1 Channels of Distribution

2 Outline n Role of Distribution –roles and functions of intermediaries n Managing Channels of Distribution –channel design –channel dynamics –channel conflict

3 Role of Marketing Channels "Marketing channels can be viewed as a set of interdependent organizations involved in the process of making a product/service available for use/consumption..." "Marketing channels can be viewed as a set of interdependent organizations involved in the process of making a product/service available for use/consumption..." -- Stern & El-Ansary, Marketing Channels

4 Reasons for Intermediaries n Improve the efficiency of the exchange process n Discrepancy of assortment and sorting n Routinization of transactions n Facilitate the search process

5 Functions of Intermediaries n Carrying inventory n Generation of demand n Physical distribution n Sales and after sales service n Credit and financing

6 Channel Design Key questions in channel design: n Who are the customers? n What are their needs when buying? –information, delivery, service, etc. n What are the institutional alternatives? –cost-effectively satisfy needs

7 Channel Design Design channels to serve the needs of customers in the target segment n Information n Logistics

8 Information n Primary information –education –demonstration –service n Comparative information –benefits versus competition

9 Logistics n Product variety (assortment) n Convenience (location) n Waiting time (delay between order and delivery) n Lot size (minimum order quantity)

10 Channel Design: Length Factors influencing channel length: DIRECT INDIRECT DIRECT INDIRECT n Need for info highlow n Logistic supportlowhigh

11 Channel Design: Breadth Factors influencing channel breadth: INTENSIVE SELECTIVE INTENSIVE SELECTIVE n Mfr control need lowhigh n Shopping effortlowhigh

12 Evaluating Channel Alternatives n Economic criteria –is it cost effective? n Control criteria –can I influence sales context? n Adaptive criteria –is it flexible enough to meet future needs?

13 Channel Dynamics

14 Consequences of Channel Dynamics Emergence of more complicated channel structures n Multiple channels –different agents for different segments n Hybrid channel –different agents for different tasks

15 Channel Conflict "Channel conflict is a situation in which one channel member perceives another channel member to be engaged in behavior preventing him from achieving his goals." "Channel conflict is a situation in which one channel member perceives another channel member to be engaged in behavior preventing him from achieving his goals." –Stern & El-Ansary, Marketing Channels

16 Sources of Channel Conflict n Role conflict –deviation from expected role n Goal conflict –poor design (e.g., channel overlap) n Lack of communication –asymmetric dependence

17 Channel Management Motivation and coordination depend upon the nature of the channel: n Direct channels –primarily incentive systems n Indirect channels –bargaining and negotiation –exercise of channel power

18 Forms of Power in the Channel n Reward power –partnership programs n Coercive power –exercise of market clout n Expert power