This document discusses channel management and distribution. It covers the following key points in 3 sentences: Channel members add value by performing activities like marketing, packaging, storage and delivery to move a product from production to consumption. The document outlines various channel functions such as providing information, promotion, negotiation, physical distribution and financing. It also discusses selecting, managing, motivating and evaluating channel members to effectively distribute products through intermediaries to target markets.

1. Channel Management /
Distribution
1

2. A channel of distribution
comprises a set of institutions
which perform all of the
activities utilized to move a
product and its title from
production to consumption
Bucklin - Theory of Distribution Channel Structure
2

3. 3
Physical distribution is…
Organizing and moving products through the
channels
aka: Logistics = ordering, transporting,
storing, handling and inventory control
The 3rd largest expense for most
businesses
 (#1 Materials #2 Labor)

4. Explain how channel members add
value
 Right PLACE
 Right TIME
 Place UTILITY
 Location – having the product where customers can buy it
 Time UTILITY
 Having the product available when the customer
wants/needs it
4

5. Channel members add value to a
product by performing certain channel
activities expertly
 Marketing
 Packaging
 Financing
 Storage
 Delivery
 Merchandising
 Personal selling
5

6. Adding Value through
Distribution
 Intermediaries provide value to producers because they often have
expertise in certain areas that producers do not have.
 Intermediaries are experts in displaying, merchandising, and providing
convenient shopping locations and hours for customers.
6

7.  Information
 Promotion
 Contact
 Matching
 Negotiation
 physical distribution
 Financing
 Risk taking
7
CHANNEL FUNCTIONS

8. 8
CHANNEL FUNCTIONS (cont.)
Providing marketing information:
 Companies rely on market research to determine their target markets’
needs and wants
 Ex: small business producing handmade greeting cards
Promoting products:
 Can be expensive
 Retailers often take a large portion of promotion responsibilities
Ex: local supermarkets/discount stores

9. CHANNEL FUNCTIONS
(cont.)
 Contact
 Matching
 Negotiating with the customers:
 Different prices are paid by the wholesaler, retailer and
consumers based on negotiation
 Physical distribution
 Financing and risk taking:
 Moving products through a channel costs money
 When channel members work together to finance
activities and to assume financial risks, channels will
be more effective
9

10. 10
Negotiation
Promotion
Contact
Transporting and storing
Financing
Packaging
Money
Goods
Today’s system of exchange
Producers
Users

11. Explain key channel tasks
 Marketing
 Packaging
 Financing
 Storage
 Delivery
 Merchandising
 Personal selling
11

12. 12
Explain key channel tasks
(cont.)
 Providing marketing information
 Rely on market research to determine their target markets’
needs and wants
 Promoting products
 Costs and responsibilities can be shared
 Negotiating with customers
 Offering to deliver and install products
 Reducing discrepancies
 Selling large quantities of products to wholesalers and
retailers
 Financing and risk-taking
 Work together to finance activities to become more
effective

13. Tasks of Intermediaries -
Wholesalers
 Break down ‘bulk’
 Buys from producers and sell small
quantities to retailers
 Provides storage facilities
 Reduces contact cost between
producer and consumer
 Wholesaler takes some of the
marketing responsibility e.g sales force,
promotions
13

14. Tasks of Intermediaries -
Retailer
 Much stronger personal relationship with the
consumer
 Hold a variety of products
 Offer consumers credit
 Promote and merchandise products
 Price the final product
 Build retailer ‘brand’ in the high street
14

15. Tasks of Intermediaries -
Internet
 Sell to a geographically disperse market
 Able to target and focus on specific
segments
 Relatively low set-up costs
 Use of e-commerce technology (for
payment, shopping software, etc)
 Paradigm shift in commerce and
consumption
15

16. Tasks of a Logistics Manager
 plans the flow of materials in a manufacturing
organization (beginning with raw materials and ending
with delivery of finished products to channel
intermediaries or end customers) and coordinates the
work of departments involved in the process, such as
procurement, transportation, manufacturing, finance,
legal, and marketing.
16

