Distribution Channels and Logistics Management

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Chapter 12

• Distribution Channels and Logistics Management

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Issues Concerning Distribution Channels
What Role Does Physical Distribution Play in
Attracting and Satisfying Customers?
What is the Nature Of Distribution Channels?
How do Channel Firms Interact and Organize to
do the Work of the Channel?
What Problems do Companies Face in Designing
and Managing Their Channels?
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What is a Distribution Channel?

• A set of interdependent organizations
  (intermediaries) involved in the process of
  making a product or service available for use or
  consumption by the consumer or business user.
• Marketing Channel decisions are among the most
  important decisions that management faces and
  will directly affect every other marketing
  decision.

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Why are Marketing Intermediaries Used?

• The use of intermediaries results from their
  greater efficiency in making goods available to
  target markets.
• Offer the firm more than it can achieve on its
  own through the intermediaries
• Contacts,
• Experience,
• Specialization,
• Scale of operation.
• Purpose match supply from producers to demand
  from consumers.

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How a Marketing Intermediary Reduces the Number
of Channel Transactions
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Distribution Channel Functions
Risk Taking
These Functions Should be Assigned to the Channel
Member Who Can Perform Them Most Efficiently and
Effectively to Provide Satisfactory Assortments
of Goods and Services to Target Customers.
Information
Financing
Promotion
Contact
Physical Distribution
Matching
Negotiation
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Number of Channel Levels (Fig. 12.2)
Channel Level - Each Layer of Marketing
Intermediaries that Perform Some Work in Bringing
the Product and its Ownership Closer to the Final
Buyer.
M
C
Channel 1
Direct Channel
M
R
C
Indirect Channel
Channel 2
M
W
R
C
Channel 3
M
W
J
R
C
Channel 4
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Channel Behavior Conflict

• The channel will be most effective when
• each member is assigned tasks it can do best.
• all members cooperate to attain overall channel
  goals 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 levels
  of the same channel, i.e. wholesaler to retailer.
• For the channel to perform well, each channel
  members role must be specified and conflict must
  be managed.

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Conventional Marketing Channel Vs. a Vertical
Marketing System (Fig. 12.3)
Conventional Marketing Channel
Vertical Marketing System
Manufacturer
Manufacturer Retailer
Wholesaler
Wholesaler
Retailer
Consumer
Consumer
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Types of Vertical Marketing Systems
Corporate Common Ownership at Different Levels
of the Channel i.e. Sears
Contractual Contractual Agreements Among Channel
Members
Administered Leadership is Assumed by One or a
Few Dominant Members i.e. Kraft
Degree of Direct Control
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Types of Vertical Marketing Systems
Vertical Marketing Systems (VMS)
Administered VMS
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Innovations in Marketing Systems

• Horizontal Marketing System
• Two or More Companies at One Channel Level Join
  Together to Follow a New Marketing Opportunity.
• Example
• Banks in Grocery Stores

• Hybrid Marketing System
• A Single Firm Sets Up Two or More Marketing
  Channels to Reach One or More Customer Segments.
• Example
• Retailers, Catalogs, and Sales Force

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Discussion Connections

• Describe the kinds of horizontal and vertical
  channel conflict that might occur in one of the
  following
• Personal computer industry,
• Automobile industry,
• Music industry,
• Clothing industry.
• How would you remedy the problems you have just
  described?

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Changing Channel Organization

• A Major Trend is Toward Disintermediation Which
  Means that Product and Service Producers are
  Bypassing Intermediaries and Going Directly to
  Final Buyers or That New Types of Channel
  Intermediaries are Emerging to Displace
  Traditional Ones.

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Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives Constraints
Identifying Major Alternatives
Evaluating the Major Alternatives
Designing International Distribution Channels
Exclusive Distribution
Intensive Distribution
Selective Distribution
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Channel Management Decisions
Selecting Channel Members
Motivating Channel Members
Evaluating Channel Members
FEEDBACK
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Nature and Importance of Marketing Logistics

• Involves getting the right product to the right
  customers in the right place at the right time.
• Companies today place greater emphasis on
  logistics because
• customer service and satisfaction have become the
  cornerstone of marketing strategy.
• logistics is a major cost element for most
  companies.
• the explosion in product variety has created a
  need for improved logistics management.
• Improvements in information technology has
  created opportunities for major gains in
  distribution efficiency.

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Goals of the Logistics System
Higher Distribution Costs Higher Customer
Service Levels

• Goal
• To Provide a Targeted Level of Customer Service
• at the Least Cost.

Maximize Profits, Not Sales
Lower Distribution Costs Lower Customer Service
Levels
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Major Logistics Functions
Order Processing Received Processed Shipped
Costs Minimize Costs of Attaining
Logistics Objectives
Logistics Functions
Warehousing Storage Distribution Automated
Transportation Rail, Truck, Water,
Pipeline, Air, Intermodal
Inventory When to order How much to
order Just-in-time
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Transportation Modes
Rail Nations largest carrier, cost-effective
for shipping bulk products, piggyback
Truck Flexible in routing time schedules,
efficient for short-hauls of high value goods
Water Low cost for shipping bulky, low-value,
non perishable goods, slowest form
Pipeline Ship petroleum, natural gas, and
chemicals from sources to markets
Air High cost, ideal when speed is needed or
distance markets have to be reached
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Choosing Transportation Modes
Checklist for Choosing
Transportation Modes
1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
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Integrated Logistics Management
Cross-Functional Teamwork inside the Company
Building Channel Partnerships
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork, Both Inside the Company and Among All
the Marketing Channel Organizations.
Third-Party Logistics
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Review of Concept Connections

• Explain why companies use distribution channels
  and discuss thee functions these channels
  perform.
• Discuss how channel members interact and how they
  organize to perform the work of the channel.
• Identify the major channel alternatives open to a
  company.
• Discuss the nature and importance of physical
  distribution.
• Analyze integrated logistics, including how it
  may be achieved and its benefits to the company.