CHAPTER 8

CHAPTER 8
DISTRIBUTION STRATEGY
Product: is a good or service Price: is the amount of
that satisfies the wants of a money customers must
company’s target market. pay to obtain the product.
PRODUCT Marketing PRICE

Mix (4Ps)
Promotion: is defined as the Place: includes

activities that communicate the company activities that
merits of the product and make a product
PROMOTION PLACE available to target
persuade target customers to
buy it. consumers.

Mix (4Ps)

buy it. consumers.
4Ps (seller’s mind-set) (buyer’s mind-set) 4Cs
Customers are buying value and

Businesses sell products solutions to problems
PRODUCT CUSTOMER VALUE
Customer refers to the total costs

Price of obtaining, using, and disposing
of a product
PRICE CUSTOMER COSTS
Activities that make a product

Easy to buying
available to target consumers.
PLACE CONVENIENCE
Consumers want two-way

Eg. 30 second commercials
communication and relationships
on television and/or radio
with businesses
PROMOTION COMMUNICATION


of a product

Easy to buying
PLACE CONVENIENCE

with businesses
 The Nature and Importance of Marketing Channels
CONTENT
 Number of Channel Levels
 Channel Systems
S
 Channel Design Decisions
 Channel Management Decisions
 Channel conflict
 Marketing Logistics
1
The Nature and Importance
of Marketing Channels
1. The Nature and Importance of Marketing Channels
MARKETING CHANNEL (OR DISTRIBUTION CHANNEL)

A set of interdependent organizations that help make a product or service
available for use or consumption by the consumer or business user.
1. The Nature and Importance of Marketing Channels
“The greatest change will be in distribution channels, not in new methods
of production or consumption.”
(Peter Drucker)
In the United States, channel members collectively have earned margins
that account for 30 percent to 50 percent of the ultimate selling price.
Marketing channels must not just serve markets,

they must also make markets.
2
Number of Channel Levels
2. Number of Channel Levels
Channel level
A layer of intermediaries that performs some work in bringing
the product and its ownership closer to the final buyer.
 A zero-level channel, also called a

direct marketing channel, consists
of a manufacturer selling directly to
the final customer.
 The major examples are door-to-door

sales, home parties, mail order,
telemarketing, TV selling, Internet
selling, and manufacturer-owned
stores.
 Indirect marketing channel

Channel containing one or more
intermediary levels.
 Indirect marketing channel:

 A one-level channel contains one selling
intermediary, such as a retailer.
 A two-level channelcontains two
intermediaries. In consumer markets,
these are typically a wholesaler and a
retailer.
 A three-level channelcontains three
intermediaries.
For example, in the meatpacking industry,
wholesalers sell to JOBBERS, essentially
small-scale wholesalers, who sell to small
retailers.
3
Channel Systems
3. Channel Systems
INTEGRATING
CONVENTIONAL VERTICAL HORIZONTAL
MULTICHANNEL
MARKETING MARKETING MARKETING
MARKETING
CHANNEL SYSTEM (VMS) SYSTEMS
SYSTEMS
3. Channel Systems
INTEGRATING
MULTICHANN
EL
MARKETING
SYSTEMS
3. Channel Systems
 A conventional marketing channel consists of an independent

producer, wholesaler(s), and retailer(s).
 Each is a separate business seeking to maximize its own profits,
even if this goal reduces profit for the system as a whole.
 No channel member has complete or substantial control over
other members.
CONVENTIONAL
MARKETING
CHANNEL
3. Channel Systems
INTEGRATING
MULTICHANN
EL
MARKETING
SYSTEMS
3. Channel Systems
 A vertical marketing system (VMS), includes the producer,
wholesaler(s), and retailer(s) acting as a unified system.
 There are three types:
VERTICAL
MARKETING
SYSTEM (VMS)
CORPORATE VMS ADMINISTERED VMS CONTRACTUAL VMS
3. Channel Systems
VERTICAL MARKETING SYSTEM (VMS)
 Corporate VMS
A vertical marketing system that combines successive stages of production and
distribution under single ownership - channel leadership is established through
common ownership.
 For example, the grocery giant Kroger owns and operates 40
manufacturing plants—18 dairies, 10 deli and bakery plants, five grocery
product plants, three beverage plants, two meat plants, and two cheese
CORPORATE VMS plants—that crank out 40 percent of the more than 14,000 private label
items found on its store shelves.
3. Channel Systems
 An administered VMS coordinates successive stages of

production and distribution through the size and power of one of
the members.
 For example, Kodak, Gillette, and Campbell Soup command
high levels of cooperation from their resellers in connection
ADMINISTERED VMS with displays, shelf space, promotions, and price policies.
3. Channel Systems
 A contractual VMS consists of independent firms at different

levels of production and distribution who join together through
contracts to obtain more economies or sales impact than each
could achieve alone.
 The franchise organization is the most common type of
CONTRACTUAL VMS contractual relationship.