17. 17
Describe when a channel will be
most effective
The channel must be properly
managed
Recognize the importance of their task
and make informed decisions
Each member is assigned tasks it can do
best

18. Describe when a channel will be
most effective (cont.)
Channel members share a
common goal
Commitment to quality of the
product
Satisfying the target market’s
needs and wants
All members cooperate to attain
overall channel goals
 If the channel is not effective, conflict
occurs…..
18

19. Distinguish between
horizontal and vertical conflict
 Horizontal Conflict: occurs between channel
members at the same level
Good, old-fashioned business competition
Ex: two retailers selling pet supplies
compete to sell to the same target market
19

20. Distinguish between
horizontal and vertical conflict (cont.)
Vertical Conflict: occurs between
channel members at different levels
within the same channel
Producers and wholesalers, wholesalers &
retailers, or producers and retailers
20

21. CHANNEL MANAGEMENT DECISIONS
Channel strategy is not formulated
in a vacuum
Channel strategy and product strategy
Channel strategy and price strategy
Channel strategy and promotion strategy
21

22. Describe channel
management decisions
Decisions about a product’s physical movement and transfer of ownership
from producer to consumer.
 FIRST - Setting channel objectives
 Determine what the company is trying to achieve
 Meet the needs and wants of their target market
 Give their product a competitive edge
 SECOND - Channel members:
– Selection
– Management
– Motivation
– Evaluation
22

23. 1. Selecting Channel Members
Determine the types of members the belong in the channel, as well as
the channel length (total number of channel members)
 Usually based on the nature of the product
 Factors to consider:
 Create product value that others cannot or are not willing to provide
 Channel the product to its desired market
 Have a pricing and promotion strategy compatible with the product’s needs
 Offer customer service compatible with the products needs
 Be willing and able to work cooperatively with other members within the
product’s channel
23

24. 1. Selecting Channel Members
(cont.)
Involves determining the characteristics
that distinguish the better ones by
evaluating channel members
Do they: Provide value? Perform a
function? Expect an economic
return ?
Years in business
Lines carried
Profit record
Policies, strategies, & image
Experience & track record
24

25. 1. Selecting Channel Members
(cont.)
Selecting intermediaries that are sales
agents involves evaluating
Number and character of other
lines carried
Size and quality of sales force
25

26. 1. Selecting Channel Members
(cont.)
 Market segment - must know the specific segment
and target customer
 Selecting intermediates that are retail stores that
want exclusive or selective distribution involves
evaluating
Store’s customers
Store locations
Growth potential
26

27. 2. Managing Channel Members
 Determining channel responsibilities
• Members must work together appropriately and perform
the tasks they are best suited for
 The company must sell not only through
the intermediaries but also to/with
them
27

28. 2. Managing Channel Members
(cont.)
 Partner relationship management
(PRM) and supply chain management
(SCM) software are used to
• Forge long-term partnerships with channel members
• Recruit, train, organize, manage, motivate, and evaluate
channel members
28

29. 3. Motivating Channel Members
 Develop a cooperative/collaborative and balanced relationship
with the partner
 Understand the partner’s customers – their needs, wants, and
demands
 Understand the partner’s business – operationally and
financially and what’s really important to them
 Look at the partner’s needs in terms of customer support,
technical support, and training
 Establish clear and agreed upon expectations and goals
 Develop recognition programs focusing on the partner’s
contributions
 Build internal support systems and dedicate resources to the
partner
29

30. 3. Motivating Channel Members
(cont.)
Motivation can be positive or
negative
Sanctions may be imposed on
middlemen not performing well
Chargebacks – financial
penalties assessed for a variety
of problems
Incentives may be offered for
reaching performance goals
30

