CHAPTER 10

Distribution Strategy

McGraw-Hill/Irwin Copyright © 2013 by the McGraw-Hill Companies, Inc. All rights reserved.
CHANNEL OF DISTRIBUTION
It is the combination of institutions through which a
seller markets products to the user or ultimate
consumer

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TYPES OF MARKETING
INTERMEDIARIES
• Middleman - Operates as a link between
producers and ultimate consumers or
organizational buyers
• Merchant middleman - A middleman who
buys the goods outright and takes title to them
• Agent - A business unit that negotiates
purchases, sales, or both but does not take title
to the goods in which it deals

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TYPES OF MARKETING
INTERMEDIARIES
• Wholesaler - A merchant establishment
operated by a concern that is primarily
engaged in:
• Buying

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TYPES OF MARKETING
INTERMEDIARIES
• Taking title
• Storing and physically handling goods in large
quantities
• Reselling goods to retailers or to organizational
buyers

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TYPES OF MARKETING
INTERMEDIARIES
• Retailer - A merchant middleman who is engaged
primarily in selling to ultimate consumers
• Broker - A middleman who serves as a go-
between for the buyer or seller
• Manufacturer’s agent - An agent who operates on
an extended contractual basis, sells within an
exclusive territory, handles noncompeting goods,
and possesses limited authority

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TYPES OF MARKETING
INTERMEDIARIES
• Distributor - A wholesale middleman especially
in lines where selective or exclusive distribution
is common
• Jobber - A middleman who buys from
manufacturers and sells to retailers
• Facilitating agent - A business firm that assists
in the performance of distribution tasks other
than buying, selling, and transferring title

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MAJOR FUNCTIONS PERFORMED IN
CHANNELS OF DISTRIBUTION
• Transactional functions:
• Buying
• Selling
• Risk taking
• Logistical functions:
• Assorting
• Storing
• Sorting
• Transporting

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MAJOR FUNCTIONS PERFORMED IN
CHANNELS OF DISTRIBUTION
• Facilitating functions:
• Financing
• Grading
• Marketing information and research

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CHANNELS OF DISTRIBUTION

• Direct channels: Selling directly to the market

• Also called direct marketing
• Indirect channels: Channels with one or more
intermediaries

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FIGURE 10.4 - CONVENTIONAL CHANNELS OF
DISTRIBUTION FOR ORGANIZATIONAL
GOODS

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SELECTING CHANNELS OF
DISTRIBUTION
• Numerous types of channel intermediaries and
functions that must be performed
• The task of selecting and designing a channel of
distribution may appear to be overwhelming
• In many industries, distribution channels have
developed over many years and have become
somewhat traditional
• Where no traditional channel exists, one problem
is the availability of various types of middlemen

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SELECTING CHANNELS OF
DISTRIBUTION
• Distribution coverage required:
• Intensive distribution: Manufacturer attempts to
gain exposure through as many wholesalers and
retailers as possible
• Selective distribution: Manufacturer limits the
use of intermediaries to the ones believed to be the
best available in a geographic area
• Exclusive distribution: Manufacturer limits
distribution, and intermediaries are provided
exclusive rights within a particular territory

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SELECTING CHANNELS OF
DISTRIBUTION
• Desired degree of control - The seller must
make decisions concerning the degree of
control desired over the marketing of the
firm’s products
• The degree of control achieved by the seller is
proportionate to the directness of the channel

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SELECTING CHANNELS OF
DISTRIBUTION
• Total distribution cost: Major distribution
costs to be minimized are:
• Transportation
• Order processing
• Cost of lost business

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SELECTING CHANNELS OF
DISTRIBUTION
• Inventory carrying costs, which include:
• Storage-space charges
• Cost of capital invested
• Taxes
• Insurance
• Obsolescence and deterioration

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SELECTING CHANNELS OF
DISTRIBUTION
• Packaging
• Materials handling
• Channel flexibility - Relates to ability of the
manufacturer to adapt to changing conditions

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MANAGING A CHANNEL OF
DISTRIBUTION
• Relationship marketing: Marketing with
conscious aim to develop and manage long-
term and/or trusting relationships with
customers, distributors, suppliers, or other
parties in the marketing environment

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MANAGING A CHANNEL OF
DISTRIBUTION
• Vertical marketing system: A channel in
which members are more dependent on one
another and develop long-term relationships to
improve efficiency and effectiveness

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FIGURE 10.6 - MAJOR TYPES OF
VERTICAL MARKETING SYSTEMS

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TYPES OF VERTICAL MARKETING
SYSTEMS
• Administered systems: Higher degree of
interorganizational planning and management
than in a conventional channel
• Contractual systems: Independent production
and distribution companies enter into formal
contracts
• Retail cooperative organization
• Wholesaler-sponsored voluntary chain
• Various franchising programs

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TYPES OF VERTICAL MARKETING
SYSTEMS
• Corporate systems: Single ownership of two
or more levels of a channel
• Forward integration: A manufacturer’s
purchasing wholesalers or retailers
• Backward integration: Wholesalers or
retailers purchase channel members above
them

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WHOLESALING

• Wholesalers are merchants engaged in buying,

taking title to, storing and physically handling
goods
• Also called distributors in some industries
• Create value for suppliers, retailers, and users
of goods by handling their functions efficiently
and effectively

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WHOLESALING

• Wholesalers try to attract producers to use

their services
• Wholesalers need to attract retailers and
organizational customers to buy from them
• While there are still many successful
wholesalers, the share of products they sell is
likely to continue to decrease

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SOME BENEFITS OF WHOLESALERS FOR
VARIOUS CHANNEL MEMBERS
• Provide the ability to reach diverse geographic
markets cost effectively
• Reduce costs by providing an assortment of
goods from different manufacturers
• Increase the product alternatives available in
local markets

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STORE RETAILING

• Retailers vary in:

• The types of merchandise they carry
• The breadth and depth of their product
assortments
• The amount of service they provide
• Mass merchandisers: Carry broad assortments
of goods and compete based on selection and
price

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STORE RETAILING

• Specialty stores: Handle deep assortments in a

limited number of product categories
• Limited-line stores
• Single-line stores
• Category killers

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STORE RETAILING

• Convenience stores: Retailers whose primary

advantages are location convenience, close-in
parking, and easy entry and exit

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NONSTORE RETAILING

• Catalogs and direct mail

• Vending machines
• Television home shopping
• Direct sales
• Electronic exchange and multichannel
marketing

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ELECTRONIC COMMERCE:
ADVANTAGES AND DISADVANTAGES
FOR MARKETERS
• Advantages:
• Reduces the need for stores, paper catalogs,
and salespeople; can be cost efficient
• Allows products to be offered globally in an
efficient manner
• Fosters the development of one-on-one,
interactive relationships with customers

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ELECTRONIC COMMERCE:
ADVANTAGES AND DISADVANTAGES
FOR MARKETERS
• Disadvantages:
• Strong price competition online often squeezes
profit margins
• Less effective and efficient in business-to-
consumer markets than in business-to-business
markets

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