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9fms Pp15 9fms Pp15 Presentation Transcript

  • Chapter 15 Channels of Distribution: Conflict, Cooperation, and Management Sommers  Barnes Ninth Canadian Edition Presentation by Karen A. Blotnicky Mount Saint Vincent University, Halifax, NS Copyright © 200 1 by McGraw-Hill Ryerson Limited
  • Chapter Goals
    • To gain an understanding of:
    • The nature and importance of intermediaries
    • What a distribution channel is and does
    • 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
  • Distribution Channels
    • 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.
    • Provides market
    • information
    • Interprets consumers’
    • wants
    • Promotes producers’
    • products
    • Creates assortments
    • Stores products
    • Negotiates with
    • customers
    • Provides financing
    • Owns products
    • Shares risks
    • Anticipates wants
    • Subdivides large
    • quantities of a product
    • Stores products
    • Transports products
    • Creates assortments
    • Provides financing
    • Makes products
    • readily available
    • Guarantees products
    • Shares risks
    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:
      • producer  consumer (direct)
      • producer  retailer  consumer
      • producer  wholesaler  retailer  consumer
      • producer  agent  retailer  consumer
      • producer  agent  wholesale  retailer  consumer
    • when would each of these be considered?
  • Major Distribution Channels
    • For distribution of consumer goods, five different types of channels are widely used.
    • Business goods are normally distributed through four major types of channels.
    • There are only two common channels of distribution for services.
    • Some producers are not content to use only a single distribution channel and use multiple channels (a.k.a dual distribution )
    • Multiple channels can aggravate middlemen and cause conflicts in the channels.
  • ULTIMATE CONSUMERS PRODUCERS OF CONSUMER GOODS Retailers Retailers Retailers Retailers Merchant wholesalers Merchant wholesalers Agents Agents Consumer Channels
  • 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.
    • Intermediaries Considerations : Services offered, availability, attitude, dominance.
    • Company Considerations : Desire for channel control, management, money and services seller can provide to support sales.
  • Conflict and Control in Channels
    • Channel conflict exists when channel members interfere with each others’ objectives.
    • Horizontal conflict involves firms on same level-- grocery store vs. drug store.
    • Vertical conflict involves firms at different levels
      • producer versus wholesaler
      • producer versus retailer
    • Channel Power is the ability to influence or determine behaviour of others in channel.
      • Based on expertise, rewards and sanctions.
  • Producer/Retailer Conflict
    • Small suppliers’ complaints about large department stores:
    • Onerous logistical demands.
    • Pressure to cut prices.
    • Demands to give the stores exclusivity.
    • Forcing suppliers to contribute advertising and promotional dollars to the stores.
    • Requiring suppliers to invest in elaborate computerized inventory systems.
    • Small suppliers’ complaints about discounters :
      • Being asked to supply their goods on consignment.
      • Being asked to deal directly with the retailers’ headquarters and to give to the retailer an amount equal to the commission that would have gone to manufacturers’ agents.
    • Responses from smaller suppliers:
      • Quit doing business with big retailers whose demands are too strict and outlandish .
      • Become a retailer.
      • Merge with another manufacturer.
    More Complaints
  • Legal Considerations
    • Dealer Selection : Refusing to sell to some firms. Can be done carefully.
    • Exclusive Dealing involves shutting out competitors, giving most business to one firm.
    • Tying Contracts involves providing one item on condition other lines be carried as well.
    • Exclusive Territories can create monopolies.
  • Channels for Entering Foreign Markets
    • Exporting, through:
      • An export merchant in the manufacturer's country that buys goods and exports them.
      • An export agent located in either the manufacturer's or the destination country.
      • A company’s sales branches.
    • Contracting, via:
      • Licensing: Right to use production process, patents, trademarks, or other assets.
      • Franchising.
      • Contract manufacturing : having a foreign-based manufacturer produce the product
  • More Foreign Market Entry Channel Options
    • Direct investment, including:
      • Joint venture or partnership with a foreign company.
      • Strategic alliance .
      • Wholly-owned subsidiaries.
    • Multinational corporation , in which the foreign and domestic operations are integrated and are not separately identified.
  • The Changing Face of Distribution
    • Internet (“click and mortar” vs. “brick and mortar”) a major factor-- where is it heading?
    • Direct Response TV sales are growing in popularity, especially for time-starved shoppers
    • “ The world’s largest bookstore” is on the Internet! (Amazon.com)