Chapter 8 Distribution channels and logistics management

The learning objectives

The nature of distribution channels Channel behavior and organization Channel design decisions Channel management decision Physical distribution and logistics management

1.The nature of distribution channels

What is distribution? Why are marketing intermediaries used? The function of distribution channel Channel level

What is distribution channel?

A 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.

How a Distributor Reduces theNumber of Channel Transactions

= Customer= Customer= Manufacturer= Manufacturer

A. Number of contacts A. Number of contacts without a distributorwithout a distributor

M x C = 3 X 3 = 9M x C = 3 X 3 = 9

11

3322

445566

778899

How a Distributor Reduces theHow a Distributor Reduces theNumber of Channel TransactionsNumber of Channel Transactions

= Distributor= Distributor= Customer= Customer= Manufacturer= Manufacturer

B. Number of contacts B. Number of contacts with a distributorwith a distributorM x C = 3 + 3 = 6M x C = 3 + 3 = 6

Store

11

22

33

44

55

66

Distribution Channel FunctionsDistribution Channel Functions

OrderingOrdering

PaymentsPayments

CommunicationCommunicationTransferTransfer

NegotiationNegotiation

FinancingFinancingRisk TakingRisk Taking

PhysicalDistribution

PhysicalDistribution

InformationInformation

Consumer Marketing ChannelsConsumer Marketing Channels

WholesalerWholesaler JobberJobber RetailerRetailer ConsumerConsumer

ConsumerConsumer

RetailerRetailer ConsumerConsumer

ManufacturerManufacturer

0-level channel

WholesalerWholesaler RetailerRetailer ConsumerConsumer MfgMfg

2-level channel

MfgMfg

3-level channel

1-level channel

ManufacturerManufacturer

Industrialdistributors

Man

ufa

ctu

rer

Co

nsu

mer

Manufacturer’srepresentative

Manufacturer’ssales branch

Industrial Marketing Channels

Customers’ Desired Service Levels

Lot size Waiting time Spatial convenience Product variety Service backup

Why are marketing intermediaries used?

Distribution channel function

Information Promotion Contact Matching negotiation

Channel level

Channel behavior and organization

Channel conflict Vertical marketing system Horizontal marketing system Hybrid marketing systems

Types of Vertical Marketing SystemsTypes of Vertical Marketing Systems

CorporateCommon Ownership at Different

Levels of the Channel

CorporateCommon Ownership at Different

Levels of the Channel

ContractualContractual Agreement Among

Channel Members

ContractualContractual Agreement Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

Conventional Distribution Channel vs. Vertical Marketing Systems

VerticalVerticalmarketingmarketingchannelchannel

Manufacturer

Retailer

ConventionalConventionalmarketingmarketingchannelchannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wh

ole

sale

r

Channel conflict

Horizontal conflict Vertical conflict

Vertical marketing systems

Conventional distribution VMS Corporate VMS Contractual VMS Administered VMS Franchise organization

Horizontal marketing system

Hybrid marketing channel

2.channel design decision

Analyzing consumer service needs Setting channel objectives and constraints Identifying major alternatives Evaluating the major alternatives

Identifying major alternative

Types of intermediaries Number of marketing intermediaries Responsibilities of channel members

SellingSellingcostscosts

(dollars)(dollars)

Level of sales (dollars)Level of sales (dollars)

Break-Even Cost Chart

CompanyCompanysales forcesales force

Manufacturer’s Manufacturer’s sales agencysales agency

SSBB

Number of marketing intermediaries

Intensive distribution Exclusive distribution Selective distribution

3.Channel management Decision

Selecting channel members Motivating channel members Evaluating channel members

Channel Management DecisionsChannel Management Decisions

SelectingSelecting

FE

ED

BA

CK

MotivatingMotivating

TrainingTraining

EvaluatingEvaluating

4.physical distribution and logistics management

Physical distribution(marketing logistics) major logistics function Integrated logistics management Third-party logistics

Major logistics function

Order processing Warehousing Inventory transportation

Integrated logistics management

Cross-functional teamwork inside the company Building channel partnerships

Third-party logistics

An independent logistics provider that performs any or all of the functions required to get their clients’ product to market.