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Distribution is one of the classic 4 Ps of marketing (product, promotion, price, placement a.k.a. distribution) Its a key element in your entire marketing strategy It helps you expand your reach and grow revenue.

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Learning Goals
1. Understand why companies use distribution channels and discuss the functions that these channels perform 2. Discuss how channel members interact and how they organize to perform the work of the channel 3. Identify the major channel alternatives open to a company 4. Understand how companies select, motivate, and evaluate channel members

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Learning Goals
1. Understand why companies use distribution channels and discuss the functions that these channels perform 2. Discuss how channel members interact and how they organize to perform the work of the channel 3. Identify the major channel alternatives open to a company 4. Explain how companies select, motivate, and evaluate channel members 5. Discuss the nature and importance of physical distribution

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Nature & Importance of Distribution Channels

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.

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Nature & Importance of Distribution Channels

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

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Nature & Importance of Distribution Channels


How Channel Members Add Value
Fewer contacts Match product assortment demand with supply. Bridge, time, place, and possession gaps that separate products from users

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Nature & Importance of Distribution Channels


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.

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Learning Goals
1. Understand why companies use distribution channels and discuss the functions that these channels perform 2. Discuss how channel members interact and how they organize to perform the work of the channel 3. Identify the major channel alternatives open to a company 4. Explain how companies select, motivate, and evaluate channel members 5. Discuss the nature and importance of physical distribution

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Channel Behaviour and Organization


Channel Conflict

Occurs when channel members disagree on roles, activities, or rewards.

Types of Conflict:

Horizontal conflict: occurs among firms at the same channel level. Grocery store vs. drug store. Vertical conflict: occurs among firms at different channel levels producer versus wholesaler producer versus retailer Channel Power is the ability to influence or determine behaviour of others in channel. Based on expertise, rewards and sanctions

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Producer/ Retailer Conflict


Small suppliers complaints about large department stores:
Onerous logistical demands. Pressure to cut prices. Demands to give the stores exclusivity. Forcing suppliers to contribute advertising and promotional dollars to the stores. Requiring suppliers to invest in elaborate computerized inventory systems.

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Producer/ Retailer Conflict


Small suppliers complaints about discounters: Being asked to supply their goods on consignment. Being asked to deal directly with the retailers headquarters and to give to the retailer an amount equal to the commission that would have gone to manufacturers agents. Responses from smaller suppliers:

Quit doing business with big retailers whose demands are too strict and outlandish. Become a retailer. Merge with another manufacturer.

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Producer/ Retailer Conflict


Dealer Selection: Refusing to sell to some firms. Can be done carefully. Exclusive Dealing involves shutting out competitors, giving most business to one firm. Tying Contracts involves providing one item on condition other lines be carried as well. Exclusive Territories can create monopolies.

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Channel Behaviour and Organization


Conventional Distribution Channels
Consist of one or more independent channel members Each seeking to maximize its own profits Often result in poor performance

Vertical Marketing Systems


Producers, wholesalers, and retailers act as a unified system One channel member owns, has contracts with, or has so much power that they all cooperate Benefits should include greater control, less conflict, and economies of scale due to the size of the system

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Channel Behaviour and Organization


Vertical Market System (VMS)
Corporate VMS Contractual VMS Administered VMS

Integrates successive stages of production and distribution under single ownership channel ownership is established through common ownership Coordination and conflict through regular organizational channels

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Channel Behaviour and Organization


Vertical Market System (VMS)
Corporate VMS Contractual VMS Administered VMS

Individual firms who join through contracts Franchise organizations


Manufacturer-sponsored retailer franchise system Manufacturer-sponsored wholesaler franchise system Service-firm-sponsored retailer franchise system

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Channel Behaviour and Organization


Vertical Market System (VMS)
Corporate VMS Contractual VMS Administered VMS

Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer

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Channel Behaviour and Organization


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
Horizontal Marketing System Hybrid Marketing System

Two or more companies at one channel level join together to increase coverage Example: Banks in Grocery Stores

A single firm sets up two or more marketing channels to increase coverage Example: Retailers, Catalogs, and Sales Force

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Well- Designed Distribution Strategy

Specify the role of distribution within the marketing mix

Select type of distribution channel

Determine appropriate intensity of distribution

Choose specific channel members

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Selecting Type of Channel


some firms will distribute directly; others will use a number of intermediaries:

Producer consumer (direct) Producer retailer consumer Producer wholesaler retailer consumer Producer agent retailer consumer Producer agent wholesale retailer consumer

when would each of these be considered?

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Major Distribution Channels


For distribution of consumer goods, five different types of channels are widely used.
Business goods are normally distributed through four major types of channels. There are only two common channels of distribution for services. Some producers are not content to use only a single distribution channel and use multiple channels (a. k. a dual distribution) Multiple channels can aggravate middlemen and cause conflicts in the channels.