3. Channel Systems

contractual relationship
 There are three types of franchises:
❶ Manufacturer-sponsored retailer franchise system
❷ Manufacturer-sponsored wholesaler franchise system
CONTRACTUAL VMS
❸ Service-firm-sponsored retailer franchise system
3. Channel Systems

❶ Manufacturer-sponsored retailer franchise system:
For example, Ford and its network of independent franchised
CONTRACTUAL VMS
dealers.
3. Channel Systems
 The franchise organization is the most common type of contractual

relationship
❷ Manufacturer-sponsored wholesaler franchise system
For example, Coca-Cola licenses bottlers (wholesalers) in various markets who
buy Coca-Cola syrup concentrate and then bottle and sell the finished product to
CONTRACTUAL VMS
retailers in local markets.
3. Channel Systems

❸ Service-firm-sponsored retailer franchise system
CONTRACTUAL VMS For example, Burger King and its nearly 10,500 franchisee
operated restaurants around the world.
3. Channel Systems
INTEGRATING
MULTICHANN
EL
MARKETING
SYSTEMS
3. Channel Systems
Another channel development is the horizontal marketing system, in

which two or more unrelated companies put together resources or
programs to exploit an emerging marketing opportunity.
HORIZONTAL
MARKETING
SYSTEMS
3. Channel Systems
For example, many supermarket chains have arrangements with local

banks to offer in-store banking. Citizens Bank has over 523 branches in
supermarkets, making up roughly 35 percent of its branch network.
Citizens’s staff members in these locations are more sales oriented,
younger, and more likely to have some retail sales background than staff
HORIZONTAL in the traditional brick-and-mortar branches.
MARKETING
SYSTEMS
3. Channel Systems
INTEGRATING
MULTICHANNEL
MARKETING
SYSTEMS
3. Channel Systems
For example, Disney sells its DVDs through five main channels:
 Disney Stores (now owned and run by The Children’s Place)

 Movie rental stores such as Blockbuster.
 Retail stores such as Best Buy, online retailers such as Disney’s
own online stores and Amazon.com.
INTEGRATING  The Disney catalog.
MULTICHANNE  Other catalog sellers.
L MARKETING
SYSTEMS
3. Channel Systems
Adding more channels gives companies three important
Benefits:
❶ The first is increased market coverage.
❷ The second benefit is lower channel cost (selling by phone is
cheaper than personal selling to small customers).
INTEGRATING
MULTICHANN ❸ The third is more customized selling (such as by adding a
EL technical sales force to sell complex equipment).
MARKETING
SYSTEMS
4
Channel Design Decisions
4. Channel Design Decisions
Analyzing Setting Channel Identifying Evaluating the

Consumer Needs Objectives Major Major
Alternatives Alternatives

When the company has defined its channel objectives,

it should next identify its major channel alternatives in terms of…
 The types of intermediaries
 The number of intermediaries

Identifying  The responsibilities of each channel member
Major
Alternatives
THE NUMBER OF INTERMEDIARIES
Three strategies based on the number of intermediaries are:
EXCLUSIVE SELECTIVE DISTRIBUTION INTENSIVE

DISTRIBUTION relies on only some of the DISTRIBUTION
Identifying means severely limiting the intermediaries willing to carry a places the goods or services
Major number of intermediaries. particular product. in as many outlets as
Alternatives Eg. Luxury automobiles and Eg. Television and home possible.
prestige clothing appliance Eg. Candy and toothpaste
5
Channel Management Decisions
5. Channel Management Decisions
Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members
6
Channel conflict
6. Channel conflict
Channel conflict
Disagreement among marketing channel members on goals, roles, and rewards -
who should do what and for what rewards.
TYPES OF CONFLICT
 Horizontal channel conflict
 Vertical channel conflict
 Multichannel conflict
6. Channel conflict
TYPES OF CONFLICT
 Horizontal channel conflict: occurs between channel members at the same

level.
For example: Some Pizza Inn franchisees complained about others cheating
on ingredients, providing poor service, and hurting the overall brand image.
6. Channel conflict
TYPES OF CONFLICT
 Vertical channel conflict: occurs between different levels of the channel.

For example: Burger King has had a steady stream of conflicts with its
franchised dealers over everything from increased ad spending and offensive
ads to the prices it charges for cheeseburgers.
6. Channel conflict
TYPES OF CONFLICT
 Multichannel conflict: exists when the manufacturer has established two or

more channels that sell to the same market.
For example: When Goodyear began selling its popular tire brands through
Sears, Walmart, and Discount Tire, it angered its independent dealers and
eventually placated them by offering exclusive tire models not sold in other
retail outlets.
6. Channel conflict
CAUSES OF CHANNEL CONFLICT MANAGING CHANNEL CONFLICT
 Strategic justification
 Dual compensation
 Goal incompatibility
 Superordinate goals
 Unclear roles and rights  Employee exchange
 Differences in perception  Joint memberships
 Intermediaries’ dependence on the  Co-optation
 Diplomacy, mediation, or arbitration
manufacturer
 Legal recourse
6
Marketing Logistics
7. Marketing Logistics
Marketing logistics (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 consumer requirements at a profit.
Marketing logistics involves:

 Outbound distribution: moving products from the factory to resellers
and consumers.
 Inbound distribution: moving products and materials from suppliers to
the factory.
 Reverse distribution: moving broken, unwanted, or excess products
returned by consumers or resellers.
What is the importance of logistics?
Their responses should include:
 Competitive advantage by giving customers better service at lower
prices.
 Cost savings to the company and its customers.
 Product variety requires improved logistics.
 Information technology has created opportunities for distribution
efficiency.
Goals of the Logistics System
“getting the right goods to the right places

at the right time for the least cost”
Supply chain management is the process of managing upstream and

downstream value-added flows of materials, final goods, and related
information among suppliers, the company, resellers, and final
consumers.
Supply chain management
Major Logistics
Functions
What do you need to
remember?

Mix (4Ps)

buy it. consumers.

Mix (4Ps)

buy it. consumers.


of a product

Easy to buying
PLACE CONVENIENCE

with businesses


of a product

Easy to buying
PLACE CONVENIENCE

with businesses
Channel Systems
INTEGRATING
MULTICHANN
EL
MARKETING
SYSTEMS
Channel Systems
 A vertical marketing system (VMS), includes the producer,

wholesaler(s), and retailer(s) acting as a unified system.
 There are three types:
VERTICAL
MARKETING
SYSTEM (VMS)
CORPORATE VMS ADMINISTERED VMS CONTRACTUAL VMS

THE NUMBER OF INTERMEDIARIES

Three strategies based on the number of intermediaries are:
EXCLUSIVE SELECTIVE DISTRIBUTION INTENSIVE

DISTRIBUTION relies on only some of the DISTRIBUTION
Identifying means severely limiting the intermediaries willing to carry a places the goods or services
Major number of intermediaries. particular product. in as many outlets as
Alternatives Eg. Luxury automobiles and Eg. Television and home possible.
prestige clothing appliance Eg. Candy and toothpaste
Channel conflict
Channel conflict
Disagreement among marketing channel members on goals, roles, and rewards -
who should do what and for what rewards.
TYPES OF CONFLICT
 Horizontal channel conflict
 Vertical channel conflict
 Multichannel conflict
Marketing Logistics
Goals of the Logistics System
“getting the right goods to the right places

at the right time for the least cost”
Major Logistics
Functions

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CHAPTER 8 - Distribution Strategy

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PRODUCT Marketing PRICE

Promotion: is defined as the Place: includes

PRODUCT Marketing PRICE

Promotion: is defined as the Place: includes

Customers are buying value and

Customer refers to the total costs

Activities that make a product

Consumers want two-way

Customers are buying value and

Customer refers to the total costs

Activities that make a product

Consumers want two-way

 Channel Management Decisions

MARKETING CHANNEL (OR DISTRIBUTION CHANNEL)

Marketing channels must not just serve markets,

 A zero-level channel, also called a

 The major examples are door-to-door

 Indirect marketing channel

 Indirect marketing channel:

 A conventional marketing channel consists of an independent

 An administered VMS coordinates successive stages of

 A contractual VMS consists of independent firms at different

CONTRACTUAL VMS contractual relationship.

 The franchise organization is the most common type of

 The franchise organization is the most common type of

 The franchise organization is the most common type of contractual

 The franchise organization is the most common type of

Another channel development is the horizontal marketing system, in

For example, many supermarket chains have arrangements with local

 Disney Stores (now owned and run by The Children’s Place)

Analyzing Setting Channel Identifying Evaluating the

Analyzing Setting Channel Identifying Evaluating the

When the company has defined its channel objectives,

 The types of intermediaries

 The number of intermediaries

EXCLUSIVE SELECTIVE DISTRIBUTION INTENSIVE

Selecting Managing Motivating Evaluating

 Horizontal channel conflict: occurs between channel members at the same

 Vertical channel conflict: occurs between different levels of the channel.

 Multichannel conflict: exists when the manufacturer has established two or

Marketing logistics (physical distribution) involves planning,

Marketing logistics involves:

Goals of the Logistics System

“getting the right goods to the right places

Supply chain management is the process of managing upstream and

PRODUCT Marketing PRICE

Promotion: is defined as the Place: includes

PRODUCT Marketing PRICE

Promotion: is defined as the Place: includes

Customers are buying value and

Customer refers to the total costs

Activities that make a product

Consumers want two-way

Customers are buying value and

Customer refers to the total costs

Activities that make a product

Consumers want two-way

 A vertical marketing system (VMS), includes the producer,

Analyzing Setting Channel Identifying Evaluating the

THE NUMBER OF INTERMEDIARIES

EXCLUSIVE SELECTIVE DISTRIBUTION INTENSIVE

Goals of the Logistics System

“getting the right goods to the right places