Chapter 17: Distribution and Channel Management Flashcards
Distribution channel
▪ = Marketing channel (of distribution)
▪ → The Place element of the Marketing mix
▪ = A group of interdependent organizations that together make
the product available to (end) users
▪ = All organizations through which product must pass between
point of production and final consumption
▪ = “Downstream” part of supply chain
channel intermediaries
= The organizations that facilitate the distribution of products
to customers
▪ Usually organized in what is called a “supply chain”
▪ = The means by which the products are moved from producer
to final customer.
Intermediaries in distribution channel
Wholesalers
▪ Retailers
▪ Distributors
▪ Transportation companies
▪ Warehousing companies
▪ Brokers
▪ Agents
▪ Representatives
Functions of channel intermediaries
Basic question: to sell directly to the ultimate customer or to
use channel intermediaries such as retailers and wholesalers?
▪ Reconciling the needs of producers and consumers
▪ Improving efficiency
▪ Improving accessibility
▪ Providing specialist services
Reconciling the needs of producers and consumers
Two conflicting situations
Manufacturers typically sell a
large quantity of a limited range
of goods
Consumers and business usually
want only a limited quantity of a
wide range of goods
Improving efficiency
The number of transactions between
three producers and three customers
is reduced by using one intermediary.
Direct distribution == 9 transactions
With an intermediary == 6 transactions
Distribution and selling costs/effort,
therefore, are reduced.
Improving accessibility
Major divides needed to be bridged
▪ Location gap: producers and customers are geographically
separated.
* Asian cars in Europe
* Riders delivering Restaurant meals at home
▪ Time gap: the distance between production and
buying/consumption moments.
* Internet stores: 365/24/7 buying
Providing specialist services
Manufacturers are not always prepared/equipped to provide
specialist services.
▪ Intermediaries may be better prepared to
▪ Sell
▪ Provide service, credit, (extra) warranty
▪ Install/setup/configure
Multichannel distribution
Distribution may take many forms depending on the type of product,
size of organization and market.
▪ Distribution may be direct (manufacturer to consumer) or indirect
(through wholesalers, agents and retailers to the consumer)
▪ Examples of multichannel distribution include organization-specific
(high street) stores, other specialist retail outlets (e.g., Currys, PC World),
catalogue shops (Argos), agents, on-line retail stores (Amazon) and
organization-specific websites
How channel members add value
Distributors make the buying process much easier for consumers. Again, think
about what life would be like without grocery retailers.
* Help to improve distribution efficiency
* Reduce the cost of distribution
* Have necessary infrastructure
* Facilitate the information transmission
Behaviour in marketing channels
Each channel member is dependent on others
▪ Each channel member has specialized role
▪ Each channel member takes on duties that they can perform
“best”
▪ All channel members should work together and coordinate
channel selection -Market factors
Market factors
▪ Buyer behaviour → people have expectations on where to buy products
▪ Buyer needs → Product-related Information, Installation, Technical assistance
▪ Willingness of the channel intermediaries to market a product
▪ Sharing High Margins? Refusal? → Maybe hiring salespeople is better for the manufacturer
▪ Location and geographical concentration of customers
▪ Concentrated demand? → increased incentives for direct distribution
▪ Fragmentated demand? → increased need of using intermediaries
channel selection - producer factors
▪ Producer factors
▪ Lack of adequate resources to perform channel functions
* Financial, Managerial, Customer-based skills
▪ Product mix offered by the producer
* Wide mix? → direct-selling may be more cost-effective
* Narrow mix or single-product? → direct-selling costs may be unaffordable
▪ Desired degree of control of channel operations
* Key element, commonly overlooked
* Using intermediaries reduces producer control about changes in Product, Price, Promotion
channel selection - product factors
▪ Large products are normally sold directly by firms
▪ Also complex products
▪ A professional / technical selling approach may be required
▪ Highly perishable products required a very short / very efficient distribution
chain → fresh stock
▪ Several products combined in one order → parcel collection points!
channel selection - competitive factors
What if the competition controls the distribution chain?
▪ Direct-selling approach: hiring salespeople
▪ Setting up an own distribution network → may be expensive
channel selection - technology factors
Internet, e-commerce, web-based stores and apps for selling
▪ Benefits: lower distribution costs, better access to difficult target groups, more
transparancy (tracking)
▪ Disadventages: conflict between distribution territories, less control over access to
consumers
▪ Result: intensified levels of competition
intensive distribution
Large number of wholesale and retail distributors.
▪ Convenience goods, low involvement, low cost and frequent and mass
consumption.
▪ It achieves saturation coverage of the market by using all available outlets.
▪ When brands are not available to their customer, an alternative could be bought
instead.
selective distribution
▪ Limited number of wholesale and retail distributors in a market.
