Marketing Channels &

Distribution
Intermediaries make distribution and selling
processes more efficient.

Intermediaries offers supply chain partners
more than they could achieve on their own.
Market Exposure
Technical Knowledge/Information Sharing
Operational Specialization
Scale of operation
The Importance of Marketing Channels

Channel Efficiency: How Intermediaries Reduce the Number of
Channel Transactions
Matching Needs with Products
Physical distribution & Logistics
Financing
Risk taking

Other Key Channel Functions
Consumer and Business Marketing Channels
Channels are most effective when:
Each member performs the tasks it does best.
Channel members cooperate to attain overall channel goals.
Channel Conflict
Horizontal Conflict: conflict among firms at the same level of
the channel (e.g., retailer to retailer).
Example: Two retailers compete to carry a suppliers exclusive product.
Vertical Conflict: conflict between different levels of the same
channel (e.g., wholesaler to retailer).
Example: Manufacturer competes with retailer in selling product to target market.
Some conflict can be healthy competition.
Channel Cooperation & Conflict
Channel Conflict: Goodyear
Goodyears conflicts
with its independent
dealers have decimated
the firms replacement
tire sales.
Copyright 2007, Prentice-Hall Inc. 10-8
Channel Conflict Example
Branded goods using the
Wolfgang Puck, T.G. I.
Fridays, Taco Bell,
Emerils, and Starbucks
names are now being sold
in grocery stores.
Look at the items at right.
Which stands the greatest
risk of causing channel
conflict? Why?
When producers,
wholesalers, and retailers
act as a unified system.

Can happen through
Outright ownership of channel
member
Contracts
Channel power

Vertical Marketing System
10-10
Franchise Organizations
Powerful force in U.S. Retail (40%+
of all sales)
Franchise Structures
Compensation Arrangements
Advantages
Brand Name Recognition
Standardized Processes and Procedures
Avoids startup hassles safer bet
Quick access to capital and huge expansion
potential

Disadvantages
Over-saturation and territorial issues
Marketing fund disputes
Quality (vs. Company-owned)
Little room for entrepreneurial creativity

Horizontal Marketing System
Two or more companies at one channel level join together
to achieve a marketing goal.
Joint Ventures
Alliances and Partnerships
Co-Marketing, Co-Distribution and Co-Branding

Multichannel Distribution System
Reaching customer segments through multiple marketing
channels. (i.e. hybrid system)
Example: You can buy Starbucks coffee from Starbucks stores or
from the Supermarket
Problems with MDSs?
Channel Innovations
Disintermediation
Occurs when producers sidestep
intermediaries and sell directly to final
buyers, or when radically new types of
channel intermediaries displace
traditional ones.
The Internet has made the disintermediation of
many traditional retailers possible.
Disintermediation Example
Calyx & Corolla sells
fresh flowers and
plants direct to
consumers over the
phone and via the
Web, drastically
reducing the time it
takes flowers to reach
consumers via
conventional retail
channels.
(Non-) Disintermediation Example
Black & Decker chose to avoid disintermediation by not using the
Internet to sell their products. Instead B&D directs consumers to stores
that carry its products.
Company sales force vs. Manufacturers Rep
Company sales force
Employed directly by the firm in outside or inside sales
capacity.
Manufacturers agency/representative
Independent firms whose sales people handle several
companies products simultaneously

Primarily a question of size and life cycle stage.
Outsourcing Distribution
How many intermediaries?
Intensive distribution
Stock product in as many outlets as possible.
Exclusive distribution
Granting a limited number of outlets the exclusive right
to sell product.
Selective distribution
Somewhere in between Intensive and Exclusive
Distribution.

Does the company always get to choose?
Distribution Strategy Alternatives
Selective Distribution
Maytag uses selective distribution like
many furniture and appliance
manufacturers.
The Where to Buy page on their Web
site assists buyers in finding stores that
carry the Maytag brand.
Every country has its own unique distribution system
that has evolved over time.
Examples
Japan:
complex, multi-layered distribution systems
hard for Western firms to penetrate.
India and China:
inefficient distribution systems despite their enormous size.
separate countries within a country
Poorer but improving transportation infrastructures

International Channel Decisions
Public Policy and Distribution
Exclusive distribution &
dealing (upstream or
downstream)

Exclusive territorial
agreements (franchising)

Tying agreements (illegal)

If Xerox required every business who
bought or leased their copiers to also
buy their brand of paper, it would be
a tying agreement.
Definition: The physical flow of goods,
services, and related information from points
of origin to points of consumption.
Includes:
Inbound distribution
Outbound distribution
Reverse distribution

Marketing Logistics
Inventory Management
Must strike a balance
between
too much and too little
inventory
buffers and shortages
carrying costs and
ordering/setup costs

Just-in-time inventory
systems

RFID or Smart Tag technology

RFID technology promises to
automate the entire distribution
chain, resulting in significant cost
savings.
RFID The Wave of the Future?
Key benefits
fewer stock-outs
reduced logistics labor costs
more accurate inventory
information
more efficient flow of goods
happier customers

Retailers may soon mandate
supplier use of RFID.
Transportation
Trucks
Railroads
Ships
Pipelines
Air
Internet
Intermodal
transportation

Intermodal Transportation
Intermodal transportation combines two or more modes of transportation.
Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water
and rail; Airship = air and water.
Third-Party Logistics
Most small and medium
size companies outsource
transportation to UPS or
other logistics providers.