DISTRIBUTION

A set of independent organizations involved in the process of making a product or service available for use or consumption by the consumer or business users.

International distributionInternational distribution

A relationship marketing perspective: it is all A relationship marketing perspective: it is all about creating long-term relationships for about creating long-term relationships for building up competitive advantagebuilding up competitive advantage

Channels provide the means by which Channels provide the means by which the firm moves the goods and services it the firm moves the goods and services it produces to ultimate usersproduces to ultimate users– Facilitate the exchange process by cutting Facilitate the exchange process by cutting

the number of contacts necessarythe number of contacts necessary– Adjust for discrepancies in the market’s Adjust for discrepancies in the market’s

assortment of goods and services via sortingassortment of goods and services via sorting– Standardize exchange transactionsStandardize exchange transactions– Facilitate searches by both buyers and Facilitate searches by both buyers and

sellerssellers

The Role of Marketing Channels The Role of Marketing Channels in Marketing Strategyin Marketing Strategy

Types of Marketing ChannelsTypes of Marketing Channels Marketing channelMarketing channel: system of marketing : system of marketing

institutions that promotes the physical flow of institutions that promotes the physical flow of goods and services, along with ownership title, goods and services, along with ownership title, from producers to consumer or business user; from producers to consumer or business user; also called a distribution channelalso called a distribution channel

Marketing intermediaryMarketing intermediary: wholesaler or retailer : wholesaler or retailer that operates between producers and consumers that operates between producers and consumers or business users; also called a middleman or business users; also called a middleman

WholesalerWholesaler: marketing intermediary that takes : marketing intermediary that takes title to goods and then distributes these goods title to goods and then distributes these goods further; also called a jobber or distributorfurther; also called a jobber or distributor

Direct SellingDirect Selling

Types of Marketing ChannelsTypes of Marketing Channels– Consumer GoodsConsumer Goods

Types of Marketing ChannelsTypes of Marketing Channels– Business GoodsBusiness Goods– ServicesServices

Producer

Distributor

DealerRetailer

ConsumerSegment 1

ConsumerSegment 2

BusinessSegment 1

BusinessSegment 2

Catalog

Telephone

Internet

Sales

Force

Dual DistributionDual Distribution: Network that moves : Network that moves products to a firm’s target market through products to a firm’s target market through more than one marketing channelmore than one marketing channel

Reverse ChannelsReverse Channels: Channels : Channels designed to return goods to their designed to return goods to their producersproducers

Channel Strategy DecisionsChannel Strategy Decisions Selection of a Marketing ChannelSelection of a Marketing Channel Factors which impact the selection of a marketing channel include:Factors which impact the selection of a marketing channel include:

1- External Factor 1- External Factor

2- Internal Factor2- Internal Factor

External distribution factorsExternal distribution factors

Customer characteristicsCustomer characteristics

Product / service natureProduct / service nature

Nature of the demandNature of the demand

Level of competitionLevel of competition

Legal regulationsLegal regulations

Local business practicesLocal business practices

Internal decision factorsInternal decision factors

Types of intermediariesTypes of intermediaries

Desired market coverageDesired market coverage

Channel length (desired levels)Channel length (desired levels)

Control resourcesControl resources

Degree of integrationDegree of integration

Need for information and process sharingNeed for information and process sharing

Determining Distribution Determining Distribution IntensityIntensity– Distribution intensity: number of Distribution intensity: number of

intermediaries through which a intermediaries through which a manufacturer distributes its goodsmanufacturer distributes its goods

Intensive distributionIntensive distribution: channel policy : channel policy in which a manufacturer of a in which a manufacturer of a convenience product attempts to convenience product attempts to saturate the marketsaturate the market Intensive market coverageIntensive market coverage

M = ManufacturerW= WholesalerR = Retailer

Selective distributionSelective distribution: channel policy in : channel policy in which a firm chooses only a limited number which a firm chooses only a limited number of retailers to handle its product lineof retailers to handle its product line

Selective market coverageSelective market coverage

M = ManufacturerW= WholesalerR = Retailer

Exclusive distributionExclusive distribution: channel policy in which a : channel policy in which a firm grants exclusive rights to a single wholesaler or firm grants exclusive rights to a single wholesaler or

retailer to sell its products in a particular retailer to sell its products in a particular geographic areageographic area

Exclusive market coverageExclusive market coverage

M = ManufacturerW= WholesalerR = Retailer

FAHAD FAHAD UMERUMER

Legal problems of exclusive Legal problems of exclusive distributiondistribution– Exclusive-dealing agreementExclusive-dealing agreement: arrangement : arrangement

between manufacturer and e-marketing between manufacturer and e-marketing intermediary that prohibits the intermediary intermediary that prohibits the intermediary from handling competing product linesfrom handling competing product lines

