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Marketing: Channels of Distribution

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Producers promote to the target audience to stimulate ... Wholesaler Sponsored: (Ace Hardware) Retailer Sponsored: (IGA) Franchise Systems: (McDonalds's) ... – PowerPoint PPT presentation

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Title: Marketing: Channels of Distribution


1
MarketingChannels of Distribution
2
Channels of Distribution
  • Systems of interdependent organizations that
    direct the flow of product (title/possession)
    from producers to buyers.

Producers Intermediaries
Customer
3
Channels of Distribution
  • create time, place, possession and information
    utilities.

PLACE
TIME
POSSESSION
Information
Utility Box
2
37
57
1
1
9
24
Creating utilities for customers.
4
Channel FunctionsProducer Intermediaries
Customer
(Facilitate exchange)
Accumulating breaking bulk
Creating Assortments (sort to quantity
Materials handling
Transporting Inventory storage
Reducing transactions
5
Distribution Channels Facilitate Specialization
  • Intermediaries provide Exchange efficiencies

Intermediaries
Producer
Customer
Connectivity is King for product delivery when
and where
6
Channel Functions Promotion Producer
Collaborators Customer
(Facilitate exchange)
  • Promotion
  • - Cooperative advertising
  • - In Store Sales promotion

Advertising Agencies
Sales Promotion
Personal Selling Merchant sales reps sell only,
no title transfer
7
Promotional Pull Strategy
... Producers promote to the target audience to
stimulate demand and Pull the product through
the distribution channel to customers.
Promotes to
Producer Wholesaler Retailer Customer
Orders
Orders
Request
8
Promotional Push Strategy
  • Producers promote to marketing intermediaries to
    Push the product through the distribution
    channel to consumers.

Promotes
To
Producer Wholesaler Retailer Customer
9
Ice Cream Rivals
Applied Marketing
  • UNILEVER17 MShare
  • Ben jerrys
  • Good Humor, Breyers
  • Nestle-16 (Mk Share)
  • Haagen Daz,Dreyers
  • Drum Stick Brands

Nestlé's GoaL Improve (intensive) distribution
  • Introduce 100K branded vending machines
    freezers in big gas stations, convenience stores
    non grocer outlets
  • Create new products specialty items Coffee
    Almond Crunch Bar at Starbucks

WSJ, June, 2003
10
Ice Cream Distribution The Scoop
Ball, Deborah. Ice Cream Rivals Prepare to Wage
A New Cold War. WSJ, June 26, 2003
11
Valued freezer space
  • Freezer costs are up to 6x higher in non grocer
    venders due to electricity maintenance costs
    but offer 25 higher profit margins than super
    market tubs
  • Growth Rates Out of home 10/year
  • in home 8
    ( 80 of ice cream is consumed in home)

80-20 principle
12
Channel Functions Pricing Producer
Intermediaries Customer
(Facilitate exchange)
Pricing How much?
  • Pricing support
  • - terms of sale (credit, cash, etc.)
  • - convenience of payment
  • - financial risk

13
What Levis is Doing
Applied Marketing
  • Levis jeans were the same model and price for
    many years although they were bought many
    different types of people.
  • Diversifying their target markets by selling
    jeans in high end stores such as Neiman Marcus,
    to middle class stores such as Kohls and Macys,
    to large discount stores such as Wal-Mart.

2004
14
Channel Functions Product Support Producer
Intermediaries Customer
(Facilitate exchange)
  • Product
  • - sales data feedback
  • - customer service/product repairs
  • - product selection delivery
  • - packaging
  • - financial social risk

15
Distribution Channel Designs
  • Organizations through which a product passes to
    reach the end user.

Zero-level (Direct)
Intermediaries (Traditional)
Manufacturer
Producer Retailer Consumer
Manufacturer
Wholesaler
Intermediaries
Retailer
Consumer
Consumer
16
Channel Design
Criteria To Select Collaborators
  • 1 - Target market coverage consumer purchase
    behavior
  • Company Resources Objectives -
    adaptability/control
    - performance quality level
  • Ease of Doing Business
  • Packaging Requirements
  • Order Processing Quality

17
Changes in PC Buying Behavior affect Dell
(Direct sales)
  • PC companies are refocusing on the consumer
    market (15 of
  • Dells sales of 56 bil/yr vs the business market)
    where consumers like
  • to hold test models in a store. Consumers
    prefer laptops due
  • to new wireless technology on the go
    convenience.

WSJ, Consumer Demand and Growth in Laptops Leave
Dell Behind, 30Aug06
18
Changes in PC Buying Behavior affect Dell
(Direct sales)
  • PC companies are focusing on the consumer market
  • (15 of Dells sales of 56 bil/yr vs the business
    market) where
  • consumers like to hold test models in a store.
  • Consumers prefer laptops due to new wireless
  • technology on the go convenience.

WSJ, Consumer Demand and Growth in Laptops Leave
Dell Behind, 30Aug06
19
Channel Design Criteria To Select Collaborators
  • Competition
  • Technical service support
  • On time delivery/reliability
  • Economic value/efficiency
  • Total costs, a systems view, Examples of
    compensation Trade, quantity, promotion cash
    discounts.

