Channel of Distribution DEFINITION—All the intermediaries that participate in the flow of products from producer to consumer GOAL—to make the product available at the right locations in the right quantities at the right times

Examples of Basic Channels of Distribution

Greater Control Lower Cost Direct Contact with Customers Direct Contact with Customers Greater Control Lower Cost Quicker Response or Change in Marketing Mix Suitable Middlemen Not Available © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Direct Channel Systems Some Possible Reasons for For Choosing Direct Channels

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin When Indirect Channels Are Best +

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Middlemen Will Invest in Inventory +

Common Middleman Functions ADJUST DISCREPANCIES OF QUANTITY –The difference between the quantity of products a firm makes and the quantity its customers want ADJUST DISCREPANCIES OF ASSORTMENT –The difference between the product lines a firm makes and the assortment its customers want REGROUPING –Accumulating: buying products from many smaller producers –Bulk-breaking: dividing larger quantities into smaller ones –Sorting: separating products into grades or quality levels –Assorting: bringing similar varieties of products together

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A Discrepancy of Assortment +

Handling Conflict in the Distribution Channel Types of Conflict –Vertical: between channel members at different channel levels (manufacturer vs. retailer) –Discussion Question—Who should sell caskets??? –Horizontal: between channel members at the same channel level (retailer vs. retailer) –Discussion Question—Can one poorly managed franchise spoil the whole bunch???

The Role of the Channel Captain Channel Captain—the dominant or controlling member of the distribution channel Channel captains have power and control relationships Manufacturer vs. Wholesaler vs. Retailer

Types of Vertical Marketing Systems Corporate channel systems –corporate ownership all along the channel –Also called vertical integration Administered channel systems –informal agreements among channel members Contractual channel systems –legal contracts among channel members Alliances are also popular –Usually short term, and may involve a whole network of firms

Three Kinds of Contractual VMS Wholesaler-sponsored chains Independent stores agree to affiliate with a single wholesaler (Piggly Wiggly; Ace Hardware) Retail cooperatives (cooperative chains) Independent stores form their own wholesale buying operation (IGA; True Value) Franchises

Intensive Selective Intensive Selective The Best Channel System Should Achieve Ideal Market Exposure © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin = number of outlets Exclusive Market Exposure Strategies

Levels of Market Exposure Intensive –selling through all suitable outlets –soft drinks; candy Selective –selling through only those outlets that will give the product special attention – apparel, furniture Exclusive –selling through only one middleman in a particular geographic region –jewelry; cars

Dual Distribution The use of both direct and indirect marketing channels to reach target customers

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin An Example of Dual Distribution Exhibit 10-4

Dual Distribution of Roofing Shingles