31. 4. Evaluating Channel Members
Produces must evaluate intermediaries
performance against such standards
as:
 Sales quota attainment
 Average inventory levels
 Customer delivery time
 Treatment of damaged and lost goods
 Cooperation in promotional and training programs.
31

32. 4. Evaluating Channel Members
(cont.)
Should constantly evaluate
the channel:
What is working?
What is not working?
What can be improved?
32

33. 4. Evaluating Channel Members (cont.)
Risks & Dangers of Distribution Decisions
 Transaction costs both apparent & hidden
 Risks include loss in transit, destruction, negligence, non-payment and
so on.
 So, careful choice & evaluation of each & every channel partner is a
necessity.
33

34. 34
Distribution Decisions - Major
Considerations…
 Multiple channels
 Control vs. costs
 Intensity of distribution desired
 Involvement in e-commerce

35. 35
1. Multiple Channels
 Some products meet the needs of both industrial and consumer
markets.
 J & J Snack Foods sells its pretzels, drinks and cookies using
multiple channels to:
 Supermarkets
 Movie Theaters
 Stadiums
 Schools
 Hospitals

36. 36
2. Control vs. Costs
 All manufacturers and producers must weigh the control they want
to keep over the distribution of their products against the costs and
profitability.
 Direct sales force – company employees are expensive with payroll,
benefits, expenses; may set sales quotas and easily monitor
performance
 Agents – work independently, running their own businesses; less
expensive = less control; agents sell product lines that make them more
money

37. Management’s Desire for Control
of Distribution
• In general, the shorter the channel structure, the
higher the degree of control, and vice versa.
• The lower the intensity of distribution, the higher
the degree of control, and vice versa.
37

38. 38
3. Distribution Intensity
 = how widely a product will be distributed; marketers want to achieve
the ideal market exposure; determining distribution patterns.
Achieve ideal market exposure (make
their product available without over
exposing and losing money)
To achieve market exposure, marketers
must determine distribution
intensity

39. Distribution Intensity
 Exclusive Distribution
 Selective Distribution
 Intensive Distribution
 Integrated Distribution
39

40. Intensity of Channel Structure
 Channel intensity: the number of
intermediaries at each level of the
marketing channel.
40
All Possible
Intermediaries
Relatively Few
Intermediaries
Just One
Intermediary
Intensive Exclusive
Selective

41. 41
Intensive Distribution
 = the use of all suitable outlets to sell a product.
 The objective is complete market coverage and the
ultimate goal is to sell to as many customers as possible,
wherever they choose to shop.
 Ex. Motor oil is sold in quick-lube shops, farm stores,
auto parts retailers, supermarkets, drugstores, hardware
stores, warehouse clubs, and other mass
merchandisers.

42. 42
Selective Distribution
 = a limited number of outlets in a given geographical area
are used to sell the product.
 Very important to select channel members that maintain
the image of the product & are good credit risks,
aggressive marketers & good inventory planners.
 Ex. Armani & Lucky Brand sell their clothing only through
top department stores that appeal to the affluent
customers who buy its merchandise. It does not sell in a
chain megastore or a variety store.

43. Exclusive Distribution
• = protected territories for distribution of a product in a given geographic area;
business maintains tight control over a product
• Ex. Franchisor legally requires a franchisee to sell only the franchisor’s products
43

44. Integrated Distribution
Manufacturer acts as wholesaler and retailer for its own products.
 EX. Sherwin-Williams Paint, Merle Norman
 Ex. The Gap or Ann Taylor sells its clothing in company-owned retail
stores.
44

45. 45
Dual distribution
 A manufacturer may sell its products through multiple outlets at the
same time:
 Toll-free phone system
 Company website
 Multiple retailers

46. 4. Involvement in E-
commerce
 = means by which products are sold to
customers and industrial buyers through
the Internet.
 Consumers have also become accustomed
to buying products online.
 one-stop shopping and substantial
savings for industrial buyers.
 E-marketplaces provide smaller businesses
with the exposure that they could not get
elsewhere
46

