Distribution channels involve intermediaries that make products available for consumption. They provide efficiency, contacts, experience, specialization, and scale. Key functions include information, promotion, contact, matching supply and demand, negotiation, physical distribution, financing, and risk taking. When designing marketing channels, marketers consider objectives, distribution tasks, alternative structures, relevant variables, and select channel members to develop an efficient channel structure. Channel decisions are influenced by many factors including market, product, company, intermediary, and environmental variables.

1. Physical distribution and distribution channels

2. Distribution Channels
• A set of interdependent organizations
(intermediaries) involved in the process of
making a product or service available for use or
consumption.
• Channel decisions
– affect other marketing decisions
– involve long-term commitments

3. Role of Intermediaries
• Greater efficiency in making goods available
to target markets.
• Intermediaries provide
– Contacts
– Experience
– Specialization
– Scale of operation
• Match supply and demand.

4. Channel Functions
•Information
•Promotion
•Contact
•Matching
•Negotiation
•Physical Distribution
•Financing
•Risk taking

5. Physical Distribution - Nature and Importance
- Physical distribution: Moving tangible products
through distribution channels
- Physical distribution (or logistics) consists of all
activities involved in moving the right amount of the
right products to the right place at the right time

6. THE ROLE OF MARKETING CHANNELS
IN MARKETING STRATEGY
• Marketing channels are key because they are the means of
making goods and services available to ultimate users.
• Four functions of marketing channels:
• Channels facilitate the exchange process by reducing the
number of marketplace contacts necessary to make a sale.
• Distributors adjust for discrepancies in the market’s
assortment of goods and services via sorting, channeling
products to meet the buyer’s and producer’s needs.
• Channel members tend to standardize payment terms, delivery
schedules, prices, purchase lots, and other conditions.
• Channels facilitate searches by both buyers and sellers and
bring them together to complete the exchange process.

7. TYPES OF MARKETING CHANNELS
• Most channel options involve at least one marketing
intermediary, an organization that operates between producers
and consumers or business users.
• A retailer owned and operated by someone other than the
manufacturer of the products it sells.
• A wholesaler who takes title to the goods it handles and then
distributes these goods to retailers, other distributors, or
sometimes end consumers.
• Service firms market primarily through short channels
because they sell intangible products and need to maintain
personal relationships within their channels.

8. CHANNEL STRATEGY DECISIONS
SELECTION OF A MARKETING CHANNEL
• Multiple factors affect selection of a marketing
channel.
Market Factors
Product Factors
Organizational Factors
Competitive Factors

9. DETERMINING DISTRIBUTION INTENSITY
• Intensive distribution Distribution of a product through all
available channels.
• Selective distribution Distribution of a product through a limited
number of channels.
• Exclusive distribution Distribution of a product through a single
wholesaler or retailer in a specific geographic region.

10. Tasks in Physical Distribution Management
- Physical distribution refers to the actual physical flow of
products
- In contrast, physical distribution management is the
development and operation of processes resulting in the
effective and efficient physical flow of products
- Effective physical distribution management requires
careful attention to five interrelated activities:
1. Order processing
2. Inventory control
3. Inventory location and warehousing
4. Materials handling
5. Transportation

11. Tasks in Physical Distribution Management
1. Order Processing
- The starting point in a physical distribution system is order
processing, which is a set of procedures for receiving,
handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and
other business functions are transmitted by computer
- Originally, EDI required a direct computer link between
supplier and customer, now it is being conducted via the
Internet
- EDI can trim the cost of order processing significantly,
which in turn may reduce purchase prices

12. Tasks in Physical Distribution Management
2. Inventory Control
- The goal of inventory control is to satisfy the order-
fulfillment expectations of customers while minimizing
both the investment and fluctuations in inventories
- Just-in-Time:
- JIT combines inventory control, purchasing, and
production scheduling
- Applying JIT, a firm buys in small quantities that arrive
just in time for production and then it produces in
quantities just in time for sale

13. Tasks in Physical Distribution Management
2. Inventory Control (continued)
- Just-in-Time:
- …
- Benefits of JIT are:
- Dramatic cost savings
- Shortened and more flexible and reliable production and
delivery schedules
- Quick responses to quality problems
- Market-Response Systems:
- The central promise is that those who intend to consume a
product should activate a process to produce and deliver
replacement items
- In this way, a product is pulled through a channel on the
basis of demand

