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DISTRIBUTION

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What is a DistributionChannel?

Set of interdependentorganizations involved in the

process of making a product or

service available for use orconsumption by the consumer or

business user.


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Why are MarketingIntermediaries Used?

The use of intermediaries results from theirgreater efficiency in making goods

available to target markets. Offers the firm more than it can achieve onits own through the intermediaries: Contacts,

Experience, Specialization,

Scale of operation.

Purpose: match supply from producers to

demand from consumers.


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A Distributor Reduces the Number ofChannel Transactions

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Distribution Channel

Functions

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Contact

Financing

InformationRisk Taking

Promotion

MatchingNegotiation

PhysicalDistribution

These Functions Should be Assigned to theChannel Member Who Can Perform Them Most

Efficiently and Effectively.


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Channel Behavior &

Organization The channel will be most effective when:

each member is assigned tasks it can do best.

all members cooperate to attain overall channelgoals and satisfy the target market.

When this doesnt happen, conflict occurs: Horizontal Conflict occurs among firms at the

same level of the channel, i.e retailer to retailer.

Vertical Conflict occurs between different levelsof the same channel, i.e. wholesaler to retailer.

Each channel members role must bespecified and conflict must be managed.

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Conventional Distribution

Channel Vs. a Vertical MarketingSystem

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Types of Vertical MarketingSystems

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Corporate VMSCommon Ownership at DifferentLevels of the Channel i.e. Sears

Contractual VMSContractual Agreements Among

Channel Members i.e Western Auto

Administered VMSLeadership is Assumed by One or

a Few Dominant Members i.e. Kraft

Degreeof Direct

Control


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Types of Vertical MarketingSystems

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ContractualVMS

RetailerCooperatives

Franchise

Organizations

Wholesaler Sponsored

Voluntary Chain

Service-Firm-Sponsored Retailer

Franchise System

Manufacturer-Sponsored Wholesaler

Franchise System

Manufacturer-Sponsored Retailer

Franchise System

CorporateVMS

AdministeredVMS

Vertical MarketingSystems (VMS)


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Innovations in MarketingSystems

Horizontal MarketingSystem

Two or More Companies atOne Channel Level Join

Together to Follow aNew MarketingOpportunity.

Example:Banks in Grocery Stores

Hybrid MarketingSystem

A Single Firm Sets UpTwo or More

Marketing Channelsto Reach One or More

Customer

Segments.

Example:

Retailers, Catalogs,and Sales Force

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Hybrid Marketing Channel

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Changing ChannelOrganization

. A Major Trend is Toward

Disintermediation Which Means thatProduct and Service Producers areBypassing Intermediaries and GoingDirectly to Final Buyers or That NewTypes of Channel Intermediaries are

Emerging to Displace Traditional Ones

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Channel Design Decisions

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Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Responsibilities of

Intermediaries

Number of

Intermediaries

Types of

Intermediaries

Identifying Major Alternatives

Evaluating the Major Alternatives

Designing International Distribution Channels


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Number of MarketingIntermediaries

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Intensive

Distribution

Selective

Distribution

ExclusiveDistribution


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Channel Management

Decisions

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Selecting Channel Members

Motivating Channel Members

Evaluating Channel Members

F

EEDBACK


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Marketing Logistics and Supply

Chain Management Involves getting the right product to

the right customers in the right placeat the right time.

Marketing logistics addresses:

Outbound distribution,

Inbound distribution,

Reverse distribution,

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Supply Chain Management

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Goals of the LogisticsSystem

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Lower DistributionCosts;

Lower CustomerService Levels

Higher DistributionCosts;

Higher CustomerService Levels

Goal:

To Provide a Targeted Level of Customer Service

at the Least Cost.