47. Channel Design Decisions
 Channel design/structure = form or shape that a marketing channel
takes to perform the tasks necessary to make products available to
consumers.
 Includes ALL the parties involved
47

48. Channel Design Decisions (cont.)
 Analyzing consumer needs
 Setting Channel Objectives
 Identifying Major Alternatives
 Types of intermediaries
 Company sales force
 Manufacturer’s agency
 Industrial distributors
 Number of intermediaries
 Responsibilities of intermediaries
48

49. 3 Dimensions of Channel
Design
1.Length of the channel
2.Intensity of various levels
(Exclusive, Selective, Intensive)
3.Types of intermediaries
involved
49

50. Length of Channel
 Channel length = number of levels in a distribution
channel.
50
Manufacturer Manufacturer Manufacturer Manufacturer
Consumer Consumer Consumer Consumer
Retailer Retailer Retailer
Wholesaler Wholesaler
Agent
2 level 3 level 4 level 5 level

51. Channel Design (cont.)
 Efficient movement of finished product from the end
of the production line to customers.
 Coordinate the execution of distribution plans
 So as to provide good customer service at acceptable
cost.
51

52. Determinants of Channel Structure
1. The distribution tasks that need to be performed
2. The economics of performing distribution tasks
3. Management’s desire for control of distribution
4. Transaction Efficiency (refers to the effort to reduce
the number of transactions between producers
&consumers).
52

53. REVIEW Channel
Structure/Design
1. Setting distribution objectives
 Meeting customer needs is the ultimate goal
2. Specifying distribution tasks
 who does what along the supply chain (channel of distribution)
3. Considering alternative channel structures
 Three dimensions:
 Length/Intensity/Types of intermediaries
4. Choosing optimal channel structures
 each participant in the marketing channel focuses on performing
those activities at which it is most efficient. This results in much
greater efficiency and higher output.
53

54. Discuss the relationship between the
product being distributed and the
pattern of distribution it uses
 Consumer Good
 Consumer Service
 Industrial Good
 Industrial Service
54

55. OBJECTIVE TWO:
Explain the relationship between
customer service and channel
management
55

56. Explain how customer service
facilitates order processing
 Ensures timely delivery of products
 Effective communication is important
 Order processing
 Correct shipping information
 Correct products
 Handling complaints
 Reducing the probability of complaints
 Nice and friendly people
56

57. Identify actions that customer service can
take to facilitate order processing
 EX. In retail selling, bag the merchandise with care. Products such as glassware
may require individual wrapping before bagging.Work quickly to bag your
customer’s merchandise and complete the payment process.
 EX. In business-to-business sales, complete the paperwork quickly and leave a
business card.
57

58. 58
Customer
Warehouse
Call
Center
Online
Order
Inventory
Check
Items
in
Stock?
No, Customer
Notified of
Backorder
Yes, Item Packed
for Shipment
Accounts
Receivable
Processes
Payment
Item Shipped
Actions to
Facilitate
Order
Processing

59. Describe the role of customer
service in following up on orders
 Following up with your customers after the sale is an
important part of providing good customer service.
 Should customer have questions or problems it is your
duty to make sure they have a positive experience with
your company.
59

60. 60
Use of Technology in
Distribution
 Some businesses have the capacity to distribute most or all of their
products through the internet
 e-commerce: Products are sold to customers and industrial buyers
through the Internet.
 e-marketplace
 Satellite tracking = a dispatcher has current knowledge of a delivery
truck’s location and destination

61. 61
Use of Technology in Distribution (cont.)
 Tracking of package
 Bar coding on package
 Package scanned at transition points in distribution chain
 Customer uses internet to follow package along distribution chain; e-
mail may be used
 Global distribution: in some countries the postal service is not reliable;
package tracking facilitates global trade

62. 62
Use of Technology in Distribution (cont.)
 Problems
 Cost of technology
 Changing technology = updating equipment
 Need for compatible systems within and between businesses &
countries