14. Tasks in Physical Distribution Management
3. Inventory Location and Warehousing
- Management must make critical decisions about the
size, location, and transportation of inventories
- These areas are interrelated, often in complex ways
- One key consideration in managing inventories is
warehousing, which embraces a range of
functions, such as assembling, dividing, and
storing products and preparing them for
reshipping

15. Tasks in Physical Distribution Management
4. Materials Handling
- Selecting the proper equipment to physically
handle products, including the warehouse building
itself, is the materials handling subsystem of
physical distribution management
- Equipment that is well matched to the task can
minimize losses from breakage, spoilage, and theft
- Efficient equipment can reduce handling costs as
well as time required for handling

16. Tasks in Physical Distribution Management
5. Transportation
- Management must decide on both the mode of
transportation and the particular carriers
- The leading modes of transportation are railroads,
trucks, pipelines, water vessels, and airplanes
- Using two or more modes of transportation to move
freight is termed intermodal transportation; this
approach is intended to seize the advantages of
multiple forms of transportation

17. Designing the Marketing Channel

18. Channel Design
1. A decision made by the marketer
2. The creation or modification of channels
3. The active allocation of distribution tasks in an
attempt to develop an efficient structure
4. The selection of channel members
5. A strategic tool for gaining a differential advantage
Distinguishing points of the definition include:

19. Channel Design Paradigm
1. Recognize the need for
channel design decision
7. Select
channel members
5. Evaluate
relevant variables
6. Choose the “best”
channel structure
2. Set & coordinate
distribution objectives
3. Specify
distribution tasks
4. Develop alternative
channel structures

20. When to Make a Channel
Design Decision
• Developing a new product or
product line
• Aiming an existing product at a
new market
• Making a major change in some
other component of the marketing
mix
• Establishing a new firm
• Adapting to changing intermediary
policies that may inhibit attainment
of distribution objectives
• Dealing with changes in
availability of particular kinds of
intermediaries
• Opening up new geographic
marketing areas
• Facing the occurrence of major
environmental changes
• Meeting the challenge of conflict
or other behavioral problems
• Reviewing and evaluating

21. Distribution Objectives
Setting distribution objectives
requires knowledge of which,
if any, existing objectives
& strategies may impinge
on these distribution objectives.

22. Channel Structure Dimensions
1. Number of
levels in the channel
2. Intensity at the
various levels
3. Types of
intermediaries
at each level
Allocation Alternatives

23. Number of Levels
•Range from two to five or more
•Number of alternatives is limited to two or three
choices
•Limitations result from the following factors:
• Particular industry practices
• Nature & size of the market
• Availability of intermediaries

24. Intensity at the Various Levels
Intensive Selective Exclusive
Many Few One
Intensity Dimension
Numbers of Intermediaries (retail level)
Relationship between the intensity of distribution
dimension & number of retail intermediaries used in a
given market area

25. Variables Affecting Channel Structure
1. Market Variables
2. Product Variables
3. Company Variables
4. Intermediary Variables
5. Environmental Variables
6. Behavioral Variables
Categories of Variables

26. Market Geography Location, geographical size,
& distance from producer
Market Size Number of customers in a
market
Market Density Number of buying units
(consumers or industrial firms)
per unit of land area
Market Behavior Who buys, & how, when, and
where customers buy
Market Variables

27. Product Variables
Bulk & Weight
Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness

28. Company Variables 6
Size The range of options is
relative to a firm’s size
Financial The greater the capital, the
Capacity lower the dependence on
intermediaries
Managerial Intermediaries are necessary
Expertise when managerial experience
is lacking
Objectives Marketing & objectives may
& Strategies limit use of intermediaries

29. Intermediary Variables
6
Availability Availability of intermediaries
influences channel structure.
Cost Cost is always a consideration in
channel structure.
Services Services that intermediaries
offer are closely related to the
selection of channel members.

30. Environmental Variables
The impact of environmental forces is
a common reason for making
channel design decisions.
Economic
Sociocultural
Competitive
Technological Legal

31. Behavioral Variables
Develop compatible or congruent roles for channel members.
Attend to the influence of behavioral problems
that can distort communications.
Be aware of available power bases.