Distribution Channels and

Logistics Management

1
 Issues Concerning
Distribution Channels
What
What Role
Role Does
Does
What
What isis the
the Nature
Nature Physical
Physical Distribution
Distribution
Of
Of Distribution
Distribution Play
Play in
inAttracting
Attracting
Channels?
Channels? and
and Satisfying
Satisfying
Customers?
Customers?

How
How do
do Channel
Channel What
Firms What Problems
Problems do
do
Firms Interact
Interact and
and Companies
Companies Face
Face in
in
Organize
Organize toto do
do the
the Designing
Work Designing and
and
Work of
of the
the Managing
ManagingTheir
Their
Channel?
Channel? Channels?
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.
3
 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. 4
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
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
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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.
Channel 1 Direct Channel
MM CC

Channel 2 Indirect Channel

MM RR CC

Channel 3
MM W
W RR CC

Channel 4
MM DD W
W 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
(Fig. 12.3)
Conventional Vertical
Marketing Marketing
Channel System
Manufacturer
Manufacturer
Manufacturer

Wholesaler
Wholesaler
Wholesaler

Retailer
Retailer
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
Degree of
Contractual Agreements Among
Direct Channel Members
Control

Administered
Leadership is Assumed by One or
a Few Dominant Members i.e. Kraft
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 Types of Vertical Marketing
Systems
Vertical
Vertical Marketing
Marketing
Systems
Systems (VMS)
(VMS)

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
Wholesaler Sponsored
Sponsored Retailer
Retailer Franchise
Franchise
Voluntary
Voluntary Chain
Chain Cooperatives
Cooperatives Organizations
Organizations

Manufacturer-
Manufacturer- Manufacturer-
Manufacturer- Service-Firm-
Service-Firm-
Sponsored
Sponsored Retailer
Retailer Sponsored
Sponsored Wholesaler
Wholesaler Sponsored
Sponsored
Franchise
Franchise System
System Franchise
Franchise System
System Franchise
Franchise System
System
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 Innovations in Marketing
Systems
Horizontal
Horizontal Hybrid Marketing
Hybrid Marketing
Marketing
Marketing System
System
System
System AA Single
Single Firm
Firm Sets
Sets Up
Up
Two or
Two or More
More Marketing
Marketing
Two
Two oror More
More Companies
Companies Channels to
Channels to Reach
Reach
at
at One
One Channel
Channel Level
Level One or
One or More
More Customer
Customer
Join
Join Together
Together to
to Follow
Follow Segments.
Segments.
aa New
New Marketing
Marketing
Opportunity. Example:
Example:
Opportunity.
Example: Retailers, Catalogs,
Retailers, Catalogs,
Example: and Sales
Sales Force
Force
and
Banks
Banks in
in Grocery
Grocery Stores
Stores
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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

Intensive Selective Exclusive

Distribution Distribution Distribution

Evaluating the Major Alternatives

Designing International Distribution Channels

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Channel Management
Decisions
Selecting
Selecting Channel
Channel Members
Members

FEEDBACK
Motivating
Motivating Channel
Channel Members
Members

Evaluating
Evaluating Channel
Channel Members
Members

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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.

Lower Distribution Costs;

Lower Customer Service
Levels 18
 Major Logistics Functions
Costs
Costs Order
Order Processing
Processing
Minimize
MinimizeCosts
Costsofof Received
Received
Attaining
AttainingLogistics
Logistics Processed
Processed
Objectives
Objectives Shipped
Shipped

Logistics
Transportation Warehousing
Warehousing
Functions Storage
Storage
Rail, Truck, Water,
Pipeline, Air, Distribution
Distribution
Intermodal Automated
Automated
Inventory
Inventory
When
Whento toorder
order
How
Howmuch
muchto toorder
order
Just-in-time
Just-in-time
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 Transportation Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexibleininrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value,
low-value,
non
nonperishable
perishablegoods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets
Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededor
or
distance
distancemarkets
marketshave
haveto
tobe
bereached
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.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics

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