McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Intermediaries, Direct Marketing, Indirect Channels, Intensive Distribution, Selective Distribution, Exclusive Distribution, Total Distribution Cost, Channel Flexibility, Relationship Marketing, Administered Systems, Contractual Systems, Corporate Systems, Mass Merchandisers, Specialty Stores, Convenience Stores, Catalogs and Direct Mail, Vending Machines, Electronic Exchange Distribution Strategy Chapter 10 Key Terms

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Channels of Distribution  A channel of distribution is the combination of institutions through which a seller markets products to the user or ultimate consumer  Direct channel or direct marketing – Without the use of other intermediaries  Indirect channels – With one or more intermediaries

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Intermediaries  Middleman – independent link between producers and consumers  Merchant middleman – actually buys goods and takes title/ownership  Agent – business unit that negotiates purchases and sales but does not take ownership  Wholesaler – a merchant who primarily stores and handles goods in large quantities  Retailer – merchant middleman who sells to final consumers  Broker – middleman who serves as a go-between for the buyer and seller

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Marketing Intermediaries  Manufacturer’s agent – an agent who operates by contract serving a geographic territory  Distributor – wholesale middleman in lines with selective or exclusive distribution  Jobber – a middleman who buys from manufacturers and sells to retailers  Facilitating agent – a firm that performs distribution tasks other than buying, selling and transferring

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Major Functions Performed in Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Channels of Distribution Conventional Channels of Distribution of Consumer Goods

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Channels of Distribution Conventional Channels of Distribution for Organizational Goods

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  In either the presence or the absence of a traditional channel, a primary constraint is that of the availability of various types of middlemen  Selecting a channel of distribution can hinge on one of these factors  Distribution coverage required  Degree of control desired  Total distribution cost  Channel flexibility

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  Distribution coverage – Channel selection may depend upon the nature of market coverage desired  Intensive distribution – Using as many wholesalers and retailers as possible  Selective distribution – Using only the best available per geographic area  Exclusive distribution – Selected intermediaries are given exclusive rights within a particular territory

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Selecting Channels of Distribution  Degree of control desired – Achieved by the seller is proportionate to the directness of channel  Total distribution cost – Channel should be viewed as a total system composed of interdependent subsystems  Objective should be to optimize total system performance  Generally assumed that the total system should be designed to minimize costs, other things being equal  Channel flexibility – Ability of the manufacturer to adapt to changing conditions

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved General Considerations – Channel Planning

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Managing a Channel of Distribution  Relationship marketing – Defined as “marketing with conscious aim to develop and manage long-term and/or trusting relationships with customers, distributors, suppliers, or other parties in the marketing environment”  Vertical marketing system – Channels in which members are more dependent on one another and develop long-term relationships to improve efficiency and effectiveness

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Vertical Marketing System Types of Vertical Marketing Systems

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Types of Vertical Marketing Systems  Administered systems – Higher degree of interorganizational planning and management than in a conventional channel  Contractual systems – Relationships governed by contracts to perform specific functions  Retail cooperative organization  Wholesaler-sponsored voluntary chain  Various franchising programs

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Types of Vertical Marketing Systems  Corporate systems – Single ownership of two or more levels of a channel  Forward integration – Manufacturer’s purchasing wholesalers or retailers  Backward integration – Wholesalers or retailers’ purchasing channel members above them

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Franchising: An Alternative to Conventional Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Franchising: An Alternative to Conventional Channels of Distribution

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Wholesalers  Merchants primarily engaged in buying, taking title to, storing and physically handling goods  Create value for suppliers, retailers, and users of goods by handling their functions efficiently and effectively  Seek producers of major brands for which sales and profits are greatest  Seek to attract retailers and organizational customers to buy from them

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Some Benefits of Wholesalers for Various Channel Members

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Store Retailing  Mass merchandisers – Carry broad assortments of goods and compete based on selection and price  Specialty stores – Handle deep assortments in a limited number of product categories  Limited-line stores  Single-line stores  Category killers  Convenience stores – Retailers whose primary advantages are location convenience, close-in parking, and easy entry and exit

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Non-Store Retailing  Catalogs and direct mail  Vending machines  Television home shopping  Direct sales  Electronic exchange

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Annual Nonstore Retail Sales

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Electronic Commerce: Advantages and Disadvantages for Marketers