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Major Logistics Functions

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InventoryWhen to order

How much to order

Just-in-time

InventoryWhen to order

How much to orderJust-in-time

CostsMinimize Costs ofAttaining Logistics

Objectives

CostsMinimize Costs ofAttaining Logistics

Objectives

WarehousingStorage

DistributionAutomated

WarehousingStorage

DistributionAutomated

Order ProcessingReceivedProcessed

Shipped

Order ProcessingReceivedProcessed

Shipped

Logistics

FunctionsTransportation

Rail, Truck,

Water,Pipeline, Air,

Intermodal


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Transportation Modes

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RailNations largest carrier, cost-effectivefor shipping bulk products, piggyback

RailNations largest carrier, cost-effectivefor shipping bulk products, piggyback

Truck

Flexible in routing & time schedules, efficientfor short-hauls of high value goods

Truck

Flexible in routing & time schedules, efficientfor short-hauls of high value goodsWater

Low cost for shipping bulky, low-value,non-perishable goods, slowest form

WaterLow cost for shipping bulky, low-value,

non-perishable goods, slowest form

PipelineShip petroleum, natural gas, and chemicalsfrom sources to markets

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

AirHigh cost, ideal when speed is needed or

distance markets have to be reached


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Integrated Logistics

Management Concept Recognizes that Providing Better

Customer Service and TrimmingDistribution Costs Requires TeamworkTeamwork,Both Inside the Company and Among Allthe Marketing Channel Organizations.

Involves:

Cross-functional teamwork inside the company Building channel partnerships

Third-party logistics

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Kotler on

Marketing

Establish

channels fordifferent targetmarkets and aimfor efficiency,control, andadaptability.

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What is a Value Network and

Marketing-Channel System? Go-to-market or hybridchannels

IBMs sales force sells to large accounts, outbound

telemarketing sells to medium-sized accounts,direct mail sells to small accounts, retailers sell tostill smaller accounts, and the Internet to sellspecialty items

Charles Schwab enables its customers to do

transactions in branch offices, over the phone, orvia the Internet

Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000linked affiliated sites

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What is a Value Network and

Marketing-Channel System?

Channel integration characteristics:

Ability to order a product online, andpick it up at a convenient retail location

Ability to return an online-orderedproduct to a nearby store

Right to receive discounts based on

total of online and off-line purchases

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What Work is Performed byMarketing Channels?

Many producers lack the financialresources to carry out direct

marketing

In some cases direct marketingsimply is not feasible

Producers who do establish their own

channels can often earn a greaterreturn by increasing their investmentin their main business.

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Figure 17.1:

How aDistributorEffects an

Economy ofEffort

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Channel Functions and Flows

Key functions include:

Gather information about potential and currentcustomers, competitors, and others

Develop and disseminate persuasivecommunications to stimulate purchasing

Reach agreements on price and other terms so

that transfer of ownership or possession can beeffected

Place orders with manufacturers

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Acquire funds to finance inventories at differentlevels in the marketing channel

Assume risk connected with

carrying out channel work Provide for the successive storage

and movement of physical products

Provide for buyers payment of their bills throughbanks and other financial institutions

Oversee actual transfer of ownership from oneorganization or person to another

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Five Marketing Flows in the Marketing Channelfor Forklift Trucks

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Forward flow Backward flow

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Channel levels

Zero-level channel (a.k.a. direct-marketingchannel)

One-level channel Two-level channel

Three-level channel

Reverse-flow channel

Service Sector Channels Information Highway Channels

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Channel-Design Decisions

Push strategy

Pull strategy

Designing a channel systeminvolves four steps:

Analyzing customer needs

Establishing channel objectives

Identifying major channel alternatives Evaluating major channel alternatives

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Analyze Customers DesiredService Output Levels

Lot size Waiting time

Spatial convenience

Product variety

Service backup

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Establish Objectives and Constraints

Identify Major Channel Alternatives

Types of Intermediaries

Number of Intermediaries

Exclusive distribution Exclusive dealing

Selective distribution

Intensive distribution

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Terms and Responsibilities ofChannel Members

Price policy

Conditions of sale

Distributors territorial rights

Evaluate the Major Alternatives

Economic Criteria

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The Value-Adds versus Costs of Different Channels

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Channel-ManagementDecisions

Selecting Channel Members

Training Channel Members

Motivating Channel Members Producers can use:

Coercive power

Reward power Legitimate power

Expert power

Referent power

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Ch l


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Channel-ManagementDecisions

Distribution programming

Distributor-relations planning

Evaluating Channel Members

Modifying Channel

Arrangements

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Channel Dynamics

Vertical Marketing Systems Conventional marketing channel

Vertical marketing systems (VMS) Corporate and Administered VMS

Corporate VMS

Administered VMS

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Channel Dynamics

Contractual VMS

Wholesaler-sponsored voluntary chains

Retailer cooperatives

Franchise organizations Manufacturer-sponsored retailer franchise

Manufacturer-sponsored wholesaler franchise

Service-firm-sponsored retailer franchise

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Channel Dynamics

The New Competition in Retailing

Horizontal Marketing Systems

Multichannel Marketing Systems

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Channel Dynamics

Roles of Individual Firms

Insiders

Strivers

Complementers

Transients

Outside innovators

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Channel Dynamics

Conflict, Cooperation, and Competition

Types of Conflict and Competition

Vertical channel conflict

Horizontal channel conflict

Multichannel conflict

Causes of Channel Conflict

Goal incompatibility

Unclear roles and rights

Differences in perception

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Channel Dynamics

By adding new channels, a companyfaces the possibility of channelconflict whichmay include:

Conflict between the national accountmanagers and field sales force

Conflict between the field salesforce and the telemarketers

Conflict between the field salesforce and the dealers

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Channel Dynamics

Managing Channel Conflict Diplomacy

Mediation

Arbitration

Legal and Ethical Issuesin Channel Distribution

Exclusive distribution

Exclusive dealing

Tying agreements

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Chapter 12

Retailing and Wholesaling

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Road Map: Previewing the

Concepts Explain the roles of retailers and

wholesalers in the distribution channel.

Describe the major types of retailers andgive examples of each.

Identify the major types of wholesalers andgive examples of each.

Explain the marketing decisions facingretailers and wholesalers.

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What is Retailing?

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Includes

all the ActivitiesInvolved in SellingGoods or Services

Directly to FinalConsumers forTheir Personal,Nonbusiness Use.


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Retailing Retailing can be donein stores (storeretailing) or out of a

store (nonstoreretailing) such as:

Direct mail,

Catalogs,

Telephone, Home shopping shows,

Internet.

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Classification of Retailing

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Amount of ServiceSelf-Service, Limited-Service and

Full-Service Retailer

Amount of ServiceSelf-Service, Limited-Service and

Full-Service Retailer

Product LineLength and Breadth of the Product

Assortment

Product LineLength and Breadth of the Product

Assortment

Relative Prices

Pricing Structure that is Usedby the Retailer

Relative Prices

Pricing Structure that is Usedby the Retailer

Retail OrganizationsIndependent, Corporate, or

Contractual

Ownership Organization

Cl ifi ti f R t ili


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Classification of Retailing:Amount of Service

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Self-ServiceSelf-ServiceRetailersRetailers

Provide Few or NoServices toShoppers

i.e. Best Buy

Limited-ServiceLimited-ServiceRetailersRetailers

Provide Only a LimitedNumber of Services

to Shoppersi.e. SearsFull-ServiceFull-Service

RetailersRetailers

Retailers that Provide aFull Range of Services

to Shoppersi.e. Wal Mart

Classification of Retailing


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Classification of Retailing:Product Line (Tab. 12-1)

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Specialty Stores

Department Stores

Supermarkets

Convenience Stores

Superstores

Discount Stores

Narrow Product Line, DeepAssortment i.e. The Limited or

Athletes FootWide Variety of Product Lines i.e.Clothing, Home Furnishings i.e. Saks

Fifth AvenueWide Variety of Food, Laundry, &Household Products i.e. Kroger

Limited Line of High-TurnoverConvenience Goods i.e. 7-Eleven

Large Assortment of RoutinelyPurchased Food, Nonfood Products i.e.TargetStandard Merchandise at Lower Prices

i.e. Wal-Mart

Off-Price Retailers Changing Collection of Higher-QualityGoods at a Reduced Price i.e. T.J.

