MIDTERM: DISTRIBUTION MANAGEMENT Distribution Objectives - Setting distribution objectives

CHAPTER 6: Designing Marketing Channels
Channel Design - Decisions involving the development
of new marketing channels either where none had
previously existed or to the modification of
existing channels.
requires knowledge of which, if any, existing objectives
& strategies may impinge on these distribution
objectives.
The Need for Congruency

Distinguishing points of the definition include:

1. A decision made by the marketer
2. The creation or modification of channels
3. The active allocation of distribution tasks in an
attempt to develop an efficient structure
4. The selection of channel members
5. A strategic tool for gaining a differential advantage

Who Engages in Channel Design? Distribution Tasks - Outlining distribution tasks is

Firms specific and situationally dependent on the firm.
• Producers, manufacturers, serviceproviders, For example: Distribution tasks for a manufacturer of
franchisors consumer products differs from those for products sold
• Look down the channel toward the market in industrial markets.
Wholesalers Distribution tasks are a function of the distribution
 Look both up and down the channel objectives and the types of firms involved.
Retailers
• Look up the channel to secure suppliers Channel Structure Dimensions
1. Number of levels in the channel
Channel Design Paradigm 2. Intensity at the various levels
Allocation Alternatives
3. Types of intermediaries at each level

Number of Levels
• Range from two to five or more
• Number of alternatives is limited to two or three
choices
• Limitations result from the following factors:
ü Particular industry practices
ü Nature & size of the market
When to Make a Channel Design Decision
ü Availability of intermediaries
• Developing a new product or product line
• Aiming an existing product at a new market
Intensity at the Various Levels
• Making a major change in some other component
Relationship between the intensity of distribution
of the marketing mix
dimension & number of retail intermediaries used in a
• Establishing a new firm
given market area.
• Adapting to changing intermediary policies that may
inhibit attainment of distribution objectives
• Dealing with changes in availability of particular
kinds of intermediaries
• Opening up new geographic marketing areas
• Facing the occurrence of major environmental
changes
• Meeting the challenge of conflict or other
behavioral problems
• Reviewing and evaluating Types of Intermediaries
• Numerous types
 • Manager’s emphasis on types of distribution
tasks performed by these intermediaries
• Watch emerging types
– Electronic online auction firms (eBay)
– Industrial products sold in B2B markets
(Chemdex, Converge.com)
Variables Affecting Channel Structure
Categories of Variables
1. Market Variables
2. Product Variables
Bulk & Weight, Perishability, Unit Value
Degree of Standardization, Technical versus
Nontechnical, Newness
3. Company Variables
4. Intermediary Variables
Availability - Availability of intermediaries influences
channel structure.
Cost - Cost is always a consideration in channel
structure.
Services - Services that intermediaries offer are closely
related to the selection of channel members.
5. Environmental Variables
The impact of environmental forces is a common reason
for making channel design decisions. (Economic Forces,
Competitive Forces, Legal Forces, Technological Forces,
Sociocultural Forces)
6. Behavioral Variables
- Develop congruent roles for channel members.
- Be aware of available power bases
- Attend to the influence of behavioral problems
that can distort communications.
Heuristics in Channel Design
Benefit: Fairly simple prescriptions for channel structure
Limitation: Mostly useful as rough guide to decision
making
Choosing an Optimal Channel Structure
Why is choosing an optimal channel structure
not possible?
1. Management is incapable of knowing all possible
alternatives.
2. Precise methods for calculating the exact payoffs
associated with each alternative structures do not
exist.
BUT -- Techniques exist for developing more exact
methods.
Approaches for Choosing Channel Structure
• “Characteristics of Goods & Parallel Systemms”
Approach
• Financial Approach
• Transaction Cost Analysis Approach
• Management Science Approaches
• Judgmental-Heuristic Approach
Judgmental-Heuristic Approaches
CHAPTER 7: Selecting the Channel Members
Channel Member Selection - the 7th and final phase of
channel design. Selection may of may not be the result
of channel design. Channel member selection may be to
replace channel members that have left OR to obtain
greater coverage.
Selection & Distribution Intensity
The greater the intensity of distribution the less the
emphasis on selection.
The Selection Process
1. Finding prospective channel members
2. Applying selection criteria to determine the
suitability of prospective channel members
3. Securing the prospective channel members as
actual channel members.
Finding Members
Field Sales Organization 1. Chambers of commerce, banks, & local real
Salespeople are the best positioned to estate dealers
know about potential intermediaries. 2. Classified telephone directories or the yellow
• They are often able to pick up information about pages
likely intermediaries. 3. Direct-mail solicitations
• They may have lined up prospective intermediaries. 4. Contacts from previous applications
BUT -- The manufacturer must adequately reward 5. Independent consultations
salespeople for their time & effort establishing 6. List brokers that sell lists of names of businesses
connections. 7. Business databases
8. The Internet
Trade Sources
Selection Criteria

Reseller Inquiries Adapting Selection Criteria

 Many firms learn about direct inquiries from
intermediaries interested in handling their product.
 This is the main source of information about
potential new channel members for some
manufacturers.
 Firms receiving the highest number of inquiries are
the more prestigious in their industry.

