Distribution Channels and Logistics Management

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 Issues Concerning Distribution
Channels

What Role Does

What is the Nature Physical Distribution
Of Distribution Play in Attracting
Channels? and Satisfying
Customers?

How do Channel What Problems do

Firms Interact and Companies Face in
Organize to do the Designing and
Work of the Managing Their
Channel? 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 it’s 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
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.
Risk Taking Information

Financing Promotion

Distribution
Contact
Physical

Negotiation Matching

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 Number of Channel Levels

Channel Level - Each Layer of Marketing Intermediaries that

Perform Some Work in Bringing the Product and its
Ownership Closer to the Final Buyer.

Channel 1
M
M Direct Channel CC

Channel 2
M
M Indirect Channel RR CC

Channel 3
M
M W
W RR CC

Channel 4
M
M W
W SW
SW RR CC

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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 doesn’t 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 member’s role
must be specified and conflict must be managed.

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Conventional Marketing Channel
Vs. a Vertical Marketing System
Conventional Vertical
Marketing Marketing
Channel System
Manufacturer
Manufacturer
Manufacturer

Wholesaler
Wholesaler
Wholesaler

Retailer
Retailer
Retailer

Consumer Consumer
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 Conventional Marketing Channel
Vs. a Vertical Marketing System
Conventional Marketing Vertical Marketing
Channel: System:
A channel consisting of one A distribution channel
or more independent structure in which producers,
producers, wholesalers, and wholesalers, and retailers act
retailers, each a separate as a unified system--one
business seeking to channel member owns the
maximize its own profits others, has contracts with
even at the expense of them, or has so much power
profits for the system as a that they all cooperate.
whole.

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Administered
Leadership is Assumed by One or
a Few Dominant Members i.e. P & G
Control
Contractual Direct
Contractual Agreements Among Degree of
Channel Members - Franchising
Corporate
Common Ownership at Different
Levels of the Channel i.e. Zara
Types of Vertical Marketing Systems
 Innovations in Marketing Systems

Horizontal Marketing Hybrid Marketing System

System A Single Firm Sets Up Two or
Two or More Companies at More Marketing Channels to
One Channel Level Join Reach One or More Customer
Together to Follow a New Segments.
Marketing Opportunity. Example:
Example: Retailers, Catalogs, and Sales
Coca Cola and Nestle Force

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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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Designing International Distribution Channels
Evaluating the Major Alternatives
Exclusive Selective Intensive
Distribution Distribution Distribution
Identifying Major Alternatives
Setting Channel Objectives & Constraints
Analyzing Consumer Service Needs
Channel Design Decisions
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Evaluating
Evaluating Channel
Channel Members
Members
Motivating
Motivating Channel
Channel Members
Members

FEEDBACK
Selecting
Selecting Channel
Channel Members
Members
Channel Management Decisions
Nature and Importance of Marketing
Logistics

 Marketing logistics or Physical distribution Involves planning,

implementing, and controlling the physical flow of goods,
services, and related information from points of origin to points of
consumption to meet customer requirements at a profit.
 Involves getting the right product to the right customers in the
right place at the right time at the right price.
 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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 Supply Chain Management
Inbound Outbound
Logistics Logistics
Suppliers Company Resellers Customers

Reverse
Logistics
Logistics Manager’s responsibility is to coordinate activities such as
forecasting, information systems, purchasing, production planning, order
processing, inventory, warehousing and transportation planning

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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

Logistics Warehousing
Information Storage
Management Distribution
Automated

Logistics
Functions

Inventory
Transportation,
Rail, Truck, Water, When to order
Pipeline, Air, How much to order
Intermodal Just-in-time

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Transportation Modes
Rail
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

Concept Recognizes that Providing Better Customer

Service and Trimming Distribution Costs Requires
Teamwork, Both Inside the Company and Among All the
Marketing Channel Organizations.
Teamwork inside
Cross-Functional Teamwork
Cross-Functional Company
the Company
inside the

Building Channel
Building Partnerships
Channel Partnerships

Logistics
Third-Party Logistics
Third-Party

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