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Channels of DistributionChannels of Distribution

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OutlineOutline

Role of DistributionRole of Distribution–roles and functions of intermediariesroles and functions of intermediaries

Managing Channels of DistributionManaging Channels of Distribution–channel designchannel design–channel dynamicschannel dynamics–channel conflictchannel conflict

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Role of Marketing ChannelsRole of Marketing Channels

"Marketing channels can be viewed as a "Marketing channels can be viewed as a set of interdependent organizations set of interdependent organizations involved in the process of making a involved in the process of making a product/service available for product/service available for use/consumption..."use/consumption..."

-- Stern & El-Ansary, -- Stern & El-Ansary, Marketing ChannelsMarketing Channels

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Reasons for IntermediariesReasons for Intermediaries

Improve the efficiency of the exchange Improve the efficiency of the exchange processprocess

Discrepancy of assortment and sortingDiscrepancy of assortment and sorting Routinization of transactionsRoutinization of transactions Facilitate the search processFacilitate the search process

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Functions of IntermediariesFunctions of Intermediaries

Carrying inventoryCarrying inventory Generation of demandGeneration of demand Physical distributionPhysical distribution Sales and after sales serviceSales and after sales service Credit and financingCredit and financing

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Channel DesignChannel Design

Key questions in channel design:Key questions in channel design: Who are the customers?Who are the customers? What are their needs when buying?What are their needs when buying?

– information, delivery, service, etc.information, delivery, service, etc. What are the institutional alternatives?What are the institutional alternatives?

–cost-effectively satisfy needscost-effectively satisfy needs

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Channel DesignChannel Design

Design channels to serve the needs of Design channels to serve the needs of customers in the target segmentcustomers in the target segment

InformationInformation LogisticsLogistics

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InformationInformation

Primary informationPrimary information– educationeducation– demonstrationdemonstration– serviceservice

Comparative informationComparative information– benefits versus competitionbenefits versus competition

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LogisticsLogistics

Product variety (assortment)Product variety (assortment) Convenience (location)Convenience (location) Waiting time (delay between order and Waiting time (delay between order and

delivery)delivery) Lot size (minimum order quantity)Lot size (minimum order quantity)

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Channel Design: LengthChannel Design: Length

Factors influencing channel length:Factors influencing channel length:

DIRECTDIRECT INDIRECTINDIRECT

Need for info Need for info highhigh lowlow Logistic supportLogistic support lowlow highhigh

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Channel Design: BreadthChannel Design: Breadth

Factors influencing channel breadth:Factors influencing channel breadth:

INTENSIVEINTENSIVE SELECTIVESELECTIVE

Mfr control need Mfr control need lowlow highhigh Shopping effortShopping effort lowlow highhigh

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Evaluating Channel AlternativesEvaluating Channel Alternatives

Economic criteriaEconomic criteria– is it cost effective?is it cost effective?

Control criteriaControl criteria– can I influence sales context?can I influence sales context?

Adaptive criteriaAdaptive criteria– is it flexible enough to meet future needs?is it flexible enough to meet future needs?

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Channel DynamicsChannel Dynamics

Intro Growth Maturity

Need for customerintimacy

high low high

Importance oflogistical excellence

low high high

Type of channel Direct Indirect ??

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Consequences of Channel Consequences of Channel DynamicsDynamics

Emergence of more complicated channel Emergence of more complicated channel structuresstructures

Multiple channelsMultiple channels– different agents for different segmentsdifferent agents for different segments

Hybrid channelHybrid channel– different agents for different tasksdifferent agents for different tasks

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Channel ConflictChannel Conflict

"Channel conflict is a situation in which "Channel conflict is a situation in which one channel member perceives another one channel member perceives another channel member to be engaged in channel member to be engaged in behavior preventing him from achieving behavior preventing him from achieving his goals."his goals."

–Stern & El-Ansary, Stern & El-Ansary, Marketing ChannelsMarketing Channels

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Sources of Channel ConflictSources of Channel Conflict

Role conflictRole conflict–deviation from expected roledeviation from expected role

Goal conflictGoal conflict–poor design (e.g., channel overlap)poor design (e.g., channel overlap)

Lack of communicationLack of communication–asymmetric dependenceasymmetric dependence

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Channel ManagementChannel Management

Motivation and coordination depend upon Motivation and coordination depend upon the nature of the channel:the nature of the channel:

Direct channelsDirect channels–primarily incentive systemsprimarily incentive systems

Indirect channelsIndirect channels–bargaining and negotiationbargaining and negotiation–exercise of channel powerexercise of channel power

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Forms of Power in the ChannelForms of Power in the Channel

Reward powerReward power– partnership programspartnership programs

Coercive powerCoercive power– exercise of market cloutexercise of market clout

Expert powerExpert power