Customers
 Customers are willing to give frank opinions
about the intermediaries who call on them.
ü Manufacturer conducts formal or informal surveys
of customers’ views of various distributors.
ü Manufacturer obtains information about potential
intermediaries.
Advertising
 Trade magazine advertising can generate a large
number of inquiries from prospective Members.
 It therefore can provide a large pool from which to
make selections.
Trade Shows
 Wholesale and retail trade associations hold annual
conventions.
 Attending manufacturers have access to a wide
variety of potential channel members.
 Small manufacturers meet face-to-face with
wholesalers & retailers.
Other Sources
Who does the selecting?
• Producers & Manufacturers
• Wholesale Intermediaries
• Retail Intermediaries
Securing Channel Members
The supplier produces, the distributor
sells, and each is dependent upon the other.
Together they form a team, and teamwork
is essential if the association is to prove
mutually beneficial. — Pegram
Offering Inducements
 Advertising & promotional support
 Management assistance
 Fair dealing policies & Friendly relationships
Product Line Inducements:
1. Manufacturer offers good product line with
strong sales & profit potential
2. Stress value of good product line from
channel members’ perspective
Advertising & Promotion Inducements
Consumer Market: Gain immediate credibility by using
a strong program of national advertising
Industrial Market: Gain recognition by using a strong
program of trade paper advertising.
Management Assistance Inducements
Prospective members want to know whether the
manufacturer will help with the following:
• training programs
• financial analysis & planning
• market analysis
• inventory control procedures
• promotional methods
Fair Dealing & Friendly Relationship
Manufacturer’s Responsibility: To convey to prospective
channel members that he or she is genuinely interested
in establishing a good relationship based on trust
and concern for their welfare as both business
entities and as people.
CHAPTER 8: Target Markets and Channel Design
Strategy
Market Variables - The target market’s needs and
wants should drive the manner in
which the channel manager shapes
the design of the firm’s marketing
channels.
Framework for Market Analysis
Market Geography
- refers to the geographical extent of markets and
where they are located.
Channel manager’s task: To evaluate market geography
relative to channel structure to ensure that the
structure is able to serve the markets effectively and
efficiently.
Locating Markets
Channel manager delineates geographical locations of
target markets by using a combination of the following:
1. The Bureau of Census data for geographical entities
such as states, regions/divisions, counties,
metropolitan statistical areas, towns & townships
2. Postal ZIP codes
Tracking Changes in Market Geography
In the U.S - A high degree of mobility within the U.S.
means that market geography changes frequently.
Globally - Southeast Asian countries & former Eastern
bloc countries of central & eastern Europe have become
key locations.
Market Size
- refers to the number of buyers or potential buyers
(consumer or industrial) in a given market.
Channel manager’s task: When using Bucklin’s model
for market size data, it is important also to consider the
peculiarities of particular situations and other relevant
variables.
Market Density
- refers to the number of buyers or potential buyers
per unit of geographical area.
This market dimension’s relationship to channel
structure is illustrated in the concept of efficient
congestion.
Market Density & Channel Strategy
Efficient congestion: Congested (high-density)
markets can promote efficiency in the performance of
several basic distribution tasks, particularly those of
transportation, storage, communication, and
negotiation.
Strategic Implication - The opportunity to achieve a
high level of customer access at low cost is higher in
dense markets than in more dispersed ones.
= Manufacturers of a wide array of products
seek out distributors and retailers that
operate in dense markets.
Market Behavior
- consists of four Sub-dimensions:
 When the market buys
 Where the market buys
 How the market buys
 Who buys
When the Market Buys
Where the Market Buys
1. Determined by the types of outlets from which final
buyers choose to make their purchases.
2. Determined by the location of those outlets
Implications for the channel manager:
1. He or she should know where customers generally
buy particular types of products
2. He or she should know whether these patterns
may be changing.
How the Market Buys
Who makes the physical purchase?
 Affects the type of retailers chosen in the consumer
market.
 May influence the kinds of channel members used
to serve industrial markets.
Who decides to make the purchase?
 In context of family unit at consumer level
 Buying centers at industrial level
Buying Centers
Sets of people who participate in industrial
buying decisions and who are responsible for
the consequences resulting from the decision.
Users Approvers
Influencers Buyers
Deciders Gatekeepers
Changes in Market Behavior
Channel Manager’s Role
- Must be tuned in to changes that
are likely to occur.
- Needs to determine whether changes
are temporary or long term
Implications of Changes
Good personal selling at the retail level -
Making a comeback in department and specialty store
sectors due to increasing consumer demand for
knowledgeable and helpful salespeople
Retail stores with Spartan surroundings &
minimum service but very low prices - Consumers
demanding membership in warehouse clubs (Sam’s
Club)
Mail-order buying - Shoppers are trying to save time