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Consumer Channels
PRODUCERS OF CONSUMER GOODS

Agents

Agents

Merchant wholesalers

Merchant wholesalers

Retailers

Retailers

Retailers

Retailers

ULTIMATE CONSUMERS

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Business Channels
PRODUCERS OF BUSINESS GOODS

Agents

Agents

Merchant wholesalers (industrial distributors)

Merchant wholesalers (industrial distributors)

BUSINESS USERS

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Service Channels
PRODUCERS OF SERVICES

Agents

ULTIMATE CONSUMERS OR BUSINESS USERS

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Learning Goals
1. Explain why companies use distribution channels and discuss the functions that these channels perform 2. Discuss how channel members interact and how they organize to perform the work of the channel 3. Identify the major channel alternatives open to a company 4. Explain how companies select, motivate, and evaluate channel members

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Channel Design Decisions


Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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Evaluate how your end-users need to buy

Your distribution strategy should deliver the information and service your prospects need. For each customer segment, consider: How and where they prefer to buy Whether they need personalized education and training Whether they need additional products or services to be used along with yours Whether your product needs to be customized or installed Whether your product needs to be serviced

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Match end-user needs to a distribution strategy

If your end-users need a great deal of information and service, your company can deliver it directly through a sales force. You can also build a channel of qualified resellers or consultants. The size of the market and your price will probably dictate which scenario is best.
If the buying process is fairly straightforward, you can sell direct via a website/catalog or perhaps through a wholesale/retail structure. You may also use an inbound telemarketing group or a field sales team. If you need complete control over your products delivery and service, adding a channel probably isnt right for you.

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Analyse Consumer Service Needs


Focus on need of end consumer Good Distribution Program

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Channel Design Decisions


Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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Setting Channel Objectives

Set channel objectives in terms of targeted level of customer service

Many factors influence channel objectives


Nature of the company (size/financial position) and its products Marketing intermediaries Competition Marketing environment

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Considerations in Channel Choice


Market Considerations: Type of market, concentration, potential customers, order size. Product Considerations: Consider unit value, perishability, technical nature of product. Intermediaries Considerations: Services offered, availability, attitude, dominance. Company Considerations: Desire for channel control, management, money and services seller can provide to support sales.

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Channel Design Decisions


Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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Number of marketing intermediaries

INTENSIVE Distribution through every reasonable outlet in a market

SELECTIVE Distribution through multiple, but not all, reasonable outlets in a market

EXCLUSIVE Distribution through a single wholesaling middleman and/or retailer in a market

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Types of Intermediaries
Company sales force Manufacturers agency Industrial distributors

Responsibilities of Channel Members

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Multiple Channels
Wholesaler/Distributor Direct/Internet Direct/Catalog Direct/Sales Team Value-Added Reseller (VAR) Consultant Dealer Retail Sales Agent/Manufacturers Rep

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Build your distribution channel


If youre setting up a distribution channel with one or more partners, treat it as a sales process: Approach the potential channel partner and sell the value of the partnership. Establish goals, service requirements and reporting requirements. Deliver inventory (if necessary) and sales/support materials.

Train the partner.


Run promotions and programs to support the partner and help them increase sales.

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Three distribution Examples


SELL THROUGH A DEALER NETWORK SELL THROUGH A VAR (VALUE-ADDED RESELLER)
You sell a product to a company who bundles it with services or other products and resells it. That company is called a Value Added Reseller (VAR) because it adds value to your product.

DIRECT TO END USERS

You have a sales team that sells directly to Fortune 100 companies.

You have a second product line for small businesses. Instead of using your sales team, you sell this line directly to end-users through your Your dealers are essentially website and marketing your customers, and you have campaigns. a strong program to train and support them with marketing You have two markets and campaigns and materials. two distribution channels.

You sell a product through a geographical network of dealers who sell to end-users in their areas. The dealers may service the product as well.

A VAR may work with an enduser to determine the right products and configurations, and then implement a system that includes your product.

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Channel Design Decisions


Analyzing Consumer Service Needs
Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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Evaluating Major Alternatives

AC

Economic Criteria

Control Issues

Adaptive Criteria

EC

CI

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Learning Goals
1. Explain why companies use distribution channels and discuss the functions that these channels perform 2. Discuss how channel members interact and how they organize to perform the work of the channel 3. Identify the major channel alternatives open to a company 4. Explain how companies select, motivate, and evaluate channel members

Channel Management Decisions


Selecting
FEEDBACK

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Motivating

Evaluating

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Channel Management Decisions


Selecting channel members Managing and motivating channel members Evaluating channel members Which characteristics are important?
Years in business Lines carried Growth and profit record Cooperativeness and reputation Type of customer Location

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Channel Management Decisions


Selecting channel members Managing and motivating channel members Evaluating channel members Partner relationship management (PRM) for long-term partnerships Software available to coordinate members

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Channel Management Decisions


Selecting channel members Managing and motivating channel members Evaluating channel members Check channel performance of:
Sales Inventory Customer delivery Promotion and training Customer service

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Public Policy and Distribution Decisions

Exclusive dealing. Sellers cannot demand exclusivity for their product from resellers if it can be proven that it will lessen competition or create a monopoly Exclusive territories. Sellers may grant exclusive territories, but may have trouble demanding that resellers deal only within that exclusive territory Tying agreements. demanding that resellers buy and/or stock all products within a product line, as a condition of doing business. Not illegal but a source of much channel conflict

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Public Policy and Distribution Decisions

Dealers rights. Producers are free to select dealers, but are limited in their ability to terminate dealers; they must show cause, and cannot drop dealers who refuse to participate in doubtful legal arrangements Sources of supply. Ethical concerns over supply sources from countries with human rights violations or use the proceeds to fund armed conflict

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Distribution Channels for Services


1. List other products or services your customers use. What problem are your customers trying to solve when they buy from you? Are there complementary services or products that come before or after they join you? What else may be on your decision makers plate at the time they buy from you?

2. Find organizations who already have access to your prospects. Think broadly about
Media they consume (online content, podcasts, industry publications, newspapers, etc.) Services they subscribe to Consultants or vendors they work with Companies they buy from regularly Organizations they belong to Events they attend

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Ways to Improve Channel Performance

1.Make it a priority

2. Develop measurements and track performance


3. Communicate 4. Drive revenue through the channel 5. Avoid pricing conflicts 6. Address conflicts swiftly