Distribution channels

Marketing channels
Sets of interdependent organisations

involved in the process of making a product or service available for use or consumption.

Channel flow
Possession Ownership Financial flow

Information flow
Risk Flow Negotiation

Channel levels
Zero channel level
Consists of a manufacturer selling directly to the final customer

One level channel

Contains one selling intermediary

Two level channel

Contains two intermediaries typically a wholesaler and a retailer

Channel design decisions

Analyse consumer needs Establish channel objectives

Evaluate the major channel alternatives

Identify major channel alternatives

Designing a channel system

analysing customer needs
Five service outputs
Lot size

Waiting time
Spatial Convenience Product variety Service

Designing a channel system

establishing channel objectives
Should be stated in terms of targeted service output levels Channel members should arrange their functional tasks to minimise total channel costs

Designing a channel system

identify major channel alternatives
Described by three elements:
Types of available intermediaries, Number of intermediaries needed Terms and responsibilities of each channel member.

 Exclusive distribution:
Limited number if intermediaries between the producer & consumer Used when the producer wants to deliver maximum service quality to the consumers

Selective distribution:
Involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product Can maintain good relations with the channel members

Intensive distribution
Involves the manufacturer distributing his products through as many outlets as possible

Designing a channel system

Evaluating the major channel alternatives
Criteria for evaluation:

Economic: compare the likely sales , costs & profitability of different channel alternatives
Control: Adaptive:

Channel management decisions

Selecting channel members

Training the channel members

Motivating channel members

Evaluating channel members

Modifying channel arrangements

Channel management decisions

Selecting channel members

Based on: the role that the channel members have to play, qualification duties & tasks Sales efficiency Product knowledge Experience Administrative ability Risk factors involved

Channel management decisions

Training the channel members

To help channel members increase their efficiency in performing the various business activities

Channel management decisions

Motivating the channel members
To improve their performance Thru relationship marketing to build better & stronger relations with the distributors to perform to their best possible levels Thru reward structure Provide ad allowances Provide training for the distributors sales force Provide commission on higher sales

Channel management decisions

Evaluating the channel members
Sales quota attainment

Average inventory levels

Customer delivery time

Channel management decisions

Modifying channel arrangements
Necessary when: Consumers purchase patterns change

Rapid expansion of the market takes place

Entry of new competitor Existing technology become obsolete & insufficient

Channel developments
Vertical Marketing System (VMS)

Comprises the producer, wholesaler

and retailer perform the marketing

activities jointly

Types of VMS
Corporate VMS
combines successive stages of production and distribution under single ownership.

Administered VMS
coordinates successive stages of production and distribution through the size and power of one of the members.

Contractual VMS
consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.

Channel developments
Horizontal Marketing System (HMS)

Two or more unrelated companies

put together resources or

programs to exploit marketing

opportunity.

Channel developments
Multichannel Marketing System (HMS)
Occurs when a single firm uses two or more marketing channels to reach one or more customer segments. Benefits are:
Increased market coverage Lower channel cost More customised selling Also known as hybrid marketing channels

Channel conflict
A situation in which one member of the

marketing channel perceives that another

member is preventing/ impeding it form

achieving its marketing goals

Disagreement among marketing channel members on goals & roles- who should do what & for what rewards.

Types of channel conflict

Vertical channel conflict
conflict between different levels within the same channel.

Horizontal channel conflict

conflict between members at the same level within the channel

Multi channel conflict

exists when the manufacturer has established two or more channels that sell to the same market

Causes of channel conflict

Individual goals & objectives that are not compatible with each other. Lack of clearly defined roles & responsibilities Manufacturer & channel members fighting for the same market.

Marketing logistics
Involves planning, implementing & controlling

the physical flow of materials & final goods

from points of origin to points of use to meet

customer requirements at a profit

Getting the right product to the right customer in the right place @ right time

Major logistics functions

Warehousing
A physical system that comprises a set of area/ space, tools & laborers to handle the goods. Types of warehouses: Storage warehouse: store goods for moderate to long periods

Distribution centres: act as a temporary port for transfer of

goods from one location to another

Major logistics functions

Inventory Management
How much stock should be held?

Knowing when to order & how much to order

Order/ reorder point

Major logistics functions

Transportation
Process of moving the goods from one physical location to another 5 transportation modes- rail, air, truck, waterway & pipeline Intermodal transportation: Combining 2 or more modes of transportation Piggy back-rail + truck Fishy back water + truck Trainship water + rail Airtruck air +truck

Major logistics functions

Logistics information management

Wholesaling & Retailing

Wholesaling
All activities involved in selling goods or services to those who buy for resale or business use Wholesaler: a firm engaged primarily in wholesaling activities

Types of wholesalers
Merchant wholesalers:
Independently owned business that takes title to the merchandise it handles

Brokers & agents:

Brokers: a wholesaler who does not take title to goods & whose function is to bring buyers & sellers together & assist in negotiation Agents: represent buyers & sellers on a more permanent basis; also called functional intermediaries

Manufacturers sales branches offices:

Retailing
All the activities involved in selling directly to the ultimate consumer for personal, nonbusiness use Retailer: a business whose sales come primarily from retailing

Role of retailers
Making the goods available to the consumers. Once the retailers take the title of goods, the risk pertaining to the goods is transferred to them. The shortcomings in the products that are overlooked by the wholesalers can be removed by retailers. They can provide useful market information to the wholesalers and manufacturers By maintaining proper inventory, they can ensure timely and smooth supply of goods. They can provide necessary funds to the wholesalers and manufacturers by making timely payment which can be used in other production areas. They can extend credit facilities to consumers.