DISTRIBUTION CHANNELS

WHAT IS A “DISTRIBUTION CHANNEL” ?

A set of interdependent organizations involved in the process of
making a product or service available for the use or consumption
by the consumer or business user.

WHY ARE MARKETING INTERMEDIARIES USED?

a: Efficiency in delivering goods to the target customer

b: Economy of operations

c: Assortment of products in one lot

SERVICE SECTOR – banks, schools, hospitals, fire brigades

FUNCTIONS OF DISTRIBUTION CHANNELS

1: Information gathering, market intelligence etc.

2: Promotion
3: Contacts

4: Negotiation

5: Physical distribution

6: Financing

7: Risk taking
 CHANNEL LEVELS

A layer of intermediaries that perform some work in bringing the

product and its ownership closer to the final buyer

1: Manufacturer Consumer

2: Manufacturer Retailer Consumer

3: Manufacturer Distributor/W.saler Retailer Consumer

4:: Manufacturer Distrib./w.saler Jobber Retailer Consumer

Direct Marketing Channel - Channel that has no intermediary levels

Indirect Marketing Channel – containing one or more intermediary levels

CHANNEL CONFLICTS

Disagreement among marketing channel members on goals and roles –

who should do what and for what rewards

Horizontal conflict
Conflict between same levels of channel

Vertical conflict
Between different levels of same channel

Conflict Management
VERTICAL MARKETING SYSTEMS

Conventional Distribution Channel

A channel consisting of one or more independent producers, wholesalers,
and retailers, each a separate business seeking to maximize its own profits
even at the expense of profits for the system as a whole.

Vertical Marketing System

A distribution channel structure in which producers, wholesalers, and
retailers act as a unified system. One channel member owns the others,
has contracts with them, or has so much power that they all cooperate.

Three types of Vertical Marketing System

1: CORPORATE VMS
A vertical marketing system that combines successive stages of
production and distribution under single ownership – channel leadership
is established through common ownership.

2: CONTRACTUAL VMS
A vertical marketing system in which independent firms at different levels
of production and distribution join together through contracts to obtain
more economies or sales impact than they could achieve alone.

Three types of Contractual VMS

a: Wholesale Sponsored Voluntary Chains

b: Retailers co-operatives

c: Franchise Organizations – A contractual vertical marketing

system in which a channel member, called a franchiser, links
several stages in the production-distribution process:
(1) Retail franchise (2) Wholesale franchise (3) Service franchise
3: ADMINISTERED VMS
A vertical marketing system that coordinates successive stages of
production and distribution, not through common ownership or
contractual ties but through the size and power of one of the partners

HORIZONTGAL MARKETING SYSTEM

A channel arrangement in which two or more companies at one level join
together to follow a new marketing opportunity.

HIBRID MARKETING SYSTEM

Multichannel distribution system in which a single firm sets up two or
more marketing channels to reach one or more customer segments
DISINTERMEDIATION

The elimination of a layer of intermediaries from a marketing

channel or the displacement of traditional resellers by
radically new types of intermediaries.
CHANNEL DESIGN DECISIONS

What customer wants: Buy from nearest location or from a distant

centralized location!

Buy personally or thru internet

Special product or assortment to choose from

The faster the delivery, the greater the assortment provided and the
more add on service provided, the greater the channel service level.

Greater channel service level, higher the cost

Manufacturer has to balance the cost and benefit.

Success of off-price and discount retailing shows that consumers are

often willing to accept lower service levels if this means lower prices
IDENTIFYING MAJOR CHANNEL ALTERNATIVES

Type of Intermediaries
Company’s sales force
Manufacturer’s agency
Industrial distributors

Number of Marketing Intermediaries

Intensive distribution
Exclusive distribution
Selective distribution

Responsibility of Channel Members

Be clearly defined
Agree on price policy, condition of sales, territorial rights etc.

EVALUATING THE MAJOR ALTERNATIVES

Economic criteria
Control issues

Adaptive criteria
 QUIZZ - 6th July 2004

1: Setting a high price for a new product to get maximum revenue from
the segments willing to pay high price with fewer but profitable sale,
is known as ________________.
Penetration Pricing/Skimming Pricing

2: Setting a price for products that must be used along with a main product
is known as _________________.
Optional Product Pricing/Captive Product Pricing

3: Selling a product at two or more price, not on cost difference bases, is

known as ______________
Segmented Pricing/Reference Pricing

4: Pricing strategies usually_____________ as the product passes through

its life cycle.
Change/remain unchanged

5: A price reduction to buyers who pay their bill promptly is known

as ________________
Service discount/cash discount/allowance