– Closed sales territoriesClosed sales territories: exclusive : exclusive geographic selling region of a distributorgeographic selling region of a distributor

– Tying agreementTying agreement: Arrangement that : Arrangement that requires a marketing intermediary to carry requires a marketing intermediary to carry items other than those they want to sellitems other than those they want to sell

Channel Management and Channel Management and LeadershipLeadership

Channel CaptainChannel Captain: a dominant and : a dominant and controlling member of a marketing controlling member of a marketing channelchannel

Channel ConflictChannel Conflict– Horizontal ConflictHorizontal Conflict

Most often, horizontal conflict causes sparks Most often, horizontal conflict causes sparks between different types of marketing between different types of marketing intermediaries that handle similar productsintermediaries that handle similar products

Sometimes results from disagreements Sometimes results from disagreements among channel members at the same levelamong channel members at the same level

– Vertical ConflictVertical Conflict Channel members at different levels find Channel members at different levels find

many reasons for disputesmany reasons for disputes Example: when retailers develop private Example: when retailers develop private

brands to compete with producers’ brands brands to compete with producers’ brands or when producers establish their own retail or when producers establish their own retail outlets or WWW Sitesoutlets or WWW Sites

– The Gray MarketThe Gray Market Grey GoodGrey Good: product made abroad under : product made abroad under

license from a U.S. firm and then sold in the license from a U.S. firm and then sold in the U.S. market in competition with that firm’s U.S. market in competition with that firm’s own domestic outputown domestic output

Viewed by producers as undesired Viewed by producers as undesired competition competition

Physical DistributionPhysical Distribution

A company’s physical distribution A company’s physical distribution system contains the following system contains the following elements:elements:– Customer ServiceCustomer Service– TransportationTransportation– Inventory ControlInventory Control– Protective packaging and Protective packaging and

materials handlingmaterials handling– Order ProcessingOrder Processing– WarehousingWarehousing

– Allocation of Physical Distribution Allocation of Physical Distribution ExpendituresExpenditures

Functions performed by Functions performed by intermediariesintermediaries

Carrying of inventoryCarrying of inventory

Demand generationDemand generation

Physical distributionPhysical distribution

After-sales servicesAfter-sales services

Credit extension to customersCredit extension to customers

Information sharingInformation sharing

A typical export A typical export (distribution) procedure(distribution) procedure

Exporter Importer

Importer’s bank

2

Bank in exporter’s

country

34

Manufacturing

5

Secure transportand documentation

6 Ship7

Customs

Importwarehouse

9

8

1

• Channels Design (11 C’s)

- Customer Characteristics- Cultural Distribution

- Competition- Company objectives (for market share and profitability)- Character (nature of product, positioning of the product)

- Cost (cost incurred in maintaining the channel)- Coverage (intensive, selective, exclusive distributions)- Control (product/service presentations, quality, image)- Continuity

- Communication

- Capital (financial requirement)

• Sources for finding Intermediaries

- Govt. Agency

- Private Sources

• Criteria for Screening Intermediaries

- Performance- Professionalism

• Distributors agreement includes

- Contract duration

- Geographic boundaries- Compensation- Products and conditions of sale

- Communication between parties

MARKETING LOGISTICS & SUPPLY CHAIN MANAGEMENT

The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to point of consumption to meet customer requirements at a profit.

Supplier Company Reseller Customer

Inbound Logistics

Outbound Logistics

Reverse Logistics

MAJOR LOGISTICS FUNCTIONS

Warehousing

Inventory Management

Transportation (Inter modal transportation)

The Supply Chain of a Manufacturing Company The Supply Chain of a Manufacturing Company

Global Channel DesignGlobal Channel Design

Chosen Chosen intermediaries must intermediaries must meet criteriameet criteria

work closely with work closely with distributorsdistributors

build sustain brandbuild sustain brand avoid discountingavoid discounting ‘‘shops in shops’ shops in shops’

approach e.g approach e.g department storesdepartment stores

Nike’s ‘Do it yourself’Nike’s ‘Do it yourself’ 1970s independent 1970s independent

distributorsdistributors successful brand at successful brand at

homehome 1980s established 1980s established

own subsidiaries own subsidiaries overseasoverseas

Now controls most Now controls most subsidiariessubsidiaries

even bought some even bought some distributorsdistributors

Kodak’s own airfreight hubKodak’s own airfreight hub Minimise shipping Minimise shipping

errors and product errors and product handlinghandling

loaded onto trucks at loaded onto trucks at Rochester plantRochester plant

All paperwork is All paperwork is already completedalready completed

flight approval is flight approval is obtained before truck obtained before truck arrives at airport (JFK)arrives at airport (JFK)

WAQAR WAQAR HUSSAINHUSSAIN

CHANNEL DESIGN DECISION PROCESS

A- ANALYZING CONSUMER NEED

For maximum effectiveness channel analysis and decision making should be more purposeful.

