; Distribution
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									Distribution Channels

What? Why? How?
• Most producers do not sell their goods directly to final users • Between them stands a set of intermediaries performing a variety of functions
– These constitute a marketing channel

• Marketing channels are sets of interdependent firms involved in the process of making a product / service available for use or consumption

• Merchants
– Wholesalers, retailers – Who buy, take title to and resell merchandise

• Agents
– Brokers, representatives, sales agents – Who search for customers but do not take title to the goods

• Facilitators
– Transportation companies, warehouses, banks – Who assist in the distribution process neither take title to goods nor negotiate purchases or sales

Role of marketing channels
• Many producers lack the financial resources to carry out direct marketing
• Producers who do establish their own channels can often earn a greater return by increasing investment in their main business

• In some cases, direct marketing simply is not feasible

Marketing channels

Sets of interdependent organizations involved in the process of making a product or service available for use or consumption

Channels and marketing decisions

Push Strategy

Pull Strategy

Categories of buyers
Habitual shoppers
High value deal seekers Variety-loving shoppers

High-involvement shoppers

Increasing efficiency

Channel member functions
• Gather information • Develop and disseminate persuasive communications • Reach agreements on price and terms • Acquire funds to finance inventories • Assume risks • Provide for storage • Provide for buyers’ payment of their bills • Oversee actual transfer of ownership

Consumer marketing channels

Designing a marketing channel system
Analyze customer needs

Establish channel objectives Identify major channel alternatives Evaluate major channel alternatives

1. Analyze Customer Needs
• In designing the marketing channel, the marketer must understand the service output levels desired by target customers • Channels produce five service outputs:
– – – – – Lot size Waiting time Spatial convenience Product variety Service backup

2. Establish Objectives & Constraints
• Channel objectives vary with product characteristics
– Perishable products require more direct marketing – Bulky products require minimization of shipping distance and handling – Non-standard products viz., custom-built machinery are to be sold post detailed demos – Products requiring installation or maintenance services are usually sold and maintained by company or franchised dealers

3. Identifying channel alternatives
Types of intermediaries Number of intermediaries
Terms and responsibilities

Number of intermediaries

Exclusive Selective


4. Evaluating major alternatives
• Each channel alternative needs to be evaluated against key criteria • Economic criteria
– First step is to determine if a company sales force or a sales agency will produce more sales – Next step is to estimate cost of selling different volumes through each channel

• Control and adaptive criteria
– Ability to control internal source vs., external agents – Design structures/polices that provide high adaptability

Channel-management decisions
Selecting channel members

Training channel members
Motivating channel members

Evaluating channel members
Modifying channel members

Channel power
• Coercive

• Reward • Legitimate
• Expert • Referent

Managing channel conflict
• Adoption of superordinate goals

• Cooptation
• Diplomacy • Mediation • Arbitration

Channel conflicts
• Channel conflict is generated when a channel member’s actions prevent the channel from achieving its goal
– Vertical channel conflict – Horizontal channel conflict – Multi-channel conflict

• Imperative to identify causes of conflict
– – – – Goal incompatibility Unclear roles and rights Differences in perception Dependence on the manufacturer

Marketing channels must not just serve markets, they must also make markets!

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