Distribution & Channel Management

Distribution ?

Once products are produced and priced, they must be distributed to the marketplace. All organizations perform a distribution function. The distribution function is vital to the economic well-being of society because it provides the goods and services desired by the consumer. Economists often describe the value of distribution in terms of ownership, place, and time utility. The marketer contributes to the product's value by getting it to the right place at the time the consumer wants to buy it and by providing the mechanism for transferring ownership. Firms that do not perform the distribution function effectively usually fail.

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Distribution ?
Distribution also provides employment opportunities. Salespeople, warehouse managers, truck drivers, stevedores, and forklift operators are all involved in distribution. Most people involved in distribution are classified as service personnel: Their role is to provide service to some other sector of the economy. Two major components of an organization's distribution strategy are: Distribution Channels and Physical Distribution. Distribution channels are the paths that goodsand title to themfollow from producer to consumer. They are the means by which all organizations distribute the goods and services they are producing and marketing.

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Distribution ?
Physical Distribution is the second major component of distribution strategy, physical distribution, is the actual movement of goods and services from the producer to the user. Physical distribution covers a broad range of activities. These tasks include customer service, transportation, inventory control, materials handling, order processing, and warehousing.

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Distribution Channels

Distribution channels are composed of marketing intermediaries, the persons or firms that operate between the producer and the consumer or industrial user. The two main categories of marketing intermediaries are wholesalers and retailers.

Wholesaling intermediaries

Channel members selling primarily to retailers, other wholesalers, or industrial users.

Channel members selling goods and services to individuals for their own use rather than for resale.

Retailer intermediaries

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Distribution Channels

The Functions of Marketing Intermediaries Marketing intermediaries perform various functions that assist in the operation of the distribution channel LIKE buying, selling, storing, and transporting. Some intermediaries also sort and grade bulk products. Wholesalers of fresh products, for example, receive bulk shipments of fruits and vegetables from growers; sort the produce according to a standardized grade, size, color. And then repack it in smaller quantities for their customers, grocery stores, and restaurants. Intermediaries often provide other channel members with important marketing information. Many wholesalers and retailers use scanners and computer technology to measure the movement of producers' goods.

Major Marketing Channels

Hundreds of channels are used to distribute the output of U.S. production, processing, manufacturing and service industries. Canned food products usually pass through wholesalers and retailers to reach the consumer. Vacuum cleaners are sold directly to the consumer.

Channel selection depends on the circumstances of the market and on consumer needs.
Channels for reaching the consumer may vary over time.. Channels shift, and effective marketers must be aware of consumer needs so they can keep their distribution methods up to date

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Major Marketing Channels

Channels to Consumer Products
Producer to Consumer. A direct channel from producer to consumer is used for most services but relatively few products. An artist who sells their creations at an art show is an example of this distribution channel..

Producer to Retailer to Consumer.

Some food processors and manufacturers distribute their products directly to retailers. The apparel industry has many producers that sell directly to retailers through their own sales forces. Some manufacturers set up retail outlets in order to maintain better control over their channels.

Major Marketing Channels

Producer to Wholesaler to Retailer to Consumer.
The traditional channel for consumer goods, distribution to wholesalers, is used by thousands of small manufacturers that cannot afford to maintain an extensive field sales force to reach the retailing sector. Some of these manufacturers employ technical advisors to assist retailers and to secure marketing information, but they are not directly involved in the selling effort.

Producer to Wholesaler to Wholesaler to Retailer to Consumer.

Several wholesalers are common in the distribution of agricultural (canned and frozen foods and cotton) and petroleum products (gasoline). An extra wholesaling level is required to divide, sort, and distribute bulky items.

Major Marketing Channels

Producer to Industrial User.
The direct channel from producer to user is the most common approach to distributing industrial goods and services. FMC corporation selling convey ring equipment to a factory. This channel is used for nearly all industrial products except accessory equipment and operating supplies.

Producer to Wholesaler to Industrial User.

The indirect channel from producer to wholesaler to user is used for some industrial items. It is also used for small accessory equipment and operating supplies that are produced in large lots but sold in small quantities. John Deere, Ford and Case tractors sell to wholesalers who in turn sell to industrial users.

