Place/Distribution channels

Question 1

What are distribution channels?

Answer 1

A network of organisations, including manufactures, wholesalers, agents and retailers, that create time, place and possession value for consumers. They are a source of efficiency and can deliver benefits to customers.

Question 2

What are the characteristics of distribution channels?

Answer 2

channel length and intensity of distribution at various levels

Question 3

What does length of distribution channels refer to?

Answer 3

The number of intermediaries. For example, does the good go straight to the consumer from the manufacturer, or to the consumer, from the manufacturer, wholesaler and then retailer? 
Channel members perform a range of important functions in addition to moving the product from the manufacture to the consumer.

Question 4

What does intensity of distribution channels at various levels refer to?

Answer 4

the degree to which products are stocked in various outlets

Question 5

What are the types of intensity of distribution channels at various levels?

Answer 5

Intensive, exclusive, and selective

Question 6

What is Intensive distribution?

Answer 6

Intensive distribution occurs when firms stock a product in as many outlets as possible. Typically used for convenience goods and shopping products.

Question 7

What is exclusive distribution?

Answer 7

Exclusive distribution is where few stores are granted exclusive rights to distribute the product in specific territories. Typically used for prestige or specialty goods, which are infrequently purchased and require significant after-sales service. Keeps the focus simple, allows control over the brand. inventory is reachable and available, localisation benefits, trust is key, dependency on one distribution for unknown brands.

Question 8

Wha is selective distribution?

Answer 8

Involves the use of more than one, but less than all the intermediaries who are willing to carry a particular product. Typically used for heterogeneous shopping products (goods that are difficult to substitute, significantly different) or those that consumers seeks out.

Question 9

What are the 3 determinants of channel structure?

Answer 9

1. distribution functions
2. economics of distribution function
3. management’s desire for distribution control

Question 10

What are distribution functions?

Answer 10

functions of the distribution channel include research, promotion, contact, negotiation, physical distribution, financing, risk-taking and matching.

Question 11

What is ‘matching’ in distribution functions?

Answer 11

‘Matching’ involves resolving discrepancies between consumers and producers, possibly through quality, assortment, time and place.

Question 12

What is economics of distribution function?

Answer 12

Involves the specialisation or division of labour (transaction efficiency). Lower transaction costs for manufacturers and customers achieved with intermediaries.

Question 13

What is management’s desire for distribution control?

Answer 13

This is related to the ‘length’ of the distribution channel in determining the degree of control vs. market coverage. The shorter the channel structure (less intermediaries), the higher the degree of management’s control. But firms often have to trade-off efficiency for control in channels.

Question 14

Why is a multi-channel structure important?

Answer 14

A multi-channel structure is increasingly important, as customers begin to expect multiple ways to interact with the firm. More channels provide consumers with more information.

Question 15

What is an example of why multi-channel structure is important?

Answer 15

Consumers who shop across a number of channels (e.g. physical stores, internet, catalogs), spend about four times more annually than those who shop in just one.
For example, a customer may use the internet to recognise the need for the product and search information about it. Then, they may decide to purchase the product in stores.

Question 16

How can multi-channel models drive a firm’s performance?

Answer 16

• Low cost access to new markets
• Increased customer satisfaction and loyalty
• The creation of a strategic and knowledgeable advantage. 
Therefore, firms should invest in these channels.

Question 17

What is omni-channel shopping?

Answer 17

Omni channel (“all” channels) unifies sales and marketing tot create a single commerce experience across your brand. Seamless and effortless, high-quality customer experiences that occur within and between contact channels. Omni-channel shopping is about allowing consumers to purchase wherever they are while communicating in a way that is in tune with why they use a given channel and showing awareness of their individual stage in the customer lifecycle.

Question 18

How does conflict arise within and between distribution channels?

Answer 18

1. Horizontal conflict

2. Vertical conflict

Question 19

What is horizontal conflict?

Answer 19

Refers to conflict that arises between firms at the same level of the channel. For example, conflict can occur at the “retail level”, among different retailers in the same level of the distribution process.

Question 20

What is vertical conflict?

Answer 20

Refers to conflict that arises between different levels of the same channel. This is the more typical form of conflict, because there is often disagreements about who gets to appropriate the most value at various stages of the channel.

Question 21

What are the ways that firms can manage channel conflict through channel organisation?

Answer 21

1. Conventional marketing channels

2. Vertical marketing systems

Question 22

What are conventional marketing channels?

Answer 22

Where channel members act independently, with the aim of maximising their own profits, even at the expense of maximising the profits for the system as a whole. Results to price wars, enforcement and execution of contracts.

Question 23

What are vertical marketing systems (VMS)?