Maxx

Store Description

Cl ifi ti f R t ili


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Classification of Retailing:Retail Organization

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Voluntary

Chain

Franchise

Organizations

RetailerCooperatives

MerchandisingConglomerates

CorporateChain


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Retailer Marketing Decisions

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Product Assortment and


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Product Assortment andServices Decisions

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Product AssortmentBrand of Merchandise Merchandising Events

Product DifferentiationStrategies

Services MixKey Tool of Nonprice

Competition

for Setting One Store ApartFrom

AnotherStores AtmospherePhysical Layout Feel That Suits the Target

Marketand Moves Customers to Bu

Retailers Price Promotion and


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Retailers Price, Promotion, andPlace Decisions

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PriceDecisions

TargetMarket,Product &Service

Assortment,

Competition

PlaceDecisions

ShoppingCenters, Central

BusinessDistricts, Power

Centers, orOnline

Shopping

PromotionDecisions

UsingAdvertising,

PersonalSelling, SalesPromotion,

PublicRelations, &

DirectMarketing to

ReachCustomers


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Mall of America The Mall of Americamegamall contains morethan:

520 specialty stores,

49 restaurants, 7-acre indoor theme

park,

Underwater Worldfeaturing hundreds ofmarine specimens,

And a two-storyminiature golf course.

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The Future of Retailing

New Retail Formsand ShorteningRetail Life-Cycles

Growth of NonstoreRetailing

Increasing IntertypeCompetition

Rise of theMegaretailers

GrowingImportance ofRetail Technology

Global Expansionof Major Retailers

Retail Stores asCommunities or

Hangouts

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Why are Wholesalers Used?

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WholesalerFunctions

Management

Services & Advice Selling & Promoting

MarketInformation

Buying &Assortment Building

Risk Bearing Bulk-Breaking

Transportation

Financing Warehousing

Wholesalers are Often Better at Performing One orMore of the Following Channel Functions:


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Types of Wholesalers

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Manufacturers Sales

Branches and OfficesWholesaling by Sellers orBuyers ThemselvesRather Than Through

IndependentWholesalers.

Merchant WholesalerIndependently Owned

Business that Takes Title tothe

Merchandise it Handles.

Agents & Brokers

They Dont Take Titleto

the Goods, and TheyPerform Only a Few

Functions.


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Wholesaler Marketing

Decisions

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Trends in Wholesaling

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Must Constantly Improve Their Services and Reduce Cost

Distinction Between Large Retailers and Wholesalers Blu

Wholesalers Will Continue to Increase the Services Provi

Wholesalers Are Beginning to Go Global


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Retailing

Types of Retailers

Retail life cycle

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Major Retailer Types

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Specialty Store: Narrow product line with a deep assortment. A clothingstore would be a single-line store; a mens clothing store would be alimited-line store; and a mens custom-shirt store would be asuperspecialtystore. Examples: Athletes Foot, Tall Men, The Limited, TheBody Shop.

Department Store: Several product linestypically clothing, homefurnishings, and household goodswith each line operated as a separatedepartment managed by specialist buyers or merchandisers. Examples:Sears, JCPenney, Nordstrom, Bloomingdales.

Supermarket: Relatively large, low-cost, low-margin, high volume, self-service operation designed to serve total needs for food, laundry, and

household products. Examples: Kroger, Food Emporium, Jewel.Convenience Store: Relatively small store located near residential area,open long hours, seven days a week, and carrying a limited line of high-turnover convenience products at slightly higher prices, plus takeoutsandwiches, coffee, soft drinks. Examples: 7-Eleven, Circle K.


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Retailing

Levels of Service

Wheel-of-retailing

Four levels of service: Self-service

Self-selection

Limited service

Full service

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RetailPositioning

Map

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Retailing

Nonstore retailing

Categories of nonstore retailing Direct selling

Direct marketing

Telemarketing

Television direct-response marketing

Electronic shopping

Automatic vending

Buying service

Corporate Retailing

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Major Types of Retail Organizations

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Corporate Chain Store: Two or more outlets commonly owned andcontrolled, employing central buying and merchandising, and sellingsimilar lines of merchandise. Their size allows them to buy in largequantities at lower prices, and they can afford to hire corporatespecialists to deal with pricing, promotion, merchandising, inventorycontrol, and sales forecasting. Examples: Tower Records, GAP, PotteryBarn.

Voluntary Chain: A wholesaler-sponsored group of independent retailersengaged in bulk buying and common merchandising. Examples:Independent Grovers Alliance (IGA), True Value Hardware.

Retailer Cooperative: Independent retailers who set up a central buying

organization and conduct joint promotion efforts. Examples: AssociatedGrocers, ACE Hardware.