and avoid the inconvenience of shopping at crowded
stores and fighting traffic congestion
Online Shopping - Personal computers are a means for
consumers to supplement their in-store shopping
Auto retailing & foreign auto manufacturers - Car
buyers demanding fewer hassles & confrontations
typically common when buying a car
Internet shopping - Growing in all sectors, especially in
industrial or B2B
Innovations undertaken by channel member - Kohl’s
racetrack layout exposes customers to the maximum
amount of merchandise in the shortest time.
CHAPTER 9: Motivating the Channel Members
Channel Management - The administration of existing
channels to secure the cooperation of channel members
in achieving the firm’s distribution objectives.
Motivation Management - The actions taken by the
manufacturers to foster channel member cooperation
in implementing the manufacturer’s distribution
objectives.
Channel Management versus Channel Design
Channel Design - “Setting up” the channel
Channel Management - “Running” the channel
Motivating Channel Members
Basic Framework:
1.Find out the needs and problems of channel
members.
2.Offer support to the channel members that is
consistent with their needs and problems.
3.Provide leadership through the effective use of power.
Channel Member Needs & Problems
Approaches for learning about member needs &
problems:
• Research studies of channel members
• Research studies by outside parties
• Marketing channel audits
• Distributor advisory councils
Research Studies of Channel Members
Less than 1 percent of manufacturers’ research budgets
is spent on channel member research BUT
manufacturer-initiated research can be useful because
certain types of needs or problems may not be at all
obvious.
Research Studies by Outside Parties
Why use outside parties to conduct research?
- They provide a higher assurance of objectivity.
- They provide a level of expertise that the
manufacturer may not Possess.
Marketing Channel Audits
Focus of Channel Manager’s Approach:
 Gather data on how channel members
perceive the manufacturer’s marketing
program and its component parts.
 Locate the strengths and weaknesses
in the relationships.
 Learn what is expected of manufacturers to make
the channel relationship viable and optimal.
What makes marketing channel audits most effective?
 Issues chosen for the audit should be cross-
referenced to any relevant variables.
 It must be conducted periodically so as to capture
trends & patterns.
 It should identify and define in detail the issues
relevant to the Manufacturer-wholesaler and/or
Manufacturer-retailer relationship.
Distributor Advisory Councils
Who is involved? - Top management representatives
from the manufacturer and from the channel members
What are the benefits?
• Provides recognition for the channel members
• Provides a vehicle for identifying and discussing
mutual needs and problems
• Results in an overall improvement of channel
communications
Supporting Channel Members
3 Types Of Programs
1. Cooperative Arrangements
- Focuses on channel member needs & problems
- Simple and straightforward
- Conveys a clear sense of mutual benefit
Typical types of cooperative programs provided by
manufacturers to channel members.
• Cooperative advertising allowances
• Payments for interior displays
• Contests for buyers, salespeople, etc.
• Allowances for warehousing functions
• Payments for window display space
• Detail men who check inventory
• Demonstrators
• Coupon-handling allowance
• Free goods
2. Partnership or Strategic Alliance
Focus on a continuing and mutually supportive
relationship between the manufacturer and its
channel members in an effort to provide a more
highly motivated team, network, or alliance of
channel members
 Manufacturer should make explicit statement of
policies in areas such as product availability,
technical support, pricing, etc.
 Manufacturer should assess all existing
distributors as to their capabilities for fulfilling
their roles
 Manufacturer should continually appraise the
appropriateness of the policies guiding his or
her relationship with the channel members
3. Distribution Programming
A comprehensive set of policies for the
promotion of a product through the
channel. Developed as a joint effort between
the manufacturer and the channel members
to incorporate the needs of both.
Steps for developing a program:
1. Manufacturer develops analysis of marketing
objectives & the kinds of levels of support
needed from channel members
• Ascertains channel members’ needs &
problem areas
2. Formulate specific channel policies that offer:
• Price concessions to channel members
• Financial advice
• Some kind of protection for channel
members
Relationship Differences
Cooperative Arrangements: Intermittent interactions
between manufacturer & channel members
Partnerships & Strategic Alliances: Continuing &
mutually supportive relationship
Distribution Programming: Deals with virtually all
aspects of the channel relationship
The Selective Use of Power
- The channel manager must exercise effective
leadership on a continuing basis to attain a well-
motivated team of members.
Limited Control
CHAPTER 10: Product Issues in Channel Management
Marketing Mix Resources
By understanding how the other marketing
mix variables interface with the channel
variable, and the implications of such,
the channel manager could coordinate all
strategic components to create the synergy needed
to meet customers’ needs.
Educating Channel Members
Manufacturer goal: To sell new products
Successfully
Method: Educate or train channel members in the
product’s use and the special features to
emphasize in sales presentations.
Trouble-Free New Products

