2. Place: The Final Frontier
• Parity in product, promotion and price
• Place offers opportunity for differentiation
• E.g. Netflix, Walmart, I-tunes
• Managing distribution can spell enormous cost
savings and profits
15-2
3. Supply Chain Management
• The supply chain – firms involved in all activities
from raw material procurement to delivering the
final product to the consumer
• Supply chain management – management of flows
among the firms in a supply chain to maximize total
profitability
• E.g. Hewlett Packard (Identify the flows)
15-3
4. What Is a Distribution
Channel?
• Series of firms or individuals that facilitate the
movement of a product from the producer to the
final customer
• Direct
• Indirect
• Channel Intermediaries
15-4
5. Functions of Distribution Channels
• Time, place, and ownership utilities
• Logistics functions
• Transportation and storage
• Efficiency creation
• Breaking bulk
• Creating assortments
• Facilitating functions
• Repairs and replacements
• Credit and financing
• Risk taking
• Information flow & research
15-5
6. Creating Efficiencies
• Breaking bulk – channel members purchase large
quantities from manufacturers and sell smaller
quantities to many different customers
• Creating assortments – channel members provide a
variety of products in one location
15-6
7. The Internet
• Small firms selling products distributable over the
Internet (e.g. software, music, books, magazines,
newspapers, etc.)
• Small firms completing the sale over the Internet but
outsourcing logistics and transportation functions
• Disintermediation - process by which traditional
intermediaries are eliminated
15-7
8. Types of Wholesaling Intermediaries
• Wholesaling intermediaries – firms that handle
the flow of products from the manufacturer to
retailer or business user
• Independent
• Merchant wholesalers (assume title and full
risks, earn profits)
• Agents and brokers (merely bring buyers and
sellers together; earn commissions)
• Manufacturer owned
• Sales branches, offices and showrooms
15-8
10. Types of Distribution
• Channels
Consumer channels
• Direct (e.g. farmers market, Internet)
• Manufacturer-retailer-consumer (e.g. HP’s computers
through Best Buy)
• Manufacturer-wholesaler-retailer-consumer (e.g.
Breyers ice cream)
• Business-to-business channels
• Direct (most high value industrial products)
• Manufacturer-industrial distributor-business customer
(smaller industrial products, e.g. valves, etc.)
15-10
11. Dual Distribution Systems
• Multiple channel usage
• Example:
• pharmaceutical industry sells to hospitals, clinics, and
organizational customers directly and to consumers
indirectly through drug retailers
• Hybrid marketing systems
• Using several channels at the same time
15-11
12. Deciding on a channel strategy
• Profit potential
• Control over distribution, promotion and pricing
• Resources availability
15-12
13. •
Marketing Systemschannel
Conventional – multi-level distribution
in which members work independently of one
another
• Vertical – channel in which there is cooperation
among channel members at two or more
different levels of the channel
• Horizontal – two or more firms at the same
channel level agree to work together (e.g.
Smaller stores in Walmart; banks inside grocery
stores)
15-13
14. Vertical Marketing
Systems
• Administered – channel members remain
independent but voluntarily work together
• Corporate – single firm owns manufacturing,
wholesaling, and retailing operations (e.g. Sears)
• Contractual – cooperation is enforced by contracts
that spell out member rights and the terms of
cooperation (e.g. IGA food stores ; Ace Hardware)
15-14
15. •
Contractual VMS
Wholesaler-sponsored – wholesalers get
retailers to work together under their leadership
in a voluntary chain (e.g. IGA)
• Retailer-cooperative – group of retailers with a
wholesaling operation to help them compete
more effectively with large chains (e.g. True
Value Hardware)
• Franchise organizations – cooperation is
explicitly defined and strictly enforced by
franchiser (e.g. McDonalds)
15-15
16. Distribution Intensity
• Intensive distribution
• Maximize coverage by using all available
outlets (e.g. gum, sodas, milk, bread, etc.)
• Exclusive distribution
• Limited outlets in a region
• Generally for high priced products (e.g. cars,
jewelry, pianos, etc.)
• Selective distribution
• In between (e.g. house hold appliances,
electronic equipment, etc.)
15-16
17. Managing the Channel
• Selecting channel partners
• Managing the channel of distribution
• Channel leader is the dominant firm that controls the
channel (channel captain)
• Channel leaders have some form of power relative to
other members
15-17
18. Logistics and Customer Satisfaction
• Traditionally, logistics was thought of as physical
distribution
• order processing, warehousing, materials handling,
transportation, and inventory control
• objective to deliver product at lowest cost
• Now, deliver products at the lowest cost provided,
expected service quality is maintained
15-18
19. Logistics Functions
• Order processing
• Warehousing
• Materials handling
• Transportation
• Inventory Control
15-19
