Ch 8/9 Objectives Recognize the importance of marketing channels and distribution Understand marketing channels in terms of creating time, place, and possession utilities Understand some of the complexity of physical distribution

What is a Distribution Channel? distribution channelA distribution channel consists of the set of people and firms involved in transfer of title to a product as it moves from producer to ultimate consumer or business user. Every firm wants to have a distribution channel that meets customer's needs and also provides a competitive advantage.

Common Marketing Channels for Consumer Products Producer Retailers Consumers Wholesalers Retailers Consumers Wholesaler Channel Retailer Channel Direct Channel

Determining Intensity of Distribution intensity of distributionA firm must decide on the appropriate intensity of distribution for its product. Intensity is actually a continuum, but three categories are normally used: –Intensive –Selective –Exclusive

Intensity-of- Distribution Continuum INTENSIVESELECTIVEEXCLUSIVE Distribution through every reasonable outlet in a marketDistribution through multiple, but not all, reasonable outlets in a marketDistribution through a single wholesalingmiddleman and/or retailer in a market

Terms Used for Marketing Intermediaries TERMDESCRIPTION MiddlemanAny intermediary between manufacturer and end- user markets Agent orAny intermediary with legal authority to act on Brokerbehalf of the manufacturer WholesalerAn intermediary who sells to other intermediaries, usually to retailers; usually applies to consumer markets RetailerAn intermediary who sells to consumers

How Intermediaries Minimize Transactions

Marketing Channel Functions Performed by Intermediaries Transactional Function Logistical Function -Buying. Purchasing products for resale or as an agent for supply of a product -Selling. Contracting potential customers, promoting products, and soliciting orders -Risk Taking. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate. Facilitating Function Look through this on your own!

Channel Terms: Disintermediation What is Disintermediation?

Terms: Disintermediation: “The removal of organizations or business process layers responsible for certain intermediary steps in a given value chain” Show channel “delayering” graphs

Rationale for Middlemen You can eliminate the middleman, but you can’t eliminate the middleman’s function Benefit both Producers and Retailers

“Direct” Distribution What is it? For what types of products does it seem to work? Doesn’t work for all products...

A A B B C C D D WHOLESALING MIDDLEMAN PRODUCERS RETAILERS “2-Step” Dist. Is Extremely Efficient!!!

Marketing Channel Management... Formulating channel strategy Design channel structure Select channel members Motivate channel members Coordinate with marketing mix Evaluate member performance Set distribution objectives Specify tasks to be performed by the channel Consider alternative structures Choose optimal structure

Channel Conflict

Conflict in Marketing Channels 1. Vertical Conflict 1. Vertical Conflict 2. Horizontal Conflict 2. Horizontal Conflict Don’t worry about this distinction… Conflict is conflict.

Channel Conflict: An Internet Example: Go to the clinique web site: –

Vertical Marketing Systems Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. Major types of vertical marketing systems: –corporate –contractual –administered Look at this stuff on your own...

Definition of a Supply Chain A Supply Chain is.... a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.

The Supply Chain A supply chain differs from a marketing channel in terms of membership. A supply chain includes suppliers who provide raw material inputs to a manufacturer as well as the wholesalers and retailers who deliver finished goods.

PP17-2 The Automotive Supply Chain steel aluminum Dodge/Plymouth Lincoln/Mercury Cadillac/Chevy rubberseats brakes engine chassis Chrysler Ford transmissionsuspensionGMC Raw materials components subassembly assembly Dealer network Supplier Network auto manufacturer marketing channel consumer

Merchant Wholesalers Full Service Limited Service General Wholesalers Limited Line Wholesalers Specialty Line Wholesalers Industrial Distributors Cash And Carry Wholesalers Truck Jobbers Drop Shippers Mail-order Wholesalers Rack Jobbers Types Of Wholesaling Intermediaries