Topic 10: Distribution Management

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Topic 10 Distribution Management

• By the end of this session you will
• Understand the role and importance of marketing
  intermediaries
• Understand the types and functions of
  distribution channels and the key management
  decisions that determine channel strategy
• Appreciate the role of distribution within the
  context of the marketing mix.

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Distribution

• The Place element of the marketing mix
• Need to ensure products are available in adequate
  quantities, in convenient locations and at a time
  when customers want to buy them
• Need to not only consider needs of the ultimate
  customer, but of channel intermediaries
• Channel of distribution or

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What is a Channel?
Set of interdependent organizations involved in
the process of making a product or service
available for use or consumption by the consumer
or business user
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Types of Channel Intermediaries

• Retailer - enables consumers to view a wide
  assortment of products and manufacturers gain
  economies of scale
• Wholesaler (
• Distributor (
• - buys in bulk and sell smaller quantities to
  numerous retailers
• Agent - contacts local wholesalers and receives
  commission. Used for services when provider is
  geographically distant from customers
• Internet - used to increase efficiency and
  improve service

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Current Situation

• Companies build relationships with customers and
  also with key suppliers (upstream) and resellers
  (downstream) in their supply chains (value
  delivery networks)
• Traditionally, marketers have focused on
  downstream relationships
• Decisions are important because they involve long
  term partnerships (often contractual)

Sears (Retail)
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Why are Marketing Intermediaries Used?

• They can offer greater efficiency in making goods
  available to target markets
• Offer the firm more than it can achieve on its
  own through
• Contacts
• Experience
• Specialization
• Scale of operation
• Purpose match supply from producers to demand
  from consumers

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Reduces the Number of Channel Transactions
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Distribution Channel Functions
These functions should be assigned to the channel
member who can perform them most efficiently and
effectively
Risk Taking
Information
Financing
Promotion
Contact
Physical Distribution
Matching
Negotiation
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Distribution Channels for Consumer Goods
Consumer
Producer
Retailer
Consumer
Producer
Wholesaler
Retailer
Consumer
Producer
Wholesaler
Retailer
Consumer
Agent
Producer
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Example Distribution Channels for Cosmetics in
Japan
Manufacturer
Manufacturers own marketing companies
or contracted dealers
Specialist cosmetics wholesalers
Marketing companies with branches
Specialist retailers tied by franchise Agreements
(cosmetics shops)
Sales personnel
Secondary wholesalers
Retail shops
Department stores
Super- markets
Beauty salons
Pharmacies
Food
Consumers
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Distribution Channels for Industrial Goods
Producer
Producer
Producer
Producer
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Distribution Channels for Services
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Retailing Major Store Non-Store Types
Automatic vending
Retailers (the final link with the consumer)
Catalogue stores
Convenience store
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Key Retailing Marketing Decisions
Retailing marketing decisions
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Channel Strategy Decisions

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Channel Strategy Levels
Direct or Indirect

• Market/Buyer behaviour is a key factor in channel
  selection, eg buyer expectations buyer location
  and geographical concentration needs re.
  information, installation and technical advice
  may all require a product to be sold in a certain
  way
• The Producer may not have the personnel or
  financial resources to serve the market directly
• Large complex Products are often supplied
  directly to the customer
• Competitors may exert considerable control over
  the distribution channels and a new supplier may
  need to think of new ways of reaching the market

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Channel Strategy Intensity
Intensive, Selective or Exclusive

• Intensive provide saturation market coverage -
  sales are a direct function of the number of
  outlets reached (eg
• Selective limited number of outlets in an area
  (eg
• Exclusive extreme form of selective distribution
  with only 1 wholesaler, retailer or B2B
  distributor used in an area (eg

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Channel Strategy Integration

• Conventional channels (independent producer and
  channel intermediaries) eg MS. (Can lead to an
  administered vertical marketing system)
• Franchise (contractual vertical marketing system)
  operation eg
• Channel (corporate vertical marketing system)
  ownership by a producer eg
• Opportunities and limitations?

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Channel Management Effective implementation

• 1. Selection (Or Acceptance?)
• Identify sources from trade sources, reseller
  enquiries, customers of distributors and field
  sales force
• Develop selection criteria, for example
• market, product and customer knowledge, market
  coverage, quality and size of sales force,
  reputation, financial standing, range of products
  carried, managerial competence, enthusiasm

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Channel Management Ctd.

• 2. Motivation
• Channel members need to be motivated and allocate
  commitment and resources
• Possible motivators include financial rewards,
  territorial exclusivity, providing resource
  support and developing relationships
• 3. Training
• Can provide necessary technical knowledge about
  company and its product, and help build
  commitment

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Channel Management Ctd.

• 4. Evaluation
• Shortfalls may be identified link to
  distributor retention, training and motivation
  decisions
• Evaluation criteria can include
• sales volume and value, profitability, level of
  stocks, quality and position of display, new
  accounts opened, marketing capabilities, customer
  service, market info., attitudes..
• 5. Managing Conflict
• Major sources include differences in goals, in
  views on desired lines, multiple distribution
  channels and inadequacies in performance

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Physical Distribution System

• The set of activities concerned with the
  physical flows of materials, components and
  finished goods from producer to channel
  intermediaries and consumers (Jobber, 2004)
• Its not just about the correct choice of
  outlets, its also about the efficient movement
  of goods through the chain
• Aim to provide intermediaries and customers with
  the right products, in the right quantities, in
  the right locations, at the right time

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Achieving a Balance

• Cost Reduction
• Meeting Customer Service Requirements
• Useful to analyse market in terms of customer
  service needs and price sensitivity
• Trade-offs often necessary between cost and
  service, and between elements of the physical
  distribution itself

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Components of the Physical Distribution System
Physical distribution system
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Changing Channel Organization

• A major trend is toward disintermediation where
  product and service producers are bypassing
  intermediaries and going directly to final buyers
  or new types of channel intermediaries are
  emerging to displace traditional ones

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Ethical Issues in Distribution

• Slotting allowances
• Grey markets
• Exclusive dealing
• Restrictions in supply
• Fair-trading