TIM3221

INTERNET MARKETING

LEC 06:
PLACE
Learning Outcomes

After the end of Lecture 6, you will be able to:

• Describe the three major functions of a distribution

channel.
• Explain how the Internet is affecting distribution
channel length.
• Discuss trends in supply chain management and
power relationships among channel players.
• Outline the major models used by online channel
members.
• Highlight how companies can use distribution channel
metrics.

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 Distribution Channel
A distribution channel is any series of organisations or
individuals that deliver goods and services from the
producers to the final users in line with the demand at
minimum cost in terms of inventory, transport and
storage. It includes :
Producers,
Intermediaries and
Buyers

They perform some of the marketing functions.

Buying Selling Storing Transporting Standardisation &

grading Risk taking Financing Market information

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Channel Structure of Organisation

Intermediary
Types

Channel Length
Channel
Structure
Distribution Systems

Members’ Functions

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Types of Intermediary

Intermediary is someone who specialises in trade rather

than production.

Wholesalers

Intermediary Agents
Types

Brokers

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Wholesalers

• Wholesalers are organisations whose main

function is buying products from producers and
reselling them to retailers, and sometimes also
end users but not in large amounts.

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Agents
• Agents are individuals or organisations whose
main function is to help in buying and selling.
•They do not own the products they sell.
•They are common in international trade.
•They operate in relatively low price – 2 to 6 per
cent of their selling price.
•Agents may represent either the buyer or seller.
Manufacturer’s agents represent the
seller.
Purchasing agents represent the buyer.

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Brokers
•Brokers facilitate transactions between buyers
and sellers.
•Brokers are individuals or organisations whose
main function is selling information to buyers and
sellers.
•They brings sellers and buyers together.
•The relationship is temporary.
•They act as negotiators between sellers and
buyers.
•Commission is earned after transaction is
completed.

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E-Business Models

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Content Sponsorship

■ In this model firms create websites, attract

traffic, and sell advertising.
■ All the major portals utilise this model:
– Google
– Yahoo!
– MSN
■ Content sponsorship is often used in
combination with other models to generate
multiple revenue streams.

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Infomediary

 An infomediary is an online organisation that

aggregates and distributes information.
 Market research firms are examples of
infomediaries.
 Some infomediaries compensate consumers
for sharing demographic and psychographic
information and receiving ads targeted to
their interests.

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Intermediary Models

■ Three intermediary models are in common use

on the Internet:
– Brokerage models
■ Online Exchange
■ Online Auction
– Agent models for sellers and buyers
– Online retailing

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Brokerage Models

 The broker creates a market in which buyers and

sellers negotiate and complete transactions.
 Online Exchange: E*Trade, Schwab and
Ameritrade allow customers to place trades
online.
 The B2B market has also spawned brokerages.
 Converge is the leading exchange for global
electronics.
 Guru.com is an exchange for talent in 220
professional categories.
 Online auctions are available in the B2B (uBid),
B2C (Priceline), and C2C (ebay) markets.

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Agent Models

■ May represent sellers or buyers.

■ Agent models that represent sellers include:
– Selling agents
– Manufacturer’s agents
– Metamediaries
– Virtual malls

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Agent Models, cont.

■ Agent models that represent buyers include:

– Shopping agents
■ BizRate, PriceScan, and CNET
Shopper
– Reverse auctions
■ Priceline
– Buyer Cooperatives (buyer aggregators)
pool many buyers together to drive
down prices.

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Shopping Agent: CNET Shopper

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Online Retailing

■ Merchants set up storefronts online that can sell a

greater assortment of products in smaller
quantities than offline.
– The “long tail” refers to the ability to increase
revenue by selling small quantities of large
numbers of products online.
■ Shopping cart abandonment is one of online
retailing’s biggest problems.
■ Digital goods such as news, music, software,
movies, etc. may be delivered over the Internet.
■ The manufacturer sells directly to the customer in
the direct distribution model.

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What Do U.S. Consumers Buy Online?

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11-18
Channel Length and Functions
■ Channel length refers to the number of
intermediaries between the supplier and the
consumer.
■ Direct-distribution channels have no intermediaries.
■ Indirect channels have one or more intermediaries.
■ Eliminating intermediaries can potentially reduce
costs.

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Channel Length

Producers End users

Length of Channel

Intermediary
Producers =n; n>=1
End users
n = number of intermediaries

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Channel Length and Functions (con’t)

■ Disintermediation is the process of eliminating traditional

intermediaries.
■ Complete disintermediation has not occurred.
– The U.S. distribution system is the most efficient in the
world.
– Using intermediaries allows companies to focus on what
they do best.
– Many traditional intermediaries have been replaced with
Internet equivalents.
■ Online storefronts can lower costs of retail space
and warehouses.

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Members’ Functions

Logistical

Members’
Transactional Functions Facilitating

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Transactional Functions
Logistical

Members’
Facilitating
Communication Functions
Strategies

Making Contacts

Transactional

Matching needs Processing

Negotiating prices transactions

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Logistical Functions
•A logistics arrangement is required whenever the product
involves physical goods.
•Physical distribution.
Transporting

Logistical
Storing Collecting

Members’
Transactional Functions Facilitating

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Outsourced Logistics

■ Examples:UPS, FedEx, United States Postal Service (USPS)

■ eBay has formed a partnership with Mailboxes Etc in C2C.

Outsourced
Logistics

Transporting

Logistical
Storing Functions Collecting

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Facilitating Functions
•Facilitators are the organisations that provide one
or more of the marketing functions besides buying
and selling.

Logistical
Financing Advertising
Members’
Transactional
Functions Facilitating

Market Research Product Testing

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Facilitating Functions: Market Research

■ Market research is a major function of the distribution

channel.
■ There are costs and benefits of Internet-based market
research.
– Some information is free.
– Employees can conduct research from their desks.
– Internet-based information tends to be timelier.
– Web-based information is in digital form.
– E-marketers can receive detailed reports.

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Facilitating Functions: Financing

■ Intermediaries want to make it easy for customers to pay and

to close the sale.
■ Credit card companies have formed Secure Electronic
Transactions (SET).
– Legitimises merchants and consumers.
– Protects consumers’ credit card numbers.
– Consumers have a maximum $50 liability for purchases
made with a stolen card.
– Legal protection does not exist in all countries.

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Distribution System
■ To link all channel members.

Downstream

Distribution
Upstream Systems Integrated

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Distribution System

■ There are 3 ways to define the scope of the

channel as a system.
– Distribution functions that are
downstream from the manufacturer to
the consumer.
– The supply chain, upstream from the
manufacturer, working backward to raw
materials.
– Consider the supply chain,
manufacturer, and distribution channel
as an integrated system called the
value chain or integrated logistics.

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Supply Chain & Distribution Channel

Farmer 1
Food Supply Chain
supplier
Farmer 2

Parts
Steel Manufacturer/
supplier
supplier
Service Provider
Parts
supplier
Fabric
supplier

Wholesaler Retailer 1
Distribution Channel
Retailer 2
Wholesaler
Manufacturer/
Service Provider Agent
Retailer 3

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Supply Chain Management

■ Supply chain management (SCM) refers to the

coordination of the flow of material, information,
and finance.
■ Key functions of supply chain management are
continuous replenishment and build to order to
eliminate inventory.
■ Supply chain participants use enterprise
resource planning (ERP) systems to manage
inventory and processes.

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Top Ten Online Retailers

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 Top 10 E-Commerce Sites in
Malaysia as of 1st quarter 2020,
by monthly traffic

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