This document discusses marketing channels and distribution systems. It defines key terms like value delivery network, marketing channel, and vertical marketing system. It also describes different types of marketing channels like direct, indirect, and multichannel systems. Additionally, it covers the roles and functions of intermediaries in distribution and how channel choices impact other marketing mix decisions.

2.  Value Delivery Network
◦ The network made up of the company, suppliers,
distributors, and ultimately customers who
“partner” with each other to improve the
performance of the entire system.
 Marketing channel
◦ Set of interdependent organizations involved in
the process of making a product or service
available for use or consumption by the
consumer or business user

3.  Marketing channel: system of marketing
institutions that promotes the physical flow
of goods and services, along with ownership
title, from producers to consumer or business
user; also called a distribution channel

4.  Channel choices affect other decisions in the
marketing mix
◦ Pricing, Marketing communications
 A strong distribution system can be a
competitive advantage
 Channel decisions involve long-term
commitments to other firms

5.  How Channel Members Add Value
◦ Intermediaries require fewer contacts to move the
product to the final purchaser.
◦ Intermediaries help match product assortment
demand with supply.
◦ Intermediaries help bridge major time, place, and
possession gaps that separate products from
those who would use them.

6.  Information gathering
 Consumer motivation
 Negotiating with suppliers
 Placing orders
 Financing
 Inventory management
 Risk bearing
 After sales support

7.  Physical reach
 Customer contact
 Building relationships
 Market feedback
 Understand market trends and keep
principals informed
 Handle price risks
 Finances market credit and inventory
holdings
 Provide after sales service

8.  Number of Channel Levels
◦ The number of intermediary levels indicates the
length of a marketing channel.
 Direct Channels
 Indirect Channels
◦ Producers lose more control and face greater
channel complexity as additional channel levels are
added.

10.  Physical Flow
 Payment Flow
 Information Flow
 Promotion Flow
 Flow of Ownership

11.  Direct channel: marketing channel that
moves goods directly from a producer to
ultimate user
 Direct selling: strategy designed to establish
direct sales contract between producer and
final user

13.  Conventional Distribution Channels
◦ Consists of one or more independent channel
members
◦ Lack leadership and power
◦ Often result in poor performance
 Vertical Marketing Systems
◦ Consists of members acting as a unified system
◦ Use contracts, ownership or power

14.  Vertical marketing system (VMS): planned
channel system designed to improve
distribution efficiency and cost effectiveness
by integrating various functions throughout
the distribution chain
 Three types of VMS:

15.  Corporation owns production and
distribution
 Coordination and conflict through regular
organizational channels
Examples:
Bata, Bombay Dyeing, Raymond
Sears, Goodyear
Suppliers of food items could be also their own supplying firms
- like Nilgiris

16.  Individual firms who join through contracts
 Franchise organizations
◦ Manufacturer-sponsored retailer franchise system
◦ Manufacturer-sponsored wholesaler franchise system
◦ Service-firm-sponsored retailer franchise system

17.  Leadership through the size and power of
dominant channel members
 Leadership could be manufacturer or retailer
 Gains market power by dominating a
channel
 Usually true of dominant brands like GE,
Kodak, Pepsi, Gillette, Coke and HLL in
certain locations
◦ Command high level of co-operation in shelf
space, co-operation from resellers, displays,
pricing policies and promotion strategies

18.  Horizontal Marketing Systems
◦ Companies at the same level work together with
channel members
 Multichannel Distribution Systems
◦ Also called hybrid marketing channels
◦ Occurs when a firm uses two or more marketing
channels
 Company uses different channels to reach / same
or different market segments
◦ Most FMCG companies have separate networks for retail
market and institutions
◦ Most B2B firms use multi-channels for customer
segments like Government, institutions etc

19.  Used in situations where:
◦ Same product but different market segments
◦ Unrelated products in same market – detergents
and ice creams (HLL)
◦ Size of buyers varies
◦ Geographic concentration of potential consumers
varies
◦ Reach is difficult
 Benefits include lower cost, better market
coverage and customized selling