Marketing
Channels
and Supply Chain
Management
Chapter 12
1
Issues Concerning
Distribution Channels
What
What isis the
the Nature
Nature What
What Problems
Problems do
do
Of
Of Distribution
Distribution Companies
Companies Face
Face in
in
Channels?
Channels? Designing
Designing and
and
Managing
Managing Their
Their
Channels?
Channels?
How
How do
do Channel
Channel
Firms
Firms Interact
Interact and
and
Organize
Organize toto do
do the
the
Work
Work of
of the
the
Channel?
Channel?
Value Delivery Network
The network made-up of the company,
suppliers, distributors and ultimately
customers who “partner” with each other to
improve the performance of the entire
system in delivering customer value.
Upstream partners: set of firms that supply
stuffs needed to create a product or service.
Down stream partners: firms that help
producers to deliver products to the
customers.
Marketing/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.
A strong distribution system can be a
competitive advantage.
Channel decisions involve long-term
commitments to other firms.
How Channel Members
Add Value?
How a Marketing Intermediary
Reduces the Number of
Channel Transactions
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
Direct Channel
M
M CC
Channel 2 Indirect
M
M Channel RR CC
Channel 3
M
M W
W RR CC
Channel Behavior and
Organization
Channel Conflict
Occurs when channel members disagree on roles,
activities, or rewards. Who should do what and for
what rewards?
Types of Conflict:
Horizontal conflict: occurs among firms at the
same channel level e.g: Dealers’ conflict, or retailer to
retailer
Vertical conflict:. occurs among firms at different channel
levels e.g. Conflict between parent company and re-sellers
For the channel to perform well, each channel
member’s role must be specified and conflict
must be managed.
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
Conventional Vs Vertical
Marketing System:
Conventional System:
A channel consisting of one or more independent
producers, wholesalers, retailers, each a
separate business seeking to maximize its own
profits, even at the expense of profits for the
system as a whole.
Vertical System (VMS):
A channel structure where producers,
wholesalers and retailers act as a unified
system.
One channel member owns the others, has
contracts with them or has so much power that
they all cooperate.
Vertical Marketing System
(VMS):
Corporate VMS
Combines successive stages of production and
distribution under single ownership.
Leadership is established through common
ownership.
Forward integration Vs Backward integration.
Aarong, Ecstasy, Yellow
Contractual VMS
Independent firms at different levels of production
and distribution join together through contracts.
Ex-Mcdonalds, Burger king.
Transcom distributes the products of Philips and Whirlpool.
Flora Bangladesh Ltd sells computer peripherals on behalf of
HP.
Other systems:
Horizontal Marketing System
A channel arrangement in which two or more
companies at one level join together to follow a
new marketing opportunity. Ex-North End
inside Evercare Hospital, Premium Sweets
inside Meena Bazaar.
Multichannel Distribution System
Many firms are adopting multi-channel marketing to
reach their target customers. Adding more channel,
companies can gain better market coverage and lower
channel cost. Online, offline, e-commerce sites.
Disintermediation- Eliminating Channel
members from the system.
Channel Design Decisions
Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints
Identifying Major Alternatives
Intensive Selective Exclusive
Distribution Distribution Distribution
Evaluating the Major Alternatives
Channel Design Decisions
Step 1: Analyzing Consumer Needs
Cost and feasibility of meeting needs must
be considered
Do consumers want to buy from nearby
locations?
Do they want add-on services?
Would they buy in person or over phone or via
the Internet?
Channel Design Decisions
Step 2: Setting Channel Objectives
Set channel objectives in terms of targeted
level of customer service
Many factors influence channel objectives
Nature of the company: size and financial
situation
Its products: perishable or durable
Its competitors: avoid channels used by
competitors. E.g. Avon
Economic conditions: depressed economy
Channel Design Decisions
Step 3: Identifying Major Alternatives
Types of intermediaries
Company sales force, distributors, wholesalers,
retailers
Number of marketing intermediaries
Intensive, selective, and exclusive distribution
Responsibilities of channel members: Agree
on price policies, territorial rights, ad specific
services to be performed by each party.
Number of marketing
intermediaries
Intensive
Stocking the product in as
many outlets as possible
Used for Convenience Goods Even found sold in a boat floating
down a deserted section of the Nile
Selective River, says one Globe and Mail
Using more than one but reporter
fewer than all of the
intermediaries who are
willing to carry the
company's products
Used for Shopping Goods In some selected places. We may
not find a GE appliance in a small
department store
Exclusive
Giving a limited number of
dealers the exclusive right to
distribute the company's
products in their territories
Used for Specialty Goods
We can’t buy a rolls Royce or a
ferrari just from anywhere
Channel Design Decisions
Step 4: Evaluating Major Alternatives
Economic criteria: compare the likely
sales, costs and profitability of different
channel alternatives.
Control issues: how much control to be
given over the marketing of the product.
Adaptive criteria: flexibility of channel
members to adapt with environmental
changes.
Channel Management
Decisions
Selecting
Selecting Channel
Channel Members
Members
FEEDBACK
Motivating
Motivating Channel
Channel Members
Members
Evaluating
Evaluating Channel
Channel Members
Members
