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9fms pp15


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9fms pp15

  1. 1. Chapter 15Channels of Distribution:Conflict, Cooperation, and Management Sommers  Barnes Ninth Canadian Edition Presentation by Karen A. Blotnicky Mount Saint Vincent University, Halifax, NS Copyright © 2001 by McGraw-Hill Ryerson Limited
  2. 2. Chapter GoalsTo 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 Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 2
  3. 3. 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 Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 3
  4. 4. 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 4
  5. 5. The Distribution FunctionsSALES SPECIALIST PURCHASING AGENTFOR PRODUCERS FOR BUYERS I N• Provides market T • Anticipates wants information E • Subdivides large• Interprets consumers’ R quantities of a product wants M • Stores products• Promotes producers’ E • Transports products products • Creates assortments D• Creates assortments • Provides financing• Stores products I • Makes products• Negotiates with A readily available customers R • Guarantees products• Provides financing Y • Shares risks• Owns products• Shares risks Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 5
  6. 6. Designing the ChannelChannel 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? Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 6
  7. 7. The Well-Designed Distribution StrategySpecify Select Determinethe role of Choose type of appropriatedistribution specific distribu- intensitywithin the channel tion of distri-marketing members channel butionmix Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 7
  8. 8. 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cons umer• when would each of these be considered? Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 8
  9. 9. Major DistributionChannels• 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) distribution• Multiple channels can aggravate middlemen and cause conflicts in the channels. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 9
  10. 10. Consumer Channels PRODUCERS OF CONSUMER GOODS Agents Agents Merchant Merchant wholesalers wholesalers Retailers Retailers Retailers Retailers ULTIMATE CONSUMERS Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 10
  11. 11. Business Channels PRODUCERS OF BUSINESS GOODS Agents Agents Merchant wholesalers Merchant wholesalers (industrial distributors) (industrial distributors) BUSINESS USERS Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 11
  12. 12. Service Channels PRODUCERS OF SERVICES Agents ULTIMATE CONSUMERS OR BUSINESS USERS Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 12
  13. 13. 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 Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 13
  14. 14. Vertical MarketingSystems (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.. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 14
  15. 15. Intensity of Distribution INTENSIVE SELECTIVE EXCLUSIVE Distribution Distribution Distribution through every through multiple, through a single reasonable but not all, wholesaling outlet in a reasonable middleman market outlets in a and/or retailer market in a market Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 15
  16. 16. Considerations inChannel 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 16
  17. 17. Conflict and Controlin 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 17
  18. 18. Producer/Retailer ConflictSmall 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 18
  19. 19. More ComplaintsSmall 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 19
  20. 20. 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. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 20
  21. 21. Channels for Entering Foreign Markets• Exporting, through: • An export merchant in the manufacturers country that buys goods and exports them. • An export agent located in either the manufacturers 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 Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 21
  22. 22. More Foreign Market EntryChannel Options • Direct investment, including: • Joint venture or partnership with a foreign company. • Strategic alliance. alliance • Wholly-owned subsidiaries. • Multinational corporation, in which the foreign and domestic operations are integrated and are not separately identified. Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 22
  23. 23. The Changing Faceof 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! ( Copyright © 2001 McGraw-Hill Ryerson Limited 15 - 23