, or rewards -Channel conflict can be resolved through good negotiations -But when the issues can’t be worked out, relationships can fall apart, and the firms may go their separate ways -Companies can manage distribution channels by developing strong relationships with supply chain partners Managing Channels Through Vertical Marketing Systems -Conflict is more likely to occur when the channel members are independent entities -In an independent distribution channel, the several independent members each attempt to satisfy their own objectives and maximize their own profits, often at the expense of other members -Vertical marketing system – a supply chain in which the members act as a unified system; there are BU352 Chapter 12 – Marketing Channels: Distribution Strategy Week 8 three types; administered, contractual, and corporate Administered Vertical Marketing System -Administered vertical marketing system – a supply chain system in which there is no common ownership and no contractual relationships, but the dominant channel members controls the channel relationship Contractual Vertical Marketing System -Contractual vertical marketing system – a system in which independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict -Franchising is the most common
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