▪ Specialty and industrial goods, with intermediate cost.
▪ Market coverage is achieved using a limited number of outlets in a geographical
area where products are sold.
▪ Advantages
▪ Possibility to build close relationships with distributors: e.g., training
exclusive distribution
Only one unique wholesale or retail distributor in a market.
▪ Specialized or luxury products, high involvement, high cost and less frequent
purchase.
▪ It reduces purchaser’s power to negotiate prices and other selling conditions
▪ Very close collaboration between producers and sellers
▪ Examples:
▪ Car dealers in specific cities or towns
conventional distribution
manufacture-wholesale-retail-consumer
The producer has little or no
control over these
intermediaries.
Pros: specialization
Cons: Hard bargaining and,
often, conflict
vertical marketing system
retail close to manufacture with wholesale in the middle
Manufacturing and distribution
owned/managed/organized by a single
company.
The manufacturer can command
considerable co-operation from
wholesalers and retailers.
Contractual or guided
franchise
Contractual relationship between a manufacturer, wholesaler
or service organization (franchiser) and independent
businesspeople (franchisees) who buy the right to own and
operate one or more units in the franchise system
channel ownership
Total control over distributor activities
▪ Very common in the clothing industry
▪ E.g., Zara, H&M
channel selection criteria
Selection criteria
▪ Identifying sources
* Trade sources → prospective distributors
* Reseller enquiries → it clearly shows enthusiasm
* Customers of distributors → feedback possibility, can generate friction/conflict with the current distributor
* Field salesforce → active search for new distributors in certain territories
▪ Developing selection criteria
* Market, product and customer knowledge
* Market coverage, quality, size of the sales force
* Reputation, Financial standing
* The extend complementary/competitive products are also carried
* Managerial competence, degree of enthusiasm of managing producer’s lines
channel selection motivation
Understanding of needs and problems of distributors is key. They are linked.
▪ Distributor valuing financial incentives might respond effectively to increased
margins.
▪ Possible motivators
▪ Financial rewards
▪ Exclusivity (e.g., territorial, products)
▪ Resource support (e.g., training, field sales assistance, marketing materials,
financial assistance)
▪ Strong work relationship (e.g., planning, assurance of commitment, recognition)
channel training
Highly depends on internal competence of channel members.
▪ Some distributors have strong competence regarding on how to manage their
internal teams.
▪ Less skilled, smaller intermediaries may better appreciate support in terms of
training.
▪ Because of training, intermediaries’ effort may be turned into more effective
approaches for selling or servicing.
channel evaluation
To what extent do alternatives contribute to realizing distribution and general
goals?
▪ Economic criteria
▪ Sales volume, value, costs, profitability
▪ New clients, new accounts
▪ Marketing capabilities
▪ Position of display
▪ Quality of service to clients
▪ Market Information, feedback
▪ Control
▪ Adaptability: Long term commitments, flexibility
channel conflict - sources
Differences in goals
▪ Differences in desired product
line
▪ Multiple distribution channels
▪ Inadequacies in performance
avoiding/resolving channel conflict
Developing a partnership
approach
▪ Training
▪ Market positioning
▪ Improving performance
▪ Channel ownership
▪ Coercion
channel conflict
Disagreement with channel members on goals, task division
or reward: Who should do what, against which reward?
Horizontal conflict
Conflict between members on the same level
Vertical conflict
Conflict between different levels across the channel
Very common
Ethical issues in distribution
Slotting allowances
▪ Exclusive dealing
▪ Restrictions in supply
▪ Grey markets
▪ Fair trading
Emerging trends in distribution
Lightning speed of change
▪ Digitalization and the “last mile” problem
▪ Marketplace platforms
▪ “Dark stores” and (ultra) fast delivery services
last mile problem
The ‘last mile’ is the very last part of the supply chain, just
before goods or services reach end users.
▪ For brick-and-mortar stores, it is just the moment before the purchase.
▪ For e-Commerce platforms, it happens at the delivery moment.
▪ In those moments, you, as a retailer, need to know how to
connect with customers and make them buy more.
ecommerce - last mile problem
▪ If the delivery packaging fails to meet the brand’s promise the
consumer’s impression of the brand is likely to suffer.
▪ e.g., by arriving in a cheap, plain box with unattractive or no cushioning
▪ In contrast, firms that invest even a minimal amount of
resources in their delivery packaging may be able to build or
reinforce their brand equity using a “doorstep branding”
strategy.
marketplace platform
= A platform creating a digital venue for both buyers and
sellers to transact over a product or a service.
▪ It matches potential buyers of a service or a product with
providers of that service or product.
▪ A digital marketplace plays an intermediary role between
buyers and sellers. It doesn’t own the assets.
▪ These platforms add a lot of value in highly fragmented
markets → Why?
