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Distribution Channels

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									Advantages of intermediaries:  Efficiency of distr costs  Intermediaries are specialists in selling  They have contacts and experience and scale of operation. Ex: Coke in India with Parle used a tie up.
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©2000 Prentice Hall

Functions of Channel
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Information- gathering market research Promotion- developing and spreading communication Contact- finding prospects Matching- adjust a offer to a buyers needs Negotiation- reach an agreement on price Physical Distribution- transport and distribution of goods Financing- acquire and use funds to cover the costs of the distribution channel. Risk Taking- assuming some commercial risks

©2000 Prentice Hall

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Direct marketing- no intermediary ex DELL Indirect marketing- involves one or more intermediary levels ex retailer, distributor etc (See text for other details) More intermediaries may mean more market coverage. With each level there will be exponential growth.

©2000 Prentice Hall

Dist Channel Strategy
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Market Factors Buyer behavior- do they prefer to buy from retailers or directly.  Buyer needs- for product information and service.  Intermediary cost- “mark up or commission” for participating in the channel.

©2000 Prentice Hall

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Producer factors Whether the producer has the systems to perform the functions needed  Customer based skills to dist the prods.  Extent to which producers want to maintain control over how, to whom and at what price a product is sold. Direct dist gives producer a much better control over these issues.  (nowadays companies are shifting to company owned stores as intermediaries only push products which have higher margins).

©2000 Prentice Hall

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Product factors Large complex products are often supplied directly as well as perishable products are directly sold unless there are possibilities of having cold chains.  Higher priced goods are also sold directly to the consumers: ex Diamonds, aircrafts

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Distribution intensity  Intensive dist- aims to provide saturation coverage of the market using all available channels.  Selective dist- limited number of outlets in a geographical area. A advantage of this approach is that the producer can choose the most appropriate or the best performing outlets.  Exclusive Dist- only one wholesaler, retailer etc handles a particular area.

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3 types of products:  Convenience- EASE ex; salt, soap  Shopping- Information and Evaluation. Ex- cloth, shoe, TV  Specialty- Bought on basis of BRAND- Ex; tag, BMW, Yves St Laurent,

©2000 Prentice Hall

HLL Case Study
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Key strength that helps them to reahc products across the length and breadth of the country. Ensures availability of all products in all outlets at all times maintains favorable trade relations, innovative incentives and organizes demand generation activities. At present HLL products are manufacured by outsiders and markets it thru 7000 redistributin stockists and 1 million retail outlets. HLL is also creating a relationship with the msall but fast emerging modern trade. An IT powered system has been creatred to supply stocks to the redistributiin stockists on a continuous replenishment basis. Stockists has been connected to company thro a backbone and they form the supply chain. Unshackles the field force and focus on secondary sales. Increase the retailers.

©2000 Prentice Hall

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Challenge of rural markets  Indirect coverage- company vans replaced by those of distribution stockists  Operation harvest- reach of conventional media and therefore awareness of different products  Cinema van operations  Single dist channel  Operation shakti- the rural women help in the selling of HLL’s products.

©2000 Prentice Hall

Objectives
Work Performed by Marketing Channels  Channel-Design Decisions  Channel-Management Decisions  Channel Dynamics
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How a Distributor Reduces the Number of Channel Transactions

1 2 3

4 5 6
7 8 9

A. Number of contacts without a distributor MxC=3X3=9

= Manufacturer
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= Customer

How a Distributor Reduces the Number of Channel Transactions

1 4

B. Number of contacts with a distributor MxC=3+3=6

Store
2 5

3
= Manufacturer
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6

= Customer

= Distributor

Distribution Channel Functions
Information

Transfer
Payments Physical Distribution Risk Taking
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Communication Negotiation

Ordering Financing

Consumer Marketing Channels

0-level channel Manufacturer 1-level channel Manufacturer 2-level channel Mfg Retailer Consumer

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Consumer

 Wholesaler  Wholesaler
Jobber

Retailer

Consumer

3-level channel Mfg

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Retailer

Consumer

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Industrial Marketing Channels

Manufacturer

Industrial distributors

Manufacturer’s representative Manufacturer’s sales branch

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Consumer

Customers’ Desired Service Levels
Lot size  Waiting time  Spatial convenience  Product variety  Service backup
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Break-Even Cost Chart
Manufacturer’s sales agency Company sales force

Selling costs (dollars)

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SB Level of sales (dollars)

Channel Management Decisions

Selecting Training Motivating
Evaluating
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FEEDBACK

Types of Vertical Marketing Systems
Corporate
Common Ownership at Different Levels of the Channel

Administered
Leadership is Assumed by One or a Few Dominant Members

Contractual
Contractual Agreement Among Channel Members
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Conventional Distribution Channel vs. Vertical Marketing Systems
Conventional marketing channel Manufacturer Vertical marketing channel Manufacturer Wholesaler

Wholesaler

Retailer

Retailer

Consumer Consumer
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Causes of Channel Conflict
Incompatibility  Difference in Perception  Dependence
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Legal & Ethical Issues in Channel Relations
Exclusive Dealing  Exclusive Territories  Tying Agreements  Dealers’ Rights
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Review
Work Performed by Marketing Channels  Channel-Design Decisions  Channel-Management Decisions  Channel Dynamics
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©2000 Prentice Hall


								
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