2. Distribution Strategy
Chapter Ten
Distribution Strategy
Key Words / Outline
Marketing intermediaries, Direct marketing, Indirect channels , Intensive distribution, Selective distribution, Exclusive distribution, Total distribution cost, Channel flexibility, Relationship marketing , Administered system, Contractual system, Corporate system, Mass merchandisers, Catalogs and direct mails, Vending machines
© The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/Irwin
Marketing Management, 8e

3. Channels of Distribution
A channel of distribution is the combination of institutions through which a seller markets products to the user or ultimate consumer

4. 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

5. 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

6. Channel Functions Transactional functions Logistical functions
Buying: Purchasing products for resale or as an agent for supply of a product
Selling: Contacting potential customers, promoting orders and soliciting orders
Risk taking: Assuming business risks in the ownership of inventory that can become obsolete or deteriorate
Logistical functions
Assorting: Creating product assortments from several sources to serve customers

7. Channel Functions Facilitating functions
Storing: Assembling and protecting products at a convenient location to offer better customer service
Sorting: Purchasing in large quantities and breaking into smaller amounts desired by the customer
Transporting: Physically moving products to customers
Facilitating functions
Financing: Extending credit to customers
Grading: Inspecting, testing and judging products and assigning them quality grades
Marketing Information/Research: Providing information to customers and suppliers, including competitive conditions and trends

8. Channel Distribution – Consumer Goods

9. Channel Distribution – Organizational Goods

10. General Considerations – Channel Planning
Customer characteristics: Numbers, location, purchasing pattern
Product characteristics: type, installation &maintenance
Intermediary characteristics: availability, competitive product sold, Financial conditions
Competitor characteristics: number, Size &market share
Company characteristics: Size & market share, finical conditions
Environmental characteristics: economic conditions, technology change culture differences ,legal regulation

11. Distribution Alternatives
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

12. Distribution Alternatives
Degree of control desired: The degree of control achieved by the seller is proportionate to the directness of channel
Total distribution costs: A channel of distribution should be viewed as a total system composed of interdependent subsystems and the objective of the system should be to optimize total system performance
Channel flexibility: Ability of the manufacturer to adapt to changing conditions

13. Relationship Marketing
Popularly 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”

14. Vertical Marketing System
Vertical marketing systems: Are channels in which members are more dependent on one another and develop long-term relationships in order to improve efficiency and effectiveness
Administered systems – highly dependent on close relationships between channel members
Contractual systems – relationships governed by contracts to perform specific functions producer and distributor
Corporate systems – single ownership of two or more levels of a channel. when manufacturer purchase wholesaler or retailer

15. Vertical Marketing System

16. Wholesalers
Merchants primarily involved in buying, taking title to, storing and physically handling goods
The create value for suppliers and retailers by handling their function efficiently and effectively
They seek producers of major brands for which sales and profits are greatest

17. Benefits of Wholesalers to Channel Members
Benefits for manufacturers
Reach out to diverse geographic markets cost effectively
Information supply about retailers and various end users
Reduction of costs through greater efficiency and effectiveness in distribution functions
Benefits for retailers
Provide potentially profitable products otherwise unavailable for resale in retail area

18. Benefits of Wholesalers to Channel Members
Provide information about industries, manufacturers and other retailers
Reduce costs by providing an assortment of goods from different manufacturers
Benefits for end users
Increase the product alternatives available in the local market
Reduce retail prices by the efficiency and effectiveness contributed to the channel
Improve product selection by providing information to retailers about the best products to offer to end users

19. Store Retailing
Mass merchandisers carry a broad assortment of goods and compete based on selection and price
Specialty stores handle deep assortments in a limited number of product categories
Convenience stores are retailers whose primary advantage is location

20. Non-store Retailing Catalogs and direct mail Vending machines
Television home shopping
Direct sales
E-commerce

21. Electronic Exchange - Advantages
Cost effective
Good visual presentation and full description of products
Global presence of products
Products offered on 24/7 basis
One-on-one interaction with customers

22. Electronic Exchange – Disadvantages
Strong price competition
Website advertising expensive for small e-marketers
Limits the markets to customers who are willing to by the products electronically
Products not as good for selling touch and feel as opposed to look and buy unless branded
Often less effective and efficient in business to consumer markets than in business to business markets