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7/28/2019 Distribution Channel and Design Management
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Distribution Channel Design
and Management
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Distributions Function
The major purpose of marketing is to satisfyhuman needs by delivering products of varioustypes to buyers when and where they want themand at a reasonable cost.
The when and whereis the function ofDistribution
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What is a Distribution Channel?
A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
Marketing Channel decisions are among
the most important decisions that
management faces and will directly
affect every other marketing decision.
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Why are Marketing Intermediaries
Used?
The use of intermediaries results from theirgreater efficiency in making goods available totarget markets.
Offer the firm more than it can achieve on itsown through the intermediaries: Contacts,
Experience,
Specialization,
Scale of operation.
Purpose: match supply from producers todemand from consumers.
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Distribution
PR
ODUCER
CO
NSUM
ER
DISTRIBUTION
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Distribution Channel Functions
Ordering
Payments
CommunicationTransfer
Negotiation
FinancingRisk Taking
PhysicalDistribution
Information
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Typical Channels of Distribution
ANUFACTURER ONSUMER
HOLESALER
ETAILER
GENT
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Business-to-Business Channels
Direct
Wholesaler
Agent
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Business-to-Business Channel Trends
Infomediaries & Vertical Exchange
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Conventional Distribution Channel vs.
Vertical Marketing Systems
Verticalmarketingchannel
Manufacturer
Retailer
Conventionalmarketingchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wholesaler
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Types of Vertical Marketing SystemsCorporate
Common Ownership at DifferentLevels of the Channel
ContractualContractual Agreement Among
Channel Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
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Vertical Marketing Systems
Corporate systems - total ownership
Administered - strong leadership
Contractual - legal relationships
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Planning the Channel of
Distribution Determining the structure
Marketing mix strategy
Organizational resources
External environmental factors Market characteristics
Consumer preferences and behavior
The nature and availability of Intermediaries
Other environmental factors
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Customers Desired Service
Levels Lot size
Waiting time
Spatial convenience
Product variety
Service backup
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Steps in Distribution Planning
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Intensive
Distribution
Exclusive
Distribution
Selective
Distribution
Distribution
Intensity
Choosing a Distribution System
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Intensive Distribution
Seeks to obtain
maximum product
exposure at the
retail level
Producer
Retailer RetailerRetailer
Retailer
Retailer Retailer
Retailer
Retailer
Retailer Retailer Retailer
Retailer
Retailer Retailer Retailer
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Selective Distribution
Product is sold
in a limited
number ofoutlets
Producer
Retailer RetailerRetailer
Retailer Retailer Retailer
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Product is sold inonly one outlet in
a given area
Producer
Retailer
Exclusive Distribution
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Developing Distribution Tactics
Selecting Channel Partners
Reward orCoercive
Power
LegitimatePower
EconomicPower
Managing the Channel of Distribution
Channel Leader Power
Distribution Channels & the Marketing Mix
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Materials HandlingMoving Products Into,
Within, and
Out of Warehouses
WarehousingNumber Needed
Where
What Type
InventoryControl
When to orderHow much to order
Order ProcessingReceived
ProcessedShipped
PhysicalDistributionFunctionsTransportation
Rail, Water, Trucks,Air, Pipeline,
Internet
Physical Distribution
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RailCost-effective for shipping bulk products,
piggy-back, fishyback, birdyback.
WaterLow cost for shipping bulky, low-value,
non perishable goods, slowest form.
TruckMost important carrier for consumer
goods, flexible.
AirHigh cost, ideal when speed is needed or
distant markets have to be reached
PipelineCarry petroleum based products,
very low cost, requires little energy.
Transportation Modes
InternetWeb sites have products available, used
especially for services.
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Channel Relationships
Cooperation
Conflict
Power Coercive
Expert
Legitimate
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Decision Making Framework
Prospects
of
Destructive
Conflict
Importance of threatened
channel in terms of current or
potential volume or profitability
High Low
High (FIRE) Act to avert or address
conflict
Allow threatened
channel to
decline
Low(Smoke) Look for opportunitiesto reassure threatened
channel and leverage
your power
Do nothing
Ch l C fli t Id tif i
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Channel Conflict: Identifying
Threats
First, are the channels really attempting toserve the same end users?
Second, do channels mistakenly believe
they are competing when in fact they are
benefiting from each other's actions? Third, is the deteriorating profitability of a
griping player genuinely the result of
another channel's encroachment?
Fourth, will a channel's decline
necessarily harm a manufacturer's
profits?
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Managing Channel Conflict
WHEN TWO OR MORE CHANNELS
TARGET THE SAME CUSTOMER
SEGMENT
Differentiate the Channel offer
Define Exclusive Territories
Enhance or Change the ChannelsValue
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Managing Channel Conflict
CHANNEL ECONOMICS DETERIORATE Change the channels economic formula:(Grant rebates if an intermediary fulfill certainrequirements; Adjust margins between productsto support different channel economics; and
Treat channels fairly to create level playing field) Create Segment Specific Programs (certain
services not available via direct channels)
Complement value proposition of the existingchannel by introducing a new channel
Foster consolidation among intermediaries in adeclining channel
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Managing Channel Conflict
THREATENED CHANNEL STOP
PERFORMING OR RETALIATE AGAINST
THE SUPPLIER
Leverage Power (eg. Strong Brand) againstthe channel to prevent retaliation
Migrate volume to winning channel
Back off
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Other Distribution Management
Issues Reverse distribution
One Coca ColaDistributor
One thousandretailers
OK
Difficult
Ethical, Political, &
Legal