20
Channel Design1 Target Market Coverage
Intensive distribution
Exclusive distribution
Selective distribution
21
Market Coverage Legal Issues
Strategic Alliances..the products of one
organization are distributed through the
marketing channels of another
Dual Distribution A producer can use two
different channels to reach the same target
market if it is not trying to engage in unfair
competition put its independent distributors
out of business
  • Restricted Sales Territories - Granting exclusive
    sales territory rights to distributors is
    permissible if the rights do not restrain trade

22
Direct Marketing Channels
  • Producer Buyer
  • Personal Selling
  • Telemarketing
  • Toll free phone
  • Catalog order
  • Fax order
  • Mail order
  • E Commerce

23
Direct Marketing can eliminate the middleman but
not the functions
24
(No Transcript)
25
Liquor Wholesaler A Mandated Middleman
Direct Sales of Alcohol
Applied Marketing
  • Issue Florida wine aficionados desire vintages
    direct from California.
  • Ecommerce simplifies the P to C relationship by
    passing wholesalers their 18-25 price cut
  • Current Legislation direct shipment to
    consumers is a misdemeanor (1st time ), a felony
    (2nd time violation )
  • Rationale (a) to prevent underage
    drinking and (b) to collect state taxes

UpdateJuly06,.5 -3mil (teens) buy on line
26
Channel Integration
Manufacturer
Forward integration member acquires
a downstream member
Backward integration member acquires
an upstream member
Wholesaler
Retailer
Franchise member licenses property
to independent business
Consumer
27
Vertical Channel Integrationseeks to control 2
or more levels
Oil field, Oil rig, Pipeline transport, Refinery,
transport, Station storage,
  • Producer
  • Wholesaler
  • Retailer
  • Consumer Consumer Consumer

28
(No Transcript)
29
Horizontal Channel Integration seeks economies
of scale via advertising, purchasing,etc
(Contractual Systems)
  • Wholesaler Sponsored (Ace Hardware)
  • Retailer Sponsored (IGA)
  • Franchise Systems (McDonaldss)

30
Channel Systems(Examples)
  • Corporate 1 channel member owns

    . other
    channel members
  • Contractual channel members operate
    under contractual
    agreements (franchises)
  • Administered channel members operate
    based on agreed upon
    plans (Channel Captains)

31
Peoples Bank
Applied Marketing
  • Founded in 1842,it is the largest state-chartered
    bank in Connecticut.
  • Is part of multiple horizontal vertical
    distribution systems with Travelers, Hartford,
    Kemper, and Chubb to offer auto, home business
    insurance.
  • uses a zero-level or direct marketing channel to
    distribute its financial services
  • or vertical system for collaborators (Brokerage
    services).

hhh
32
Other Distribution Issues
  • Reverse distribution

33
MAJOR RECALL
Applied Marketing
  • Mitsubishi Motors Corp. presents a public image
    of economic value purity but in reality
  • it was forced to recall vehicles to fix a
    potentially defective ball joint in the front
    suspension
  • Affects models made between 1992 and 2001
  • 960,000 vehicles recalled in U.S.
  • 400,000 vehicles recalled in Japan
  • 156,000 vehicles in other countries

Source The Wall Street Journal February 16,
2001,Page A3
34
Distribution Channel Legal Issues
  • Tying Contracts - Requiring a channel member to
    buy additional products from the supplier in
    order to purchase a particular product from the
    supplier
  • Full-Line Forcing - Requiring a channel member to
    carry a suppliers entire product line to obtain
    any of the suppliers products

35
Channel Legal Issues
  • Product Liability,
  • Resale Price maintenance ,
  • Refusal to Deal - Suppliers can choose their
    distributors and refuse to deal with others if
    their decisions are not based on anticompetitive
    motives or are not part of an organized
    refusal-to-deal with certain channel members.
  • Exclusive Dealing-Forbidding an intermediary to
    carry products of a competing manufacturer
  • Is anticompetitive if
  • it blocks competitors from 10 of the market
  • sales revenues are sizable
  • the manufacturer is larger than the dealer

36
Channel Captain The dominant member (producer,
wholesaler, or retailer) establishes channel
policies coordinates the marketing mix
Channel Relationships
Supply Chain Management
  • Leadership by example
  • Cooperation..common objectives
  • Conflict resolution
  • Power to enforce

37
Types of Channel Power (The ability of one
channel member to influence another members goal
achievement)
  • Reward Power
  • Legal Power
  • Expert Power
  • Coercive Power

Power Control
Performance
38
Supply Chain ManagementChannel Conflict
  • Sources of Channel Conflict
  • Disagreements on responsibilities
  • Communication difficulties reduce coordination
  • Increased use of multiple distribution channels
    by manufacturers creating conflicts with
    distributors and retailers
  • Intermediaries diversifying into and offering
    competing products
  • Producers try to circumvent intermediaries and
    deal directly with retailers

39
CHANNEL CONFLICT
Large retailer threatens to stop buying a product
unless the suppler grants unreasonably low
prices and/or high supports services Coercive
power? Ethical Decision? Survival Decision?
40
Marketing Channels Form a Supply Chain
  • Supply Chain Management
  • Long-term partnerships among channel members that
    reduce inefficiencies, costs, and redundancies
    and develop innovative approaches to satisfy
    customers
  • Optimizes costs throughout the whole channel for
    efficiency and service
  • Includes all entities that facilitate product
    distribution and benefit from cooperative efforts
  • Arises from the need to achieve a more
    competitive position
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