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Channels of Distribution and Logistics 10 Channels of Distribution and Logistics © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 

Marketing Framework

Place The market realigns discrepancies between buyers and sellers Sellers have large quantities Buyers want only a few Breaking bulk

Distribution Channels A network of firms which provides sellers a means of infusing the marketplace with their goods, and buyers a means of purchasing those goods Channel members include Manufacturers, wholesalers, retailers, consumers, etc.

Functions of a Channel Customer-oriented Product-oriented Marketing-centric Logistics

Channel Tension All channel functions must be done by someone, the question is… What is the most effective and efficient way to distribute the product? Tension in channels can be created by each channel member

Channels and Supply Chains Upstream partners Channel members Downstream partners

How to Design Channels Intensive distribution Selective distribution Exclusive distribution

How to Design Channels Pull strategy Push strategy Incentives are offered to consumers to pull products through the channel Push strategy Incentives are offered to distribution partners to push products through the channel

Power and Conflict in Channels Conflict arises in distribution channels Power is usually defined by size Having power can be effective However, exerting power over distribution partners can lead to resentment and further lack of cooperation

Power and Conflict in Channels Transaction cost analysis (TCA) Model that considers channel members’ production and governance costs Production and governance costs Transaction value analysis A perspective that emphasizes the benefits a company brings to its partners

Power and Conflict in Channels Ways to resolve conflict Enhance communication to build trust Exchange personnel to better understand members’ perspectives Mediation Arbitration

Revenue Sharing Double Marginalization The manufacturer wants a markup The retailer wants a second markup

Revenue Sharing Double Marginalization Solution

Integration Remember…all of the functions within a channel need to be completed The question is, “Who should complete them?” Make decision Complete functions yourself Buy decision Outsource functions

Integration Vertical integration Forward integration Backward integration Private labels give retailers benefits

Retailing Classifications Management’s level of ownership Independent retailers Branded store chains Franchises Level of service provided Full or limited service Product assortment carried Specialty or general merchandise

Retailing Employees/Operations Retail employees are important Retailers should hire selectively, train well and pair fairly Retailers should flowchart operations Front-stage Back-stage

Retailing Location Location is important Determine appropriate success factors for your specific business; analyze locations to pick ideal sites

Retailing Growth Strategies Provide additional services Target additional segments Open multiple stores Expand internationally

Franchising Franchising Types of franchising Company can retain some control without complete ownership or capital expenditure Types of franchising Product franchising Business format franchising

E-Commerce and Catalog Sales The Internet is an important channel Online retail sales are about $175 billion, growing about 10% a year Internet is well-suited for a search while catalogs still dominate browsing

Sales Force Utilized extensively with a push strategy Important with undifferentiated products Sales force compensation Sales force evaluation factors Sales force size

Integrated Marketing Channels As the number of channels proliferates, increasing care must be taken to coordinate and integrate across them Know your customer!

Managerial Recap Distribution channels are the link from the manufacturer to the customer Numerous thoughtful decisions must be made in designing channels

Managerial Recap Channel entities are independent yet interdependent organizations; thus, conflicts may arise Conflicts are best addressed by employing good communication and trust, revenue sharing, or greater vertical integration