The decisions involved in designing a channel of distribution
Major channels used to distribute consumer goods, business goods, and services
Vertical marketing systems
Intensity of distribution
Choice of intermediaries and conflict management
Legal considerations and channel arrangements
The Distribution Function
distribution is about getting the product or service to the customer as conveniently as possible; it deals with access and availability
intermediaries perform many of the distribution functions on behalf of suppliers
merchant intermediaries actually take title to physical products that they distribute
agents do not ever own the products, but they arrange the transfer of title
The role of distribution entails:
Arranging for its sale and transfer of title
Promoting the product
Storing the product
Assuming some risk during distribution.
Intermediaries often perform these activities for producer or consumer.
quantities of a product
SALES SPECIALIST FOR PRODUCERS PURCHASING AGENT FOR BUYERS I N T E R M E D I A R Y The Distribution Functions
Designing the Channel
Channel design is a strategic marketing tool. Four decisions can be help a firm design a distribution channel:
what role distribution is to play in achieving objectives
what type of channel is needed? with or without intermediaries?
what level of intensity of distribution?
which specific intermediaries to use? which will be best suited to achieve objectives?
Specify the role of distribution within the marketing mix Select type of distribu- tion channel Determine appropriate intensity of distri- bution Choose specific channel members The Well-Designed Distribution Strategy
Selecting the Type of Channel
some firms will distribute directly; others will use a number of intermediaries:
BUSINESS USERS PRODUCERS OF BUSINESS GOODS Merchant wholesalers (industrial distributors) Agents Agents Merchant wholesalers (industrial distributors) Business Channels
ULTIMATE CONSUMERS OR BUSINESS USERS PRODUCERS OF SERVICES Agents Service Channels
Multiple Distribution Channels
some firms will use several distribution channels to reach specific markets or segments
dual distribution is used, for example, to reach business and consumer markets, or to carry different groups of products
or may be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country
some companies operate their own stores
Vertical Marketing Systems (VMS)
a tightly coordinated distribution channel designed to improve operating efficiency and marketing effectiveness.
Corporate VMS: One firm owns other firms in channel or the entire channel-- Goodyear, Roots.
Contractual VMS: Independents work together for much greater effectiveness: IGA, IDA.
Administered VMS: Relies on economic power of one channel member-- Rolex, Kraft General Foods. .
INTENSIVE SELECTIVE EXCLUSIVE Distribution through every reasonable outlet in a market Distribution through multiple, but not all, reasonable outlets in a market Distribution through a single wholesaling middleman and/or retailer in a market Intensity of Distribution
Considerations in Channel Choice
Market Considerations : Type of market, concentration, potential customers, order size.
Product Considerations : Consider unit value, perishability, technical nature of product.