Answer 23

Where channel members act as a unified system. This is a more integrated approach to managing a channel, where firms move away from managing their own interest, and instead focus on collaboration by bringing channel members together.

• VMS achieve the reduction in horizontal or vertical conflict.

Question 24

What is vertical integration?

Answer 24

Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product (backward integration, forward integration)

Question 25

What is corporate VMS?

Answer 25

Where successive stages of production and distribution are combined under single ownership, in order to maintain unity or minimise conflict. Tends to be expensive.

Question 26

What is contractual VMS?

Answer 26

Where independent firms at different levels of production and distribution integrate their programs on a contractual basis. Channel members can approximate ownership and the corporate structure through contracts. Works to achieve the same thing, but is achieved through writing and executing contracts. The contractual VMS is a weaker form of VMS, as contracts tend to be incomplete. 
May include: wholesaler-sponsored voluntary chains, retailer cooperatives, and franchise organisations who align their interests though contracts.

Question 27

What is administered VMS?

Answer 27

Where successive stages of production and distribution are coordinated through the size and power of one of the parties. Coordination might also be achieved through relational means; forging and building long-term relationships through mutual understandings, trust, norms and reciprocity (instead of through cooperation or contracts). However, these do not lead to coordination and compliance.

Question 28

What may influence the nature and design of the channels?

Answer 28

Customer, product, intermediary, competitive and company characteristics

Question 29

What are the 3 customer characteristics?

Answer 29

1. long channels
2. shorter channels
3. multiple routes to market

Question 30

What are long channels?

Answer 30

There is a widely dispersed customer population, small amounts are purchased frequently. So, there needs to be many retailers where the good available so that it can be easily accessible for consumers. No service required (e.g. toothpaste, toilet paper).

Question 31

What are shorter channels?

Answer 31

used for high involvement/specialty goods, high service component, where less retailers are required.

Question 32

What are multiple routes to market?

Answer 32

having an element of short and long channels, direct or indirect (through intermediaries)

Question 33

What does product characteristics include?

Answer 33

1. bulky product
2. non-standardised products
3. products requiring installation or maintenance service (short channels)
4. high unit value products
5. perishable products

Question 34

What are bulky products?

Answer 34

short channel; we don’t want handling

Question 35

What are non-standardised products?

Answer 35

short channels; need to cater the product to the customer’s needs, which requires more service components

Question 36

What are high unit value products?

Answer 36

short channels; because they are high involvement products so you will have customers come to you

Question 37

What are perishable products?

Answer 37

long channels, usually homogenous products, BUT the contingency of its perishability means that it will require a SHORT channel - need to be purchased quickly

Question 38

How does PLC have an impact on the type of channel we use?

Answer 38

1. Introduction stage: using more limited distribution channels through exclusive or selective channels. Channels bear a larger share elf the costs of buyer creation. Novelty seeking type of customers.
2. Growth stage: In growth markets, high volume channels are introduced, begin to make the product mainstream.
3. Maturity stage: in more mature markets, where customers tend to be price sensitive, firms can increase the number of outlets, lower price, lower service outlets, build direct distribution channels.
4. Decline stage: limited outlets or direct distribution channels only

Question 39

How does intermediary characteristics affect nature of channel structure?

Answer 39

Intermediary characteristics might effect the nature of channel structure, reflecting the strengths and weaknesses of different types of intermediaries in handling key tasks. Key issues of channel member include selection and monitoring.

Question 40

Channel motivations:

Answer 40

positive vs. negative actions

Question 41

Competitive characteristics:

Answer 41

• Tension between distributing near competitors and avoiding competition.
• Strategic advantage comes from avoiding competition by distributing directly to customers.
• If market competition is high, the company will choose the maximum kinds of channels for reaching customers
• If market competition is low, the company will focus on improvement of quality and choose only convenient channels for reaching customers.

Question 42

What are the type of intermediary characteristics?

Answer 42

channel motivation, competitive and company characteristics

Question 43

What are the types of company characteristics?

Answer 43

1. Company size and Financial resources (more channel functions are used with greater resources)
2. The Product Mix (firms favour exclusive or selective dealers with greater depth of the product mix)
3. Company values proposition (e.g. efficient delivery, high levels of customer service)

Question 44

What are the product mix in company characteristics?

Answer 44

• Width (breadth): pertains to the number of product lines the company sells
• Length: total number of products/items in your company’s product mix
• Depth: total number of variations for each product.
• Variations can include size, flavour, and any other distinguishing characteristics
• Consistency: how closely related product lines are to one another
• Firm with greater product line depth usually favour exclusive or selective arrangements.