• Do consumer want to buy from nearby location?• They willing to travel to more distant centralized locations? • Would they rather buy in person, over the phone, through mail or e-mail?• Do consumer want many add on services? etc.

B- SETTING CHANNEL OBJECTIVES

• Targeted level of customer services• Decide which segment to solve and the best channel to use in each case• Company wants to minimize the total channel cost of meeting customer services requirement• It also influenced by the nature of company, its products, its marketing intermediaries, its competitors (Perishable product requires direct marketing.)

C- IDENTIFY MAJOR ALTERNATIVES

TYPE OF INTERMEDIARIES

• Company sales force (Assign Territories to Sales Persons) • Manufacturer agencies (Hire manufacturer’s agents) • Industrial Distributor (Exclusive Distribution)

NUMBER OF MARKET INTERMEDIARIES

• Intensive Distribution (Coca Cola) • Exclusive Distribution (Outlets) • Selective Distribution (Use of more than one, but fewer than all)

RESPONSIBILITIES OF CHANNEL MEMBERS

• They should agree on price policies, condition of sale, territorial rights and specific services to be performed by each party. • Mutual services and duties need to be spelled out carefully especially in franchise and exclusive distribution channels.

D- EVALUATING MAJOR ALTERNATIVE

Each alternative should be evaluated as:

• Economic (Cost, Sales, Profitability)• Control (According to Situation) • Adaptive Criteria (Flexible, It can adopt to the environmental changes)

E- EVALUATING CHANNEL MEMBERS

• Regularly Check Channel Members performance against standards such as sales quota, average inventory level, customer delivery time, treatment of damage and lost good, cooperation in company promotion and training programmes and services of the customers.• Distributors are adding good value for customers.• Manufacturers need to be sensitive to their dealers.

CONVENTIONAL DISTRIBUTION CHANNEL

V/S VERTICAL MARKETING SYSTEM,

HORIZONTAL MARKETING SYSTEMCONVENTIONAL DISTRIBUTION CHANNEL

A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits.

VERTICAL MARKETING SYSTEM

A distribution channel structure in which producers, wholesalers, and retailers act as unified system. One channel member owns the others, has contract with them, or has so much power that they are cooperate.

TYPES OF VMS

Vertical marketing system that combines successive stages of production and distribution under a single ownership – channel leadership is established through common ownership.

CORPORATE VMS

CONTRACTUAL VMS

A vertical marketing system in which independent firms of different level of production and distribution joint together through contracts to obtain more economies or sales impact then they could achieve along such as Franchise.

ADMINISTERED VMS

A vertical marketing system that coordinates successive stages of production and distribution not through common ownership of contractual ties but through the size and power of one of the parties. Manufacturers of top brands can obtain strong trade cooperation and support from resellers.

Producer

Wholesaler

Retailer

Consumer

Consumer

Wholesaler

Retailer

Producer

Conventional Marketing Channel

Vertical Marketing Channel

HORIZONTAL MARKETING SYSTEM

A channel arrangement in which two or more companies at one level joint together to follow a new market opportunity. By working together companies can combine their financial, production or marketing resources to accomplish more than any one company could alone. e.g; Askari and Daewoo PSO & Pizza Hutt

CHANNEL LEVEL

A layer of intermediaries that perform some work in bringing the product and its ownership closer to the final buyer.

DIRECT MARKETING CHANNEL

A marketing channel that has no intermediary level.

IN-DIRECT MARKETING CHANNEL

A channel involving one or more intermediary level.

DIRECT MARKETING

STORE

ONE DISTRIBUTOR

CHANNEL MEMBERS

Producer

Consumer Consumer

Retailer

Producer Producer

Wholesaler

Retailer

Consumer

ZERO-LEVEL ONE-LEVEL SECOND-LEVEL

Direct

Marketing

In-Direct

Marketing

In-Direct

Marketing

HOW CHANNELS ARE CHOSEN

PRODUCTS• Perishable

• Grocery items

• Customized

CUSTOMER

• Need and expectation?

• Willing to go to buy the Product?

• How much quantity, they need?

MARKETS

Urban or rural