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What is a Distribution Channel?
• Series of firms or individuals that facilitates the movement of a product from the producer to the final customer
– Direct
– Indirect
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Functions of Distribution Channels
• Time, place, and ownership utilities• Logistics functions • Transportation and storage functions• Efficiency creation• Facilitating functions• Repair and maintenance functions• Risk-taking • Communications and transaction functions
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Creating Efficiencies
• Breaking bulk - channel members purchase large quantities from manufacturers and sell smaller quantities to many different customers
• Creating assortments - channel members provide a variety of products on one location
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The Internet
• Even small firms with limited resources can enjoy competitive advantages by making products available to customers around the globe at a very low cost
• Disintermediation - process by which traditional intermediaries are eliminated as companies question the value added by layers in the distribution channel
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Types of Wholesaling Intermediaries
• Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user
– Independent
– Manufacturer-owned
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Independent Intermediaries
• Merchant wholesalers
– Full-service
– Limited-service
– Cash-and-carry wholesalers
– Truck jobbers
– Drop shippers
– Mail-order wholesalers
– Rack jobbers
• Merchandise Agents or Brokers– Manufacturers’
agents– Selling agents– Commission
merchants– Merchandise
brokers
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Manufacturer-Owned Intermediaries
• Sales branches
• Sales offices
• Manufacturers’ showrooms
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Types of Distribution Channels
• Consumer channels– Direct– Manufacturer-retailer-consumer– Manufacturer-wholesaler-retailer-consumer
• Business-to-business channels– Direct– Manufacturer-industrial distributor-business
customer
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Dual Distribution Systems
• Multiple channel usage
• Example:
– pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers
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Marketing Systems
• Conventional - multi-level distribution channel in which members work independently of one another
• Vertical - channel in which there is cooperation among channel members at two or more different levels of the channel
• Horizontal - two or more firms at the same channel level agree to work together
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Vertical Marketing Systems
• Administered - channel members remain independent but voluntarily work together
• Corporate - single firm owns manufacturing, wholesaling, and retailing operations
• Contractual - cooperation is enforced by contracts that spell out member rights and the terms of cooperation
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Contractual Vertical Marketing Systems
• Wholesaler-sponsored - wholesalers get retailers to work together under their leadership in a voluntary chain
• Retailer-cooperative - group of retailers with a wholesaling operation to help them compete more effectively with large chains
• Franchise organizations - cooperation is explicitly defined and strictly enforced by franchiser
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Distribution Intensity
Decision Factors:Company, Customers, Channels,
Constraints, and Competition
Intensive, Exclusive, or Selective Distribution
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Developing Distribution Tactics
• Selecting channel partners
• Managing the channel of distribution
– Channel leader is the dominant firm that controls the channel
– Channel leaders have some form of power relative to other members• economic power• legitimate power• reward or coercive power
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Logistics: Implementing the Value Chain
• Process of designing, managing, and improving the movement of products through the supply chain
– purchasing
– manufacturing
– storage
– transport
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Supply Chain Management
• The supply chain includes all the firms that engage in activities that are necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer
• Supply chain management is the management of flows among the firms in a supply chain to maximize total profitability
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Logistics and Customer Satisfaction
• Traditionally, logistics was thought of as physical distribution
– order processing, warehousing, materials handling, transportation, and inventory control
– objective to deliver product at lowest cost
• Now, customers’ goals become the logistics provider’s goals
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Logistics Functions
• Order processing
• Warehousing
• Materials handling
• Transportation
• Inventory Control
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Transportation Mode Considerations
• Dependability
• Cost
• Speed of Delivery
• Accessibility
• Capability
• Traceability