Foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada...

Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

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M A R K E T I N G

Channel and Distribution Strategy

15


Chapter

Objectives1. Discuss channel strategy as one of the elements of the marketing mix.2. Relate channel strategy to the concept of total customer satisfaction. 3. Explain the role of distribution channels in marketing strategy.4. Describe the various types of channels in distribution.5. Outline the major strategy alternatives in using marketing channels.6. Identify the conditions under which a manufacturer is likely to assume wholesaling functions rather than use independents. 7. Distinguish among merchant wholesalers, agents, and brokers.8. Identify the major types of merchant wholesalers and instances in which each type might be used.9. Provide an overview of the many types of wholesaling intermediaries and their functions.10. Describe conflict and cooperation in the distribution channel.

11. Explain the issues involved in changing from the use of one channel intermediary type to a different type.

Channel and Distribution Strategy 15

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ChapterChannel and Distribution Strategy 15

Figure 15.1

Achieving Transaction Economy with Wholesaling Intermediaries (1 of 2)

15-2a

Manufacturer Manufacturer Manufacturer Manufacturer

Customer Customer Customer Customer

16 Transactions



Figure 15.1

Achieving Transaction Economy with Wholesaling Intermediaries (2 of 2)

15-2b

Manufacturer Manufacturer Manufacturer Manufacturer

Customer Customer Customer Customer

8 Transactions

Manufacturer


Chapter

Distribution Channels

• The paths that are goods -- and title to these goods -- follow from producer to consumer.


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Chapter

Marketing Intermediary

• A business firm operating between the producer and the consumer or business purchaser.


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Chapter

Wholesaling

• The activities of intermediaries who sell to retailers, other wholesalers, and business users but not in significant amounts to ultimate consumers.


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Chapter

Retailer

• A store that sells products purchased by individuals for their own use and not for resale.


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Chapter

Distribution Channels Perform Important Functions• Facilitating the exchange process• Sorting to alleviate imbalances between

outputs and consumer needs• Standardizing transactions• Holding inventories• Assisting the search process• Transporting materials and products


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Chapter

Sorting

• The process that alleviates discrepancies in assortment by reallocating the outputs of various producers into assortments desired by individual purchasers.


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Chapter

Alternative Distribution Channels (1 of 3)

Channel and Distribution Strategy 15Figure 15.3

15-9a

Producer Consumer

Producer Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Agent/broker Wholesaler Retailer Consumer

Directchannel

One-stepchannel

Two-stepchannel

Multistepchannel

ConsumerGoods


Chapter



ProducerBusiness

user

Producer WholesalerBusiness

user

Producer Agent/brokerBusiness

user

Producer Agent/broker WholesalerBusiness

user

Directchannel

One-step(wholesaler)

channel

Two-step(agent)

channel

Multistepchannel

15-9b

BusinessGoods


Chapter



Serviceprovider

Consumer orBusiness user

Serviceprovider

Agent/brokerConsumer or

Business user

Directchannel

One-stepchannel

15-9c

Services


Chapter

Agent

• A wholesaling intermediary that differs from the typical wholesaler in that the agent does not take title to the goods.


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Merchant Wholesaler

• A wholesaler who takes title to the products carried.


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Industrial Distributor

• A wholesaler that operates in the business goods market and typically handles small accessory equipment and operating supplies.


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Chapter

Reverse Channels

• The paths follow from consumer to manufacturer or to marketing intermediaries.


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Chapter

Facilitating Agency

• An agency that provides specialized assistance for regular channel members (such as producers, wholesalers and retailers) in moving products from producer to consumer.


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Chapter

Household consumers 5%

Foreign markets 10%

Retailers for resale 33%

Industrial commercial and other users 29%

Other wholesalers for resale 19%

Farmers for use in farm production 4%

Wholesale Customers Distribution


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Chapter

Wholesalers

• Wholesaling intermediaries who take title to the products they handle.


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Chapter

Wholesaling Intermediaries

• Intermediaries who assume title, as well as agents and brokers who perform important wholesaling activities without taking title to the products.


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Chapter

TransportingCustomers receive prompt deliveryin response to their demands, reducing their inventory investments. By "breaking bulk," (purchasing in carload or truckload lots, then reselling in smaller quantities), wholesalers reduce overall transportation costs.

Possible Wholesaling Functions for Customers and Producers-Suppliers (1 of 2)


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BuyingActs as purchasing agent for customers, anticipates customer demands, possesses knowledge of alternative supply sources.

SellingMaintains a sales force to call on customers, thus providing a low-cost method of serving smaller retailers and business buyers.

Risk TakingAids producers by evaluating credit risks of numerous distant retail customers and smaller business users. Extending credit to these customers is another form of risk taking. Risk of possible spoilage, theft, or obsolescence is assumed when the wholesaler is responsible for transporting and stocking goods in inventory.


Chapter

Possible Wholesaling Functions for Customers and Producers-Suppliers (2 of 2)


FinancingAids customers by granting credit that might not be available if they purchased directly from distant manufacturers. Provides financing assistance to producers by purchasing goods in advance of sale and through promptly paying bills.

StoringPerforms a warehousing function, reduces risk and cost of maintaining inventory for producers, and provides customers with prompt delivery service.

Providing Marketing InformationServes as key marketing research input for producers through regular contact with retail and business buyers. Provides customers with information about new products, technical information about product lines, information on competitive activities and industry trends, and advisory information concerning changes in such areas as pricing and legal rulings.