Product-Channel Management Interfaces

Product Life Cycle

New Product Planning

1. What input, if any, can channel members provide
into new product planning?
2. What has been done to assure that new products
will be acceptable to the channel members?
3. Do the new products fit into the present channel
members’ assortments?
4. Will any special education or training be necessary
to prepare the channel members to sell the new
products effectively? Introduction
5. Will the product cause the channel members any 1. Assure sufficient number of channel members for
special problems? adequate market coverage
2. Assure adequate supply on channel members’
Encouraging Member Input shelves
1. Solicit ideas for new products.
2. Gather feedback on product size or on
packaging.
3. Solicit feedback during the test-marketing or Growth
commercialization stage. 1. Assure sufficient number of channel member
inventories for adequate market coverage
Member Acceptance of New Products 2. Monitor the effects of competitive products on
Factors that pre-determine acceptance of new products channel member support
by channel partners:
• How the product will sell – “Turnover”
• Whether the product is easy to stock & display
• Whether the product will be profitable – Maturity
“Margins” 1. Extra emphasis on motivating channel membersto
mitigate competitive impact
Adding Products to the Assortment 2. Investigate possibility for changes in channel
- Will existing channel members view the new structure to extend maturity stage & possibly foster
product as appropriate to add to their assortments? new growth stage
- Will channel members feel competent to handle
the new product?

Decline.
1. Phase out marginal channel members
2. Investigate impact of product deletion on channel
member
Strategic Product Management
Successful Product Strategies:
• Product quality, innovativeness, or
technological sophistication
• Capabilities of managers overseeing product
line
• Firm’s financial capacity & willingness to
provide promotional support
• Channel members’ role in implementing
product strategies
Product Strategies
1. Product Differentiation - Creating a differential
product involves getting consumers to perceive a
difference.
Implications for channel management:
• Channel managers should try to select & help
develop members who fit the product image
when product differentiation strategy is
affected by who will be selling the product.
• Channel managers should provide retailers with
the kind of support needed to properly present
the product when this strategy is influenced by
how the product is sold at retail.
2. Product Positioning - The manufacturer’s attempt
to have consumers perceive the product in a
particular way relative to competitive products
Implications for channel management:
• Possible interfaces between the product
positioning strategy and where the product will
be displayed and sold to consumers should be
considered before the strategy is implemented.
• Elicit retailer support before attempting to
implement strategy.
• Maintain backup supply of retailer incentives
3. Product Line Expansion & Contraction-
Manufacturers often engage in both expansion and
contraction simultaneously
Implications for channel management:
• Difficult to balance channel member satisfaction
& support for reshaped product lines
• Channel members are making increasing
demands on manufacturers to have the right
mix of products
4. Trading Down, Trading Up - Adding lower-priced
products or product lines, or higher-priced products
or product lines, to a product mix
Implications for channel management:
• Whether existing channel members provide
adequate coverage of high-end or low-end
market segments to which trade-up or trade-
down product is aimed
• Whether the channel members have confidence
in the manufacturer’s ability to successfully
market the trade-up or trade-down product.
5. Product Brand Strategy - When manufacturers sell
under both national and private brands, direct
competition with channel members a result
Implications for channel management:
• Do not sell both national & private brand
versions of products to the same channel
members.
• Sell national and private brand versions in
different geographical territories.
• Physically vary products enough to minimize
direct competition
6. Product Service Strategy - It is the role of the
marketing channel to provide necessary service
along with the product to the final user
Manufacturers should provide after-sale service:
• by offering it directly at the factory
• through their own network of service centers
• through channel members
• through authorized independent service centers
• by some combination of the above