Chapter 10 Review:
What is a distribution Channel?
Channel Distribution is a series of firms or individuals that facilitates the movement of a product from
the producer to the final customer. These channels include an organized network of manufacturers,
wholesalers and retailers that develop relationships and work together to make products conveniently
available to buyers.
A channel of distribution consists of, at a minimum, a producer and a customer and this form of channel
is known as a direct channel.
Channels are often indirect because they include one or more channel intermediaries, firms or
individuals such as wholesalers, agents, brokers and retailers that in some way help moves the product
to the consumer or end user.
The first step in deciding on a distribution plan is to develop appropriate objectives that support the
organizations overall marketing goals. The overall objective of any distribution planning is to make firms
products available when, where and in the quantities customers want and need at a minimum cost.
Specific distribution objectives depend on characteristics of the product and the market example if the
product is bulky objective maybe to minimize costs.
Evaluating the Environment
After objectives have been settled marketers must consider internal and external environment.
Organizations examine issues such a as its own ability to create distribution channels, what channel
intermediaries are available, the ability if customers tie access these intermediaries, and how the
competition distributes the products. Marketers study competitor’s distribution strategies, and learn
from the success and failures of these companies.
Choosing a distribution system
Distribution planning includes decisions about the number of levels in the distribution channel, decisions
about channel relationships and distribution intensity (number of intermediaries at each level).
Conventional, Vertical and Horizontal Marketing Systems Participants in any distribution channel form
an interrelated system. To develop a successful distribution strategy, marketers must consider the
different types of systems and select the one that best meets their needs.
Conventional Marketing System is a multiple level distribution channel in which members work
independently of one another, their relationships are limited to simple buying and selling from one
another. Vertical Marketing System is a channel in which there is cooperation among channel members at two or
more levels of the channel- the manufacturing, whole sailing and retailing levels.
There are three types of vertical marketing systems: administered, corporate and contractual. In an
administered VMS, the channel members remain independent but voluntarily agree to work together. In
a corporate system firms have ownership control of all of a distribution channel, such as when a
manufacturer buys agent companies. Ina contractual VMS, cooperation is enforced by contracts, legal
agreements, that spell out each members rights and responsibilities and how they will cooperate. In
some cases retailers organize a cooperative marketing channel system. A retailer cooperative system is a
group of retailers that has established a wholesaling operation to help them compete more effectively
with the large chains. Franchise organizations are a third type of contractual VMS. In these
organizations, channel cooperation is explicitly defined and strictly enforced through contractual
agreements in which a franchiser (manufacturer or service provider) allows and entrepreneur to use the
franchise name and marketing plan for a fee. (Example mcds)
In a horizontal marketing system two or more firms at the same channel level agree to work together to
get their product to customer. Ex two airlines like Air Canada and Emirates.
Functions of Distribution Channel
Distribution channels perform a number of different functions that make the flow of goods from the
producer to customer possible. These functions must be handled by someone be it producer, a channel
intermediary or even the customer. Channels that include one or more intermediaries can often
accomplish a certain task more effectively and efficiently than a single organization.
Channels provide form, time place, information and possession utility for customers. Utilities in the
marketing and distribution measure the ability of a good or service to satisfy a customer’s needs or
wants. Economic utility can be divided into five types: form, time. Place, information and possession.
First the creation of form utility encompasses all activities used to change the appearance or
composition of a good or service with the intent of making it more attractive to potential and actual
users. Time utility consists of increased satisfaction created by marketing through making products
available at the time customers want them. Place utility is the increased usefulness created by making a
product available at a location preferred by customers. Information utility is defined as the value given
to products that provide the user with useful information. Possession utility is the increased usefulness
created by making it possible for a consumer to own, use and consume a product.
A second flow of distribution channels is to increase the efficiency of flow of goods from producer to
customer. Distribution channels create efficiencies by reducing the number of transactions necessary for
goods to flow from many different manufacturers to large number of customers. Bulk breaking is when
retailers and wholesalers purchase large quantities of goods from manufacturers but only sell one or
few at a time too many different customers. Creating assortments is providing a variety of products in
one location so that customers can conveniently buy many different items from one seller at one time. Channel intermediaries perform a number of facilitating functions, which make the purchase process
easier for customers and manufacturers. (ex. Intermediaries offering credit)
Types of wholesaling intermediaries:
Wholesaling intermediaries are firms that handle the flow of products from manufacturers to retailers
or business users.
Independent intermediaries do business with many different manufacturers and many different
customers. Not owned by any manufacturer and can offer any price.
Merchant wholesalers are independent intermediaries that buy goods from manufacturers and sell to
retailers and other business to business customers. Merchant wholesales take title to the goods
meaning they actually have legal ownership of goods, and they assume certain ownership risks and can
suffer loses if products is damaged, obsolete, stolen or doesn’t sell. Free to develop their own marketing
Full service wholesalers provide a wide range of services for their customers. These services include
delivery, credit, product assistance, repairs, advertising and promotional support and market research.
(ex is a rack jobber who are supply retailers who own and maintain their products in display racks in
grocery’s pharmacies etc.)
Limited service merchant wholesalers provide less service for their customers. Like full service