Consumer Cooperative: A retail firm owned by its customers. In consumercoops residents contribute money to open their own store, vote on itspolicies, elect a group to manage it, and receive patronage dividends.


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Retailing

Marketing Decisions

Target Market

Product Assortment andProcurement

Breadth

Depth

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Retailing

Product-differentiation Strategy Possibilities

Feature exclusive national brands that are not availableat competing retailers

Feature mostly private branded merchandise

Feature blockbuster distinctive merchandise events

Feature surprise or ever-changing merchandise

Feature the latest or newest merchandise first

Offer merchandise customizing services

Offer a highly targeted assortment

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Retailing

Merchandise managers Direct product profitability (DPP)

Services and Store Atmosphere Prepurchase services include accepting

telephone and mail orders, etc. Postpurchase services include shipping

and delivery, etc. Ancillary services include general

information, check cashing, parking, etc.

Price Decision High-markup, lower volume Low-markup, high volume

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Retailing

Promotion Decision

Place Decision

General business districts

Regional shopping centers

Community centers

Strip malls (a.k.a. shopping strips)

A location within a larger store

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Retailing

Trends in Retailing1. New retail forms and combinations

2. Growth of intertype competition

3. Growth of giant retailers4. Growing investment in technology

5. Global presence of major retailers

6. Selling an experience, not just goods7. Competition between store-based

and non-store-based retailing

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Wholesaling Wholesalers functions:

Selling and promoting

Buying and assortment building

Bulk breaking

Warehousing

Transportation

Financing

Risk bearing

Market information

Management services and counseling

The Growth and Types of Wholesaling

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Major Wholesaler Types

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Merchant Wholesalers: Independently owned businesses that taketitle to the merchandise they handle. They are called jobbers,distributors, ormill supply houses and fall into two categories: fullservice and limited service.

Full-Service Wholesalers: Carry stock, maintain a sales force, offercredit, make deliveries, and provide management assistance.There are two types of full-service wholesalers: (1) Wholesalemerchants sell primarily to retailers and provide a full range ofservices. General-merchandise wholesalers carry severalmerchandise lines. General-line wholesalers carry one or twolines. Specialty wholesalers carry only part of a line. (2) Industrialdistributors sell to manufacturers rather than to retailers andprovide several servicescarrying stock, offering credit, andproviding delivery.

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Wholesaling

Wholesaler Marketing Decisions

Target Market

Product Assortment and Services Price Decision

Promotion Decision

Place Decision

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Wholesaling

Trends in Wholesaling Narus and Anderson identified four ways

to strengthen relationships withmanufacturers

Sought clear agreement about their expectedfunction in the marketing channel

Gained insight into the manufacturersrequirements by visiting their plants

Fulfilled commitments bymeeting volume targets

Identified and offered value-addedservices to help their suppliers

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Market Logistics Supply chain management (SCM)

Value network Demand chain planning

Market logistics

Market logistics planning has four steps:

Deciding on the companys valueproposition to its customers

Deciding on the best channel design andnetwork strategy for reaching the customers

Developing operational excellence in salesforecasting, warehouse management,

transportation management, and materialsmanagement

Implementing the solution with the bestinformation systems, equipment, policies, andprocedures

Integrated logistics systems (ILS) 11-81

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Market Logistics

Market-logistics Objectives

Market-logistics Decisions

Order Processing Order-to-payment cycle

Warehousing

Storage warehouses

Distribution warehouses

Automated warehouses

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Market Logistics

Inventory

Inventory cost increases at an

accelerating rate as the customer servicelevel approaches 100%

Order (reorder) point

Order-processing costs

Inventory-carrying costs

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Determining Optimal Order Quantity


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g p y

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Market Logistics

Just-In-Time production (JIT)

Transportation

Containerization Piggyback

Fishyback

Trainship

Airtruck

Private carrier

Contract carrier

Common carrier

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Market Logistics

Organizational Lessons

Companies should appoint a senior vicepresident of logistics to be the single

point of contact for all logistical elements The senior vice president of logistics

should hold periodic meetings with salesand operations people to reviewinventory, etc.

New software and systems are the key toachieving competitively superior logisticsperformance in the future

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