15-18b



Table 15.2

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Manufacturer-Owned Facilities (1 of 2)

Manufacturer-Owned Facilities DescriptionSales branch Manufacturer-owned facility

that carries inventory and processes orders to customers from available stock.

Public warehouses Independently owned storage facilities. Manufacturer rents

space to store inventory for shipment by the warehouse to customers in the area.

Warehouse will break bulk (divide a carload, package inventory, and

fill orders.



Table 15.2

15-19b

Manufacturer-Owned Facilities DescriptionTrade fairs Manufacturers in a particular

industry display their wares at some temporary venue

for visiting retail and wholesale buyers, e.g. Montreal Toy Show.

Merchandise mart Permanent exhibition at which manufacturers rent showcases

for product offerings, e.g. Taipei.

Manufacturer-Owned Facilities (2 of 2)


Chapter

Sales Branches and Offices

• Sales BranchManufacturer-owned facility that carries inventory and processes orders to customers from available stock.

• Sales OfficeManufacturer-owned facility that does not carry

stock but serves as a regional office for the firm’s sales personnel.

• Public WarehouseIndependently-owned storage facility.


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Chapter

Trade Fairs

• Periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers.


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Merchandise Mart

• Permanent exhibition at which manufacturers rent showcases for their product offerings.


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Classification of Independent Wholesaling Intermediaries


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Independentwholesaling

intermediaries

Agents andbrokers

Merchantwholesalers

• Brokers• Selling agents• Manufacturers’ agents

• Commission Merchants• Auction houses

Full-function

Limitedfunction


Chapter

Merchant Wholesalers (1 of 2)

Channel and Distribution Strategy 15Table 15.3

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Chapter

Agents and Brokers (2 of 2)


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Chapter

Vertical Marketing System

• A network of channel intermediaries organized and centrally managed to produce the maximum competitive impact.


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Chapter

Three Types of Vertical Marketing Systems (1 of 2)


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TYPE OF SYSTEM DESCRIPTION EXAMPLES Corporate Channel owned and Bata Shoes

operated by a single Firestoneorganization Sherwin-Williams

Singer

McDonald's (partial)

Administered Channel dominated by one Kodak powerful member that acts General Electric as channel captain Corning Glass


Chapter

Three Types of Vertical Marketing Systems (2 of 2)


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TYPE OF SYSTEM DESCRIPTION EXAMPLES

Contractual Channel coordinated through Wholesaler-Sponsored contractual agreements among Voluntary Chainchannel members IGA

Canadian Tire Independent Druggists Alliance (IDA) Allied Hardware Retail Cooperative Associated GrocersFranchise Systems McDonald's (partial) Century 21 Real Estate AAMCO Transmissions Coca-Cola bottlers Ford dealers


Chapter

Franchise

• An agreement whereby one firm (franchisee) agrees to meet the operating requirements of a successful business (franchisor) in return for the right to carry the name and products of the franchisor.


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Channel Selection and Implementation Process


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Select the appropriatetype of channelbased on• market factors• product factors• competitive factors

Determine distribution intensity• intensive distribution• selective distribution• exclusive distribution

Negotiate arrangements with channels

Supportchannels


Chapter

Factors Affecting Choice of Distribution Channels (1 of 2)


FACTOR

Market Factors

Consumer market or business market

Geographic location of target market

Customer service needs

Order size

Product Factors

Perishability

Technical complexity of productUnit value

CHANNELS TEND TO BE SHORTER WHEN

Users are in business market

Customers are geographically concentrated

Specialized knowledge, technical know-how,

and regular service needs are present

Customer places relatively small number of

large orders

Products are perishable, either because of

fashion changes or physical perishability

Products are highly technical

Products have high unit value

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Chapter

Factors Affecting Choice of Distribution Channels (2 of 2)


FACTOR

Producer Factors

Producer resources -- financial,managerial, and marketingProduct line

Need for control over the channel

Competitive Factors

Need for promotion to channel membersintermediaries

CHANNELS TEND TO BE SHORTER WHEN

Manufacturer possesses adequate resources to

perform channel functions

Manufacturer has broad product line to spread

distribution costs

Manufacturer wishes to control the channel

Manufacturer feels that independent

intermediaries are inadequately

promoting products

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Chapter

Determine Distribution Intensity

• Intensive• Selective• Exclusive


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Chapter

Intensive Distribution

• A form of distribution that attempts to provide saturation coverage of the potential market.


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Selective Distribution

• The selection of a small number of retailers to handle the firm’s product line.


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Exclusive Distribution

• The granting of exclusive rights by manufacturers to a wholesaler or retailer to sell in a geographic region.


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Chapter

Legal Problems of Exclusive Distribution• Exclusive dealing• Tied selling• Market restriction


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Exclusive Dealing

• An arrangement whereby a supplier prohibits a marketing intermediary (either a wholesaler or, more typically, a retailer) from handling competing products.


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Tied Selling

• An arrangement whereby a supplier forces a dealer who wishes to handle a product to also carry other products from the supplier or to refrain from using or distributing someone else’s product.


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Market Restriction

• An arrangement whereby suppliers restrict the geographic territories for each of their distributors.


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Channel Captain

• The most dominant member of the distribution channel.


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Chapter

Channel Conflict

• Rivalry and conflict between channel members because of sometimes different objectives and needs.


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Foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada...

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