Chapter 10. distribution channel & logistics management
Distribution Channel and Logistics
What is Distribution Channel
A distribution channel (also known as a
marketing channel) is a set of interdependent
organizations or intermediaries involved in the
process of making a product available for
consumption. A channel directs the flow of
products from producers to customers.
Channels and Marketing Decisions
• A push strategy uses the manufacturer’s sales
force, trade promotion money, and other means
to induce intermediaries to carry, promote, and
sell the product to end users.
• Push strategy is appropriate where there is low
brand loyalty in a category, brand choice is made
in the stores, the product is an impulse item, and
product benefits are well understood.
• A pull strategy uses advertising, promotion,
and other forms of communication to
persuade consumers to demand the product
• Pull strategy is appropriate when there is high
brand loyalty and high involvement in the
category, when people perceive differences
between brands, and when people choose the
brand before they go to the store.
Categories of Buyers
• High Involvement Shoppers
• High Value Deal Seekers
• Variety Loving Shoppers
• Habitual Shoppers
Design of Distribution Channel
Analyze customer needs
Evaluate major channel alternatives
Identify major channel alternatives
Establish channel objectives
Functions of Distribution Channel
• Gather information
• Develop and disseminate persuasive
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
Distribution Channel Decisions
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
A conventional marketing system comprises an
independent producer, wholesaler(s), and
I) A vertical marketing system (VMS), by contrast,
comprises the producer, wholesaler(s), and
retailer(s) acting as a unified system.
• One channel member, the channel captain, owns
the others, franchises them, or has so much
power that they all cooperate.
• VMSs arose as a result of strong channel
members’ attempts to control channel
behavior and eliminate the conflict that
results when independent members pursue
their own objectives.
• VMSs achieve economies through:
The elimination of duplicated services
A corporate VMS combines successive stages of
production and distribution under single
• An administered VMS coordinates successive
stages of production and distribution through
the size and power of one of the members.
• Manufacturers of a dominant brand are able to
secure strong trade cooperation and support
What is Channel Conflict
• Channel conflict occurs when one member’s
actions prevent another channel from
achieving its goal.
• Types of channel conflict
Causes of Channel Conflict
Unclear roles and rights
Differences in perception
on the manufacturer
Strategies for Managing Channel Conflict
• Adoption of super ordinate goals
• Exchange of employees
• Joint membership in trade associations
• Legal recourse
What is a Franchising System
A franchising system is a system of individual
franchisees, a tightly knit group of enterprises
whose systematic operations are planned,
directed, and controlled by the operation’s
Characteristics of Franchises
• The franchisor owns a trade or service mark
and licenses it to franchisees in return for
• The franchisee pays for the right to be part of
• The franchisor provides its franchisees with a
system for doing business
Types of Wholesalers
Brokers and agents
Functions of Wholesalers
• Selling and promoting
• Buying and
• Bulk breaking
• Risk bearing
• Market information
• Management services
• A company’s logistics management contains
the following elements:
– Inventory Control
– Order Processing
• Storage warehouse—holds goods for moderate to long
periods in an attempt to balance supply and demand for
producers and purchasers.
• Distribution warehouse—assembles and redistributes
goods, keeping them moving as much as possible.
• Automated warehouse technology can cut distribution
costs and improve customer service.
• Warehouse locations are influenced by warehouse and
materials handling costs and delivery costs from
warehouses to customers.
• Every company stores its goods while they wait to be
• A company must decide on (1) how many and (2)
what types of warehouses it needs and (3) where
they will be located.
• The company might own private warehouses or rent
space in public warehouses or both.
• The choice of transportation carriers affects (1) the
pricing of products, (2) delivery performance, (3)
condition of the goods when they arrive - all affect
• In shipping goods, there are five transportation
modes: rail, water, truck, pipeline, and air.
– Rail; is the most cost-effective mode for shipping large
amounts products e.g. coal, farm and forest products over
– Road; trucks are very flexible in their routing and time
scheduling. They can move goods door to door, saving
the need to transfer goods from truck to rail and back
again. They are efficient for short hauls of high-value
products. They can offer faster service.
– Water; the cost is very low for shipping bulky, low-
value, nonperishable products e.g. coal, oil, metallic
ores. It is the slowest mode and affected by the
– Air; costs higher than rail and truck but ideal when
speed is needed and distant markets have to be
reached. Products are perishables (fresh fish, cut
flowers), high-value, low-bulk items (technical
• In choosing a transportation mode, shippers
consider five criteria; (1) speed - door to door
delivery time, (2) meeting schedules on time, (3)
ability to handle various products, (4) number of
geographic points served, (5) cost per tone-mile.
• Inventory decisions involve (1) when to order and (2) how
much to order.
• In deciding when to order, the company must think of the
risks of running out of stock and costs of carrying too much.
• In deciding how much to order, the company must think of
order-processing costs and inventory-carrying costs.
• Just-in-time logistic systems are used by some companies in
which the producers carry only small inventories only enough
for a few days of operations. Such systems result in savings in
inventory carrying and handling costs.
• Orders can be submitted in many ways; by
mail, telephone, through salespeople, or via
• Order processing systems prepare invoices
and order information. The warehouse
receives instructions to pack and ship the
ordered items. And bills send out.