Consumer Marketing Channels

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Business Marketing Channels

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Multichannel Distribution System

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How Channel Members Add Value ?

Selecting A Distribution ChannelFactors ?

Market Factors Product Factors Producer Factors Competitive Factors

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Selecting a Distribution Channel

Several factors - the market, the product, the producer, the
competition. These factors are often interrelated.

Market Factors The most important consideration in choosing a

distribution channel is that market segment the producer wants to reach. Changes in consumer buying behavior may influence a channel decision. For example, an increasing number of service firms are satisfying consumers' desire for convenience by providing Home delivery Diet-conscious shoppers can choose low-calorie Microwavable meals sold at the supermarket. But Doorstep Diets in San Diego offers the ultimate in convenience by delivering fresh, low-calorie meals directly to homes and offices

Selecting a Distribution Channel

Product Factors

In general, products that are complex, expensive, custom-made and perishable move through shorter distribution channels. Boeing sells its 747 jet aircraft directly to British Airways and other commercial airlines. Each of the $100 million aircraft brings in about $25 million in gross profits. Inexpensive and standardized products are typically sold through longer channels.

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Selecting a Distribution Channel

Producer Factor
Producers that offer a broad product line and have the financial and marketing resources to distribute and promote their products are more likely to use a shorter channel of distribution. American Greetings Corporation, for example, bypasses wholesaling intermediaries and sells directly to some 90,000 retail outlets worldwide. American Greetings produces 6 million greeting cards each day while also marketing gift wrap and ribbon, party goods, candles, stationery, calendars, and gift items. The company has the financial resources to conduct marketing research studies and to maintain its own network of distribution centers. In addition to a large sales force, American Greetings employs 12,000 part-time merchandisers who service retail customers on a weekly basis.

Selecting a Distribution Channel

Competitive Factors - In choosing a distribution channel, producers must consider how well an intermediary performs the marketing functions. A producer may become less competitive when an intermediary fails to adequately promote the firm's products. Campbell Soup Company revised its distribution channel in Japan for its Pepperidge Farm cookies because it was dissatisfied with the marketing efforts of its Japanese importer and local distributors. Cookie sales were low because the Japanese distributors did not aggressively seek new retail outlets or adequately promote the cookies. Even worse, the cookies suffered from a poor image.

Consumers complained that the cookies were often stale, a problem resulting from products being stored too long in warehouses.
To increase the sales of its cookies, they shortened the channel by selling their cookies directly to a retailer.
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Selecting a Distribution Channel

Competitive Factors
7-Eleven Japan, which operates 3,300 outlets in Japan. The new channel not only gives Pepperidge Farm wider exposure, but it also speeds up product delivery so Japanese consumers are assured of buying fresh cookies.

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Distribution Channel
Vertical Marketing Systems In some instances, the efficiency of the distribution channel is disrupted because of conflicts among channel members. Conflict can occur between manufacturers and wholesaling intermediaries, such as the problems Campbell Soup had with Japanese distributors.

Conflicts also develop between producers and retailers.

World of Wonder, marketer of Teddy Ruxpin, Lazer Tag, and other high-tech toys, alienated some of its key retail customers because it failed to deliver products when promised. By not receiving shipments of Lazer Tag guns in time for pre-Christmas selling, some retailers not only lost sales but also were left holding large inventories of the guns when they arrived after the Christmas holidays.
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Distribution Channel
Vertical Marketing System (VMS) Planned distribution channel organized to reduce channel conflict and improve distribution efficiency. A vertical marketing system (VMS) is when two or more stages of a distribution channel are combined and managed by one firm. Vertical marketing systems have become a popular method of organizing a distribution channel. The three types of vertical marketing systems are Corporate Administered Contractual

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Firestone uses a corporate vertical marketing system in selling replacement tires it manufactures for automobiles and light trucks at 1,500 companyoperated automotive service outlets as well as through independent dealers.

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Distribution Channel
Administered VMS An administered vertical marketing system is a distribution system dominated by one channel member. This channel member, often called the channel captain, can be a manufacturer, a wholesaler, or a retailer. Traditionally, the channel captain has been the manufacturer that provides the promotional budget to support a brand.

In recent years, however, an increasing number of retailers and wholesalers are assuming the role of channel captain.
Ernest & Julio Gallo Winery is an example of a dominant channel member. The California wine maker exercises considerable power over company-owned and independent distributors.

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Distribution Channel
Contractual VMS Contractual vertical marketing systems have had the greatest impact On distribution strategy. In such a system, the members are bound by a contractual agreement. Franchises such as Burger King, Baskin Robbins, and Century 21 are contractual Vertical Marketing Systems. Another contractual system is the wholesaler-sponsored voluntary chain of retail stores. Under this agreement, a wholesaler provides marketing programs, merchandise selection, and other services to independent retailers that agree to purchase the wholesaler's products. A third type of contractual VMS is the retail cooperative, in which retailers set up their own wholesaling operation. The retailers agree to buy a certain amount of merchandise from the wholesaling operation, but may choose a common store name and develop their own privatelabel line of goods. Retail cooperatives, such as Associated Grocers, are common in the grocery industry.
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Market Coverage Distribution strategy must be concerned with market coverage. There is probably only one Chevrolet dealer in your immediate area, but there may be several retail outlets that sell General Electric products. Coca-Cola can be found everywherein supermarkets, neighborhood convenience stores, service stations, vending machines, restaurants, and coffee shops. Different types of products require different kinds of distribution coverage. Three categories of marketing coverage exist: intensive distribution, exclusive distribution, and selective distribution. Intensive Distribution. Coca Colas goal is to have their product within 100 feet of every consumer. Exclusive Distribution. The opposite of intensive distribution, exclusive distribution occurs when the manufacturer gives a retailer or wholesaler the exclusive right to sell its products in a specific geographic area. Selective Distribution. A degree of market coverage somewhere between intensive distribution and exclusive distribution, selective distribution occurs when a limited number of retailers are selected to distribute the firm's product lines . Television and electrical appliances are often handled in this manner.
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A vertical marketing system (VMS) is one in which the main members of a distribution channel-producer, wholesaler, and retailer-work together as a unified group in order to meet consumer needs.
Horizontal marketing system - Joining of two or more corporations on the same level for the purposes of pursuing a new marketing opportunity. Established so that the individual members can combine resources to make the most out of the marketing situation. Products from each member can be marketed and/or distributed together, such as a bottle manufacturer combining with a producer of dehydrated salad dressing preparations.

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Channel Behavior & Organization

Horizontal Marketing Systems
Two or more companies at one level join together to follow a new marketing opportunity.

Nestle and General Mills work together to market cereal outside of North America

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THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES

Marketing intermediaries can be eliminated but their activities cant. Intermediaries perform marketing functions faster and cheaper than other organizations can.

Marketing intermediaries add costs to products but theyre generally offset by the values they provide.

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INTERMEDIARIES CREATE UTILITY

Utility - The want-satisfying ability, or value, that
organizations add to goods and services by making them more useful or accessible to consumers.

Six types of utilities:

Form Time Place Possession Information Service

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HOW MARKETERS USE UTILITY

Form Utility -- Changes raw materials into useful
products; producers generally provide form utility.
- Starbucks makes coffee the way the customers want it.
- Levi-Strauss transforms denim into clothes.

Time Utility -- Makes products available when

customers want them.
- Many Walgreens stores are open 24-hours a day. - Colleges offer day and evening classes.

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HOW MARKETERS USE UTILITY

Place Utility -- Adds value to products by placing them
where people want them.
- Banks place ATMs at convenient locations. - Pepsi is available in campus vending machines.

Possession Utility -- Helps transfer ownership from

one party to another, including providing credit.
- Pay for lunch at McDonalds with your Visa card.

- Car dealers offer loans to buyers.

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HOW MARKETERS USE UTILITY

Information Utility -- Opens two-way flows of information
between marketing participants.
- Dells website offers advice to PC buyers.
- Local government maps show tourist locations.

Service Utility -- Provides service during and after a sale

and teaches customers how to best use products.
- Apple offers classes to help computer buyers. - College placement offices help students find jobs.

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