Chapter 6

DISTRIBUTION POLICY
 6.1 Supply Chains and the Value Delivery Network
Producing a product or service and making it available to buyers
requires building relationships not only with customers but also
with key suppliers and resellers in the company’s supply chain.

Upstream from the company is the set of Downstream marketing channel

firms that supply the raw materials, partners, such as wholesalers and
components, parts, information, finances, retailers, form a vital link between the
and expertise needed to create a product or firm and its customers.
service.

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 6.1 Supply Chains and the Value Delivery Network
 Businesses cannot create value for customers by themselves.
  Enterprises must cooperate with a network of partners (upstream and
downstream partners) to complete the task
Supply Chains and the Value
Delivery Network

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 6.2 The Nature and Importance of Marketing Channels
• 6.2.1 Marketing channel (distribution channel) Concepts

* Distribution is the activity of organizing, implementing, and

coordinating intermediaries to create conditions for the transfer
of ownership from the seller to the buyer.

a marketing channel —a set of

interdependent organizations that
help make a product or service
available for use or consumption by
the consumer or business user.
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 6.2 The Nature and Importance of Marketing
Channels
How a Distributor Reduces the Number of Channel Transactions

 Intermediaries reduce the amount of work that needs to be done

by both the producer and the consumer
 6.2 The Nature and Importance of Marketing
Channels
6.2.2 Importance and functions of Marketing Channels

Information. Gathering and distributing information about consumers,

producers, and ther actors and forces in the marketing environment needed
for planning and aiding exchange.
• Promotion. Developing and spreading persuasive communications about
an offer.
• Contact. Finding and engaging customers and prospective buyers.
• Matching. Shaping offers to meet the buyer’s needs, including activities
such as manufacturing, grading, assembling, and packaging.
• Negotiation. Reaching an agreement on price and other terms so that
ownership or possession can be transferred.
 6.2 The Nature and Importance of Marketing
Channels
6.2.2 Importance and functions of Marketing Channels

Others help to fulfill the completed transactions:

• Physical distribution. Transporting and storing goods.
• Financing. Acquiring and using funds to cover the costs of the channel
work.
• Risk taking. Assuming the risks of carrying out the channel work
6.2 The Nature and Importance of Marketing
Channels
6.2.3 Number of Channel Levels
 6.2 The Nature and Importance of Marketing
Channels
6.2.5 Types of distribution intermediaries
Wholesaler Retailer
Are distribution intermediaries that buy Distributors that buy products from
products from manufacturers and sell manufacturers or wholesalers and
them to other intermediaries or to sell products directly to end
industrial customers consumers.

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 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Conventional Distributions Systems

Conventional distribution systems consist of one or more independent

producers, wholesalers, and retailers. Each seeks to maximize its own
profits, and there is little control over the other members and no
formal means for assigning roles and resolving conflict.
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Vertical Marketing Systems

Vertical marketing systems (VMS) provide channel leadership and consist

of producers, wholesalers, and retailers acting as a unified system and
consist of:
• Corporate marketing systems
• Contractual marketing systems
• Administered marketing systems
6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Vertical Marketing Systems

Corporate vertical marketing system integrates

successive stages of production and distribution
under single ownership
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Vertical Marketing Systems

Contractual vertical marketing system 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 most common form is the franchise
organization.
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Vertical Marketing Systems

Franchise organization links several stages in the production distribution

process
• Manufacturer-sponsored retailer franchise system
• Manufacturer-sponsored wholesaler franchise system
• Service firm-sponsored retailer franchise system
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Vertical Marketing Systems
Administered vertical marketing system has a few dominant channel members
without common ownership. Leadership comes from size and power.
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Horizontal Marketing Systems

Horizontal marketing systems are when two or more companies at one level join
together to follow a new marketing opportunity. Companies combine
financial, production, or marketing resources to accomplish more than any
one company could alone.
6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Multichannel Distribution Systems
Hybrid Marketing Channels

Multichannel Distribution systems (Hybrid marketing

channels) are when a single firm sets up two or more
marketing channels to reach one or more customer
segments
 6.2 The Nature and Importance of Marketing Channels
Channel Behavior and Organization
Changing Channel Organization

Disintermediation occurs when product or service producers cut out

intermediaries and go directly to final buyers, or when radically new
types of channel intermediaries displace traditional ones
6.3.1 Channel Design Decisions

Analyzing Setting
consumer channel
needs objectives

Identifying
major
Evaluation
channel
alternatives
 6.3.1 Channel Design Decisions
Setting Channel Objectives
• Targeted levels of customer service
• What segments to serve
• Best channels to use
• Minimizing the cost of meeting customer service requirements
 6.3.1 Channel Design Decisions
Identifying Major Alternatives

Intensive distribution
• Candy and toothpaste

Exclusive distribution
• Luxury automobiles and prestige clothing

Selective distribution
• Television and home appliance
6.3.2 Channel Management Decisions

Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members
 Public Policy and Distribution
Decisions
Exclusive distribution is when the seller allows only certain outlets to carry
its products
Exclusive dealing is when the seller requires that the sellers not handle
competitor’s products
Exclusive territorial agreements is when producer or seller limit territory
Tying agreements are agreements where the dealer must take most or all
of the line
 6.4 Marketing Logistics and Supply Chain
Management
Nature and Importance of 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
 6.4 Marketing Logistics and Supply Chain
Management
Sustainable Supply Chains
• Companies have many reasons for reducing the
environmental impact of their supply chains.
• For one thing, if they don’t green up voluntarily, a host
of sustainability regulations enacted around the world
will soon require them to.
• For another, many large customers—from Walmart and
Nike to the federal government—are demanding it.
 6.4 Marketing Logistics and Supply Chain
Management
Goals of the Logistics System
• The goal of marketing logistics should be to provide a
targeted level of customer service at the least cost.
• A company must first research the importance of
various distribution services to customers and then set
desired service levels for each segment.
• The objective is to maximize profits, not sales.
 6.4 Marketing Logistics and Supply Chain
Management
Major Logistics Functions
• Given a set of logistics objectives, the company designs
a logistics system that will minimize the cost of attaining
these objectives. The major logistics functions are
warehousing, inventory management, transportation,
and logistics information management
 6.4 Marketing Logistics and Supply Chain
Management
Integrated Logistics Management

The logistics concept that emphasizes teamwork—both

inside the company and among all the marketing
channel organizations—to maximize the performance